Alliