Alliance Trust PLC : Interim Management Statement
2 November 2012
Objective
Alliance Trust is a self-managed investment company with investment trust status. Our objective is to be a core investment for investors seeking increasing value over the long term. We have no fixed asset allocation benchmark and we invest in a wide range of asset classes throughout the world to achieve our objective.
Our focus is to generate a real return for shareholders over the medium to long term by a combination of capital growth and a rising dividend.
Financial Highlights for the 3 months to 30 September 2012
| 30 September 2012 | Change (%) | Total Return (%) | |
| Share Price | 370.0p | 5.0 | 5.7 |
| NAV per share (inc income) | 436.0p | 3.0 | 3.3 |
| Discount (inc income) | 15.1% |
Key Information
| Total Assets (£m): | £2,597m | EPIC Code: | ATST |
| Net Assets (£m): | £2,447m | Year End: | 31 December |
| Total Borrowings (£m): | £150m | Date of Incorporation: | 21 April 1888 |
| Net gearing: | 6.1% | Issued Share Capital: | 562,976,146 |
| Dividends paid: | March, June, September, December |
| Total Expense Ratio: (to 31 Dec 11)* | 0.65% |
*As the reporting period was 11 months long, we have annualised on-going administrative expenses and added actual incentives paid
Source: Alliance Trust
Review of the three months to 30 September 2012
During the three months to 30 September 2012, the total shareholder return was 5.7% and the NAV total return (with debt at fair value and inclusive of income) was 3.3%.
The cum income discount traded in a tight range between 15.1% and 16.9% and finished the period at 15.1%. There were no buy backs during the period and the discount volatility was low.
Portfolio Restructuring & Activity
On 5 July, we announced a significant new approach to the management of the equity portfolio. This was the latest step in the strategy outlined by Chief Executive, Katherine Garrett-Cox, in December 2008, to return Alliance Trust to its core focus on global equities and fixed income. The aim was to transform the way in which the Trust manages its money and, as part of this process, its four regional equity portfolios were amalgamated into the existing global portfolio.
As a consequence of this, the investment team was restructured to better align the investment process with the Trust's key focus of delivering a consistently strong investment performance. Ilario Di Bon was appointed to the new role of Head of Equities, supported by a global equity team, reporting directly to Katherine Garrett-Cox as Chief Executive and Chief Investment Officer.
The portfolio has seen significant change over the period as we have moved to restructure the way in which we manage the assets. The number of direct equity holdings has reduced from around 200 to just over 110 and once the process is complete, our target is to hold less than 100 equities, which will allow the portfolio to benefit from the higher levels of conviction. We have increased our exposure to North America, while reducing our exposure to Asia. We allocated £35m to Europe in late September as we believe that the valuations for many companies are now looking increasingly compelling.
At the sector level, the biggest move was to increase our exposure to information technology (through increasing positions in Qualcomm and Samsung), which has been funded in part by selling down telecoms (we have reduced our position in Vodafone), industrials (Caterpillar & Tetra Tech) and material holdings (Elementis & Yamana Gold).
The effect of the changes can be seen in the change to our top 20 stocks. Six of the ten largest purchases were of US listed stocks, with over £83m invested in technology companies during the period. Seven of the companies in the top 20 are new to the list since the end of June and half the companies in the top 10 are listed outside the UK adhering to our renewed strategy to invest in global equities.
Alliance Trust Investments (ATI)
As at 30 September 2012, ATI's assets under management and advice reached over £1.7bn with £578m in the existing ATI funds and the remainder in the Aviva Investors SRI fund range where ATI currently provide investment advice (see below for further details).The Trust has investments worth £420m in the ATI funds. Over the last year, 8 out of the 12 funds were ranked in the top quartile of their peers and the Alliance Trust Monthly Income Bond Fund is currently the best performing fund in the Corporate Bond Sector over the last 12 months.
In July 2012, at the same time as the Trust restructured its portfolio, ATI carried out a comprehensive review of its fund range in order to focus on those capabilities where it has a truly differentiated set of skills. Accordingly, three of the seven original funds: The UK Equity Income Fund, The Asia-Pacific Equity Fund and The Japan Equity Fund were all closed. Many of the investors in these funds took the option to invest the resulting proceeds in other ATI managed funds.
On 2 August 2012, ATI announced that it had entered into an investment-advisory agreement with Aviva Investors which will see ATI take on the management of Aviva Investors' £1.2bn Sustainable and Responsible Investment (SRI) funds in due course. At the same time, the Aviva Investors SRI team moved to establish an SRI capability at ATI. It is expected that the funds will be formally transferred, and rebranded, at the end of January 2013.
At the end of September, ATI launched the Alliance Trust Dynamic Bond Fund and it was seeded with £50m. The Fund is aimed at the Institutional and Discretionary Fund Manager markets. The Fund aims to provide a positive absolute return over 12 month rolling periods whilst seeking to provide an annualised total return (a combination of growth and income) of 6% over three year rolling periods.
Alliance Trust Savings (ATS)
Patrick Mill was appointed to Managing Director of ATS in October 2012. We indicated at the Annual General Meeting that the business would be profitable on a recurring monthly basis by December 2012 and profitable in 2013 and we remain confident that this goal will be achieved.
Business streamlining continues across ATS. Following the divestment of the SSAS product at a profit of £400,000 during the first half of the year, in October 2012 it was announced that ATS had sold its Full SIPP business to Curtis Banks. Just under £3bn of assets and 6,000 customers will be transferred to Curtis Banks.
