Alliance Trust PLC : Interim Management Statement

Objective

Alliance Trust (the Trust) is a self-managed investment company with investment trust status. The Trust qualifies as an alternative investment fund and is authorised by the Financial Conduct Authority as an alternative investment fund manager in respect of the management of its own assets.

Our objective is to be a core and trusted investment for investors seeking attractive and consistent returns over the long term. We have no fixed asset allocation benchmark and take a high conviction approach to investing in a wide range of asset classes globally.

Alliance Trust's focus is on generating real returns for shareholders over the medium to long term by a combination of capital growth and a consistently rising dividend - our "investing for generations" proposition. As a major investor and custodian for shareholders' savings, we take our stewardship responsibilities very seriously. Alliance Trust provides services and products that create wealth and security for our shareholders and customers, ensuring they have a stronger financial future.

Our investment business is gaining traction and credibility in the market. It leverages Alliance Trust's inherent capabilities and continues to grow its £1.8bn of third party assets under management. We are focused on strengthening our sustainable future and fixed income fund ranges - Alliance Trust Investments (ATI) is the third largest manager of Sustainable and Responsible Investment (SRI) funds in the UK. Five out of the nine funds that we manage with a 3 year track record are ranked above median over that time frame, and performance continues to strengthen.

Alliance Trust Savings' (ATS) business is expected to benefit from substantial growth on the back of pensions and ISA reforms and the second part of the Retail Distribution Review, given that ATS's flat fee charging structure is particularly attractive to high balance accounts. Assets under administration now exceed £6.1bn with scale benefits beginning to materialise. Customers are increasingly turning to ATS for its transparent flat-fee pricing proposition, a broad fund choice and excellent customer service.

Financial Highlights for the 3 months to 30 September 2014

	30 September 2014	Change (%)	Total Return (%)
Share Price	452.3p	1.5	2.1
NAV per share (inc income)	517.0p	0.9	1.1
Discount (inc income)	12.5%

Key Information
Total Assets (£m):	3,235	EPIC Code:	ATST
Net Assets (£m):	2,855	Year End:	31 December
Total Borrowings (£m):	380	Date of Incorporation:	21 April 1888
Gross gearing:	13.3%	Issued Share Capital:	553,359,146

Dividends paid:	March, June, September, December
Ongoing Charges Ratio (to 31 Dec 13):	0.75%
Source: Alliance Trust

Review of the three months to 30 September 2014

• Total Shareholder Return (TSR) for the quarter was 2.1% which ranked in the second quartile compared to other global trusts
• Net Asset Value Total Return (NAVTR) for the quarter was 1.1% which ranked just outside the second quartile compared to other global trusts
• Alliance Trust's TSR and NAVTR are now ranked in the second quartile over 3, 4 and 5 years.
• Investment process strengthened with Peter Michaelis' appointment as Head of Equities and Simon Clements as lead manager for the equity portfolio of the Trust
• We expect annualised cost savings of £2m as a result of the reorganisation of the equity team
• The Alliance Trust Dynamic Bond Fund generated £11m of inflows during the period
• Assets under administration at ATS rose by 3.4% to £6.1bn in the quarter

The Trust's Total Shareholder Return for the third quarter of 2014 was 2.1% while the NAV Total Return was 1.1%. This solid performance was achieved in the context of increasing market uncertainty driven by geopolitical developments and continuing macroeconomic concerns in key markets.

The cum income discount traded in a wider than normal range reaching a high of 14.5% in the lead up to the Scottish referendum vote, followed by a post vote low of 11.8%,  finishing the period at 12.5%. This widening of the discount ahead of the vote was consistent with many other Scottish incorporated investment trusts. The Trust bought back 2.85m shares over the period, representing 0.52% of the issued share capital at a cost of £12.6m, and paid out the second quarterly dividend of 2.4585p per share at a total cost of £13.6m.

Portfolio update

The only significant changes to the equity portfolio implemented during the quarter were increased holdings in WPP, the UK based global advertising company, and in HSBC.  These have been funded by sales in Glencore, Ascendas REIT and Experian. We have reduced our holdings in the Alliance Trust Monthly Income Bond Fund and the Alliance Trust Global Thematic Opportunities Fund and used the proceeds to seed £10m into each of the Alliance Trust Sustainable Future (ATSF) Cautious Managed and Defensive Managed funds.

There are now 85 equities in the portfolio, providing a balance between conviction investments and diversification. The table below shows our top 20 holdings.

Gross gearing fell slightly from 13.4% to 13.3% and the total global equity exposure has risen from 97.2% to 98.1% of Net Asset Value. Fixed Income exposure has reduced slightly from 6.6% to 6.2% as a result of the portfolio changes referred to above. This asset allocation stance is consistent with our view that there are significant opportunities for equity investors over the medium and longer term, balanced with our requirement for yield. At a sector level Financials, Health Care and Information Technology represent 53.3% of the overall exposure.  

