Investment trusts can be reluctant to ring the changes, so the upheaval at Alliance Trust in recent years has stood out among its peers (Greig Cameron writes). This week’s sale of its savings division is but the latest in a series of big, and important, strategic calls.
It’s not hard to trace the origins of Alliance’s activity. The trust — formed in Dundee in 1888 via a merger of three mortgage and land-owning companies — is a constituent of the FTSE 250 index and has an enviable track record of increasing its dividend, going back more than 50 years. But not everyone was satisfied. Elliott Advisors, that most active of activist hedge funds, began agitating for change after taking a stake in 2012.
Elliott felt that the trust was underperforming and was charging too much, and it also expressed concerns about the strategy of Katherine Garrett-Cox, Alliance’s chief executive at the time. Cue a shareholder rebellion that eventually forced out Karin Forseke, the chairwoman, in 2015. Lord Smith of Kelvin became chairman in January 2016 and weeks later Ms Garrett-Cox’s departure was announced. Lord Smith, 74, quickly instigated a review of the trust, appointed a new board and rebuffed a tentative merger approach from Lord Rothschild’s RIT Capital Partners.
Alliance has since sold its in-house fund management team to Liontrust and this week it completed the £40 million sale of Alliance Trust Investments to Interactive Investor. Other non-core assets, such as property, private equity and mineral rights, also have been for the chop.
The changes haven’t stopped there. In early 2017, the board’s plan to buy back Elliot’s 19.75 per cent stake in the trust for £620 million was agreed and that process has been completed. Meanwhile, a new approach to picking stocks was chosen in an effort to further reduce costs. Alliance brought in Willis Towers Watson to manage the process and to identify eight fund managers from around the world. Each then would pick a high-conviction global portfolio of about 20 stocks.
About £4.5 billion of shares were traded in first few weeks of the new management, with less than 5 per cent of the portfolio surviving the cull. Initial results were encouraging: the trust performed ahead of its benchmark, the MSCI All Country World Index, in the April to November period of 2017.
However, last year was less successful. Market fluctuations, particularly towards the end of the year, had an impact. The net asset value total return for the year was -5.4 per cent, compared with the benchmark’s -3.3 per cent. That said, there was a 3 per cent dividend rise to 13.55p, the 52nd consecutive increase.
Performance has improved since then, with the total return at 10.1 per cent for the first five months of 2019, just behind the 10.5 per cent for the benchmark. The star managers will have their work cut out, therefore, if the trust is to hit its goal of outperforming the benchmark by 2 per cent across rolling three-year periods.
In spite of the changes, the Association of Investment Companies placed Alliance fifth in its ranking of the most consistently outperforming firms. In the decade to the end of May, the association suggested that Alliance had performed better than the average of its peers in eight years, with a share price total return of nearly 235 per cent.
Alliance Trust shares have climbed steadily since falling to 696p shortly before Christmas. Yesterday they hit a record closing high of 812p, up 4p, or 0.5 per cent, on the day.
ADVICE Hold
WHY The dividend is solid but cautious investors may want a bit more of a track record from the multi-manager approach
Plus500
For investors in Plus500, 2019 has been a year to forget (Ben Martin writes). Only 11 months ago, shares in the online financial betting business were at a record £20.40. Last night, they closed at 562¾p — up 23¾p, or 4.4 per cent, on the day, but still badly bruised by a series of mishaps earlier in the year.
Plus500 shares hit their peak in early August 2018, a week after a clampdown by European regulators on contracts-for-difference, which allow traders to make wagers on movements in financial markets. Plus500’s business model is focused on CFDs. Founded in Israel in 2008, it was listed on London’s junior market six years ago before switching to the main market last summer. It is led by Asaf Elimelech, 38, its chief executive.
Despite its focus on CFDs, Plus500 reassured its shareholders late last year that tougher rules from the European Securities and Markets Authority were not harming its business. It came as a shock, then, when Plus500 warned in February that the crackdown would hits its profits after all. At the same time, the company also revealed for the first time the profit and loss it experienced from clients’ trading positions. It disclosed that it had made a $172 million gain in 2018 and a $103 million loss a year earlier from this side of its business, unnerving shareholders because it implied that Plus500’s profits had the potential to be far more volatile than had been thought previously. A warning in April that its quarterly revenues had dropped by more than 80 per cent then gave its shares another knock.
The trading update from Plus500 yesterday still gives investors cause to be cautious. The company expects half-year revenues of about $148 million, a 68 per cent drop from the same period a year earlier. The statement also contained no figure for expected earnings before interest, taxes and other charges, which analysts at Canaccord Genuity said was “notable by its absence”.
More positively, the update showed that the profit and loss from client trading had become more muted and thus less volatile. While Plus500 took a $28.1 million hit from this in the first quarter, it gained about $1 million in the second.
ADVICE Sell
WHY More time needed to see if the situation has stabilised
