Interactive Investor

Alliance Trust says results "disappointing" and promises change

23rd July 2015 17:18

Rebecca Jones from interactive investor

The £2.7 billion Alliance Trust published its half-year results on Thursday (23 July), revealing that the fund has grown its net asset value (NAV) just 1.4% in the six months to 30 July while its share price grew 2.7%, underperforming the global sector by more than 3%.

In addition the trust continues to trade on a wide share price discount to net asset value (NAV), which currently stands at 12.5% compared to a sector average of 4.2%.

Commenting on the performance of the trust, Katherine Garrett-Cox, chief executive of Alliance Trust, says: "In the six-month period to 30 June we have underperformed a number of our peers. However, much of the underperformance occurred in June when the sharp rise in bond yields affected the return.

"While the results for this specific period were disappointing, it should be noted that since the equity team took over responsibility for the portfolio in September 2014, the equity portfolio has outperformed its MSCI All Country World Index benchmark."

Garrett-Cox refers to the appointment of Peter Michaelis and Simon Clements as managers of the trust's equity portfolio in September last year. The pair also head up Alliance Trust Investments' sustainable responsible investment (SRI) range, a direction the board is taking Alliance Trust in.

Promising change

These poor results have put further pressure on the board of Alliance Trust to make material changes to the trust's investment strategy, following a campaign led by activist investor Elliott Advisors earlier in the year that ended with the appointment of two new non-executive directors.

Karin Forseke, chair of Alliance Trust, today promised that further changes would be made. "The first half of 2015 was a particularly challenging period for Alliance Trust. In the run-up to our annual general meeting, a significant proportion of our shareholder base indicated that they sought change.

"The board has listened to these concerns and is actively engaged in addressing them. The board anticipates announcing in the autumn the changes that it intends to make," she said.

Forseke confirms that the board is currently "in the final stages of the process" of appointing an additional non-executive director, having agreed to take only two of the three candidates put forward by Elliott Advisors in March: Anthony Brooke and Rory Macnamara.

Commenting on today's announcements from Alliance Trust, broker Numis Securities - which acted for Elliott during the recent spat - says that Alliance has "lost its identity". "The successful campaign by Elliott highlighted that investors are no longer willing to put up with dull performance and a wide discount," says the broker.

"We feel that Alliance Trust has lost its identity following so many changes to the investment team and mandate. It used to be regarded as a low-cost, safe play that would tend to underperform in rising markets, but would outperform in weaker markets. However, this risk/return profile no longer applies."

Like a number of other commentators, Numis believes that the trust's move to an SRI bias is "interesting", but if this fails to deliver a meaningful improvement in performance the broker claims that it will become "increasingly difficult" for the board to ignore calls for more radical action.

Numis adds: "Other than delivering strong NAV performance, we believe that the fund needs to have a clearer performance objective and remuneration policy, ideally tied to a recognised benchmark rather than the peer group, or 'softer' measures such as brand awareness. In addition, we believe that there should be a firmer commitment to protecting the discount."