Equity portfolio top 20 holdings*

30 June 2014	Change	30 Sept 2014	Holding	% of Equity Portfolio
1	-	1	Visa	3.1
2	-	2	Walt Disney	2.9
4	Up	3	CVS Health Caremark	2.6
3	Down	4	Pfizer	2.5
6	Up	5	Accenture	2.4
7	Up	6	Google	2.3
5	Down	7	Qualcomm	2.2
8	-	8	Prudential	2.2
16	Up	9	Amgen	1.9
9	Down	10	Enterprise Products Partners	1.9
11	-	11	Express Scripts Holding	1.9
-	New	12	WPP	1.8
10	Down	13	United Technologies	1.8
-	New	14	HSBC	1.8
13	Down	15	Intesa Sanpaolo	1.7
12	Down	16	Wells Fargo	1.7
14	Down	17	National Grid	1.7
17	Down	18	Reckitt Benckiser	1.6
15	Down	19	SAP AG	1.6
20	-	20	Roche	1.6

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.

Portfolio management change

On 25 September 2014, we announced that Alliance Trust had created a single equity investment team, led by Peter Michaelis as Head of Equities for Alliance Trust, reporting to Katherine Garrett-Cox. Simon Clements, a global equities investment manager with Alliance Trust, has taken on responsibility for the equity portfolio of the Trust. Both Peter and Simon joined Alliance Trust in August 2012 and have been responsible for the management of the ATSF range of funds. Simon will continue to manage the ATSF Global Growth Fund, which ranked in the second quartile of its peer group over three years.

As a consequence of these changes, we have rationalised the resourcing of the equity team and five members of the team have since left the group. We expect annualised cost savings of £2m as a result.

The Trust will continue to be an unconstrained global trust and the thematic investment approach remains unchanged. It will be managed on a high conviction, bottom-up stock picking basis, with consideration of Environmental, Social and Governance factors forming an integral part of the investment process. This investment approach is consistent with our long-term "Investing for Generations" investment philosophy and many of the existing holdings have already been subjected to this scrutiny. The portfolio will inevitably evolve over time, but the investment team does not expect to undertake a wholesale restructuring of the portfolio. The Trust remains committed to investing for the long term, in order to match the investment horizon of our predominantly private shareholder base more closely and deliver a combination of capital growth and a consistently rising dividend.

Operations

In September 2014, we completed the latest phase of the programme to outsource the administration of certain of our middle and back office investment functions to Bank of New York Mellon. These changes facilitate the provision, by our third party provider, of middle and back office investment functions in a single, scalable and cost effective manner. In addition, by outsourcing the administration of these functions, we will no longer have to bear the full cost and associated risk of developing new systems to meet changing requirements.

Alliance Trust Investments

	30 June 2014	Fund Flows	Performance uplift	30 Sept 2014
3rd Party AUM	£1,822m	(£5.4m)	£18.1m (1.0%)	£1,835m

Source: Alliance Trust

Alliance Trust Investments manages £2,256m of assets under management (AUM), of which £1,835m is on behalf of third parties. By fund, the most significant inflows during the quarter were c£17m into the fixed income funds, primarily into the Alliance Trust Dynamic Bond Fund. This was offset by outflows of c. £19m from the ATSF Pan-European Equity Fund. Five out of the nine funds that we manage that have a 3 year track record are ranked above median over that time frame.

Our ATSF fund range is attracting increased interest from intermediaries, charities and universities who are seeking managers that can provide both a sustainable approach to investment and good returns. We added two new funds, the Alliance Trust Sustainable Futures Cautious Managed Fund and the Alliance Trust Sustainable Futures Defensive Managed Fund to the range in July, and we have created the first risk profiled range of SRI funds in the UK. We are currently undertaking a nationwide sales campaign to promote our ATSF fund range and we have been encouraged by the depth of interest and the level of engagement by each of the audiences.

Within our fixed income portfolio of funds, we are particularly pleased with the progress of the Alliance Trust Dynamic Bond Fund, which now has AUM of almost £100m. This threshold is generally seen as being the minimum size and scale required to generate increasing levels of interest by the wealth management arena and amongst institutional investors.