We believe that ATS is well positioned to benefit from changes that will come into effect as a result of the RDR as the platform is already RDR compliant and we will not need to make any changes to our business model in order to comply with the new regulations.
In August, annual charges were implemented on the investment dealing accounts and increases to existing annual charges were implemented on all ISA accounts.
Outlook
Despite some encouraging data from the US Labour and Housing markets, the global economic outlook remains fragile. Politics will continue to exert a disproportionate influence on market sentiment with some of the fundamental European issues far from being resolved. Many of the proposed austerity measures across Europe and the UK are still to be agreed and implemented and with the US Presidential election due on the 6th November, there is potential for investor caution and market volatility. However, we are now at the start of another earnings season which will provide us with a better insight into the fundamental position of many of our holdings and the market as a whole. Growth will be weak this year and next, but we do not expect a global recession and our central scenario assumes that a meltdown in Europe will be averted. We continue to look for stock specific themes and opportunities that will produce long-term drivers of returns and despite a challenging backdrop and being cautious in the short-term, we remain optimistic for returns over the medium-term.
Cumulative performance (%) periods to 30 September 2012
| 3 | 6 | 1 | 3 | 5 | 10 | |
| Months | Months | Year | Years | Years | Years | |
| Share Price | 5.0 | 0.5 | 14.9 | 19.7 | 2.5 | 76.2 |
| NAV* | 3.0 | -0.3 | 14.9 | 15.9 | -2.0 | 75.5 |
Source FactSet & Fundamental Data
*NAV is calculated with debt at fair value and including accrued income, for all periods except the 10 year NAV return, which is done on an ex-income basis
Past performance is not a guide to future performance.
Asset Allocation (%)
| 28 Sep 2012 | 29 Jun 2012 | |
| Equities | 86.7 | 89.9 |
| Fixed Income | 7.5 | 5.3 |
| Private Equity | 4.4 | 3.9 |
| Operating Subsidiaries | 0.9 | 1.0 |
| Property | 0.9 | 0.9 |
| Cash | 5.0 | 10.3 |
| Other Assets | 0.7 | 1.3 |
| Gross Assets | 106.1 | 112.6 |
| Gearing | (6.1) | (12.6) |
| Net Assets (incl income) | 100.0 | 100.0 |
Source: Alliance Trust
Equity portfolio geographic breakdown (%)*
| 28 Sep 2012 | 29 Jun 2012 | |
| United Kingdom | 34.8 | 37.9 |
| North America | 42.0 | 32.7 |
| Asia | 10.2 | 19.1 |
| Europe Ex UK | 12.2 | 10.2 |
| Emerging Markets | 0.8 | 0.2 |
Source: Alliance Trust
Equity portfolio sector allocation (%)*
| 28 Sep 12 | 29 Jun 12 | |
| Financials | 20.0 | 18.4 |
| Health Care | 13.8 | 11.3 |
| Information Technology | 12.9 | 9.5 |
| Industrials | 11.9 | 14.5 |
| Energy | 11.5 | 12.6 |
| Consumer Staples | 10.2 | 9.8 |
| Consumer Discretionary | 8.1 | 8.4 |
| Materials | 6.5 | 8.9 |
| Utilities | 3.0 | 2.9 |
| Telecommunication Services | 2.1 | 3.5 |
Source: Alliance Trust
Equity portfolio top 20 holdings*
| 29 Jun 2012 | Direction | 28 Sep 2012 | Holding | Country | % of Equity Portfolio |
| 1 | - | 1 | Royal Dutch Shell | UK | 2.3 |
| 2 | - | 2 | BP | UK | 2.3 |
| 3 | - | 3 | GlaxoSmithKline | UK | 2.2 |
| 6 | Up | 4 | Pfizer | US | 2.0 |
| 8 | Up | 5 | Apple | US | 1.8 |
| 4 | Down | 6 | HSBC | UK | 1.6 |
| 15 | Up | 7 | Diageo | UK | 1.6 |
| - | New | 8 | Express Scripts | US | 1.5 |
| 9 | - | 9 | American Tower | US | 1.5 |
| - | New | 10 | Qualcomm | US | 1.4 |
| 10 | Down | 11 | Prudential | UK | 1.4 |
| 5 | Down | 12 | British American Tobacco | UK | 1.4 |
| - | New | 13 | United Technologies | US | 1.3 |
| 16 | Up | 14 | InterOil | US | 1.3 |
| - | New | 15 | Unilever | UK | 1.2 |
| - | New | 16 | Microsoft | US | 1.2 |
| - | New | 17 | Samsung Electronics | S Korea | 1.2 |
| 13 | Down | 18 | AstraZeneca | UK | 1.2 |
| - | New | 19 | Enterprise Products | US | 1.2 |
| 14 | Down | 20 | National Grid | UK | 1.2 |
Source: Alliance Trust
*Weightings are calculated on a look-through basis whereby the Trust's exposure is combined with that of its holdings in Alliance Trust Investments' funds in order to calculate total exposure.
The views, information and data in this statement should not be deemed as a financial promotion or recommendation. Alliance Trust PLC, Alliance Trust Savings and Alliance Trust Investments are not authorised to give financial advice.
For Further Information, please contact:
Evan Bruce-Gardyne
Head of Investor Relations,
Alliance Trust PLC
Tel: +44 (0)1382 321169
Email: investor@alliancetrust.co.uk
Web: www.alliancetrust.co.uk
James Leviton / Clare Dundas
RLM Finsbury
Tel: +44 (0)20 7251 3801
Email: alliancetrust@rlmfinsbury.com
Web: www.rlmfinsbury.com
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.
Source: Alliance Trust PLC via Thomson Reuters ONE
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