Alliance Trust Savings

	As at 30 Sept  2014	% increase / (decrease) in Q3	% increase  / (decrease) YTD
AUA       (£m)	£6,121m	3.4%	13.8%
No. of Accounts	73,442	(0.1%)	(3.0%)

Source: Alliance Trust

ATS has continued to make excellent progress in the third quarter of 2014, with assets under administration now over £6.1bn, representing a 3.4% increase in the quarter and a 32% increase in the last 12 months. The average funded portfolio size has increased by 10% this year to over £87,000 as customers with larger portfolios are attracted to our flat fee structure. Many of them have come through our intermediary channel, which has been very strong with a 60% increase in new business and assets, doubling in the last twelve months to £1.2bn. We are now processing almost 19,000 transactions (excluding direct debits and automated dividend reinvestment transactions) each month. The reduction in the number of accounts was lower than we had anticipated and was largely driven by the re-price in February and uncertainty of the outcome of the Scottish referendum. The slight decline in account numbers in Q3 was down to the closure of cash ISAs and accounts which only held international equities.

Investors reacted to the large upheaval in the pensions' world by deferring investment decisions until the detail of the changes became clear. The welcome increase in the ISA limit to £15,000, which was introduced on 1 July 2014, meant that the ISA season was very disjointed, but we have seen £140m flows into ISAs in Q3, with customers taking advantage of the new limits, compared to £82m received in Q3, 2013. These changes offer us further opportunity to offer customers products and services for de-accumulation as well as accumulation for when they want to take their benefits with the additional flexibility.

We saw a pick-up in new business following the result of the Scottish referendum in mid-September.  However, an increase in customer queries ahead of the vote suggests that customers may have been putting investment decisions on hold until the results were known.

We are making excellent progress with the implementation of the new platform technology, and we expect to launch this to the Intermediary market in the first quarter of 2015. The enhanced functionality, combined with our attractive flat fee pricing will enable advisers to use the platform for more of their clients in the future.

The direct market is very competitive, but we are starting to see increased new business following the Scottish referendum and we have been voted the best direct platform by the Telegraph. We have recently launched a new marketing campaign that emphasises the benefits of the platform and the high level of customer satisfaction, with a recent survey showing that 86% of our customers saying they would recommend us to a friend or relative.

Outlook

Alliance Trust Investments will continue to focus on the further development of demand for the Alliance Trust Dynamic Bond Fund and ATSF risk profiled funds over the coming months

For Alliance Trust Savings (ATS), along with the whole of the savings industry, 2014 has been a year in which it has had to adapt to the government pension and ISA changes, RDR2 with transparent charging by platforms and Scottish referendum. We now expect ATS to continue to build its business further in both the intermediary and direct markets as clients and advisers come to understand the true cost of ownership on platforms.

The investment team for the Trust continues to look for opportunities to invest in well-managed companies with strong sustainable fundamentals. This can only be achieved through a thorough understanding of how businesses operate and close links to management. This quarter has seen stark dispersion of returns between sectors and volatility within sectors has been high, emphasising how important it is to remain focused on the factors that drive stock specific returns over a three to five year time horizon. We remain convinced that this approach will deliver our objective of increasing value over the long term. 

Cumulative returns (%) periods to 30 September 2014

	YTD	1 Year	2 Years	3 Years	5 Years
Share Price	2.4	8.9	28.2	51.3	65.5
NAV#	1.7	7.2	23.6	45.8	52.6

Source Factset & Morningstar
^#NAV is calculated with debt at fair value and including accrued income.
Past performance is not a guide to future performance.

Asset Allocation (%)*

	30-Sept-14	30-June-14
Equities	98.1	97.2
Fixed Income	6.2	6.6
Private Equity	4.7	4.5
Operating Subsidiaries	1.4	1.5
Property	0.1	0.2
Cash & Other Net Assets	2.8	3.4
Gross Assets	113.3	113.4
Gearing	(13.3)	(13.4)
Net Assets (incl. income)	100.0	100.0

Source: Alliance Trust

Equity portfolio sector allocation (%)*

	30-Sept-14	30-June-14
Financials	24.3	23.7
Health Care	14.9	13.8
Information Technology	14.1	13.7
Consumer Discretionary	10.4	10.0
Industrials	9.4	10.8
Energy	8.6	8.5
Consumer Staples	8.4	8.1
Utilities	3.9	3.9
Materials	3.6	4.1
Telecommunication Services	2.4	2.4

Source: Alliance Trust

Equity portfolio geographic breakdown (%)*

	30-September-14	30-June-14
North America	49.5	49.0
United Kingdom	21.4	20.9
Europe Ex UK	19.3	19.7
Asia & Emerging Markets	9.8	10.4

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		Conor McClafferty / Clare Dundas
Director of Investor Relations		Finsbury
Alliance Trust PLC		Tel: [phone]
Tel: +44 (0)1382 321169		Email: [e-mail]
Email: [e-mail]		Website: www.finsbury.com
Website: www.alliancetrust.co.uk

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Source: Alliance Trust PLC via Globenewswire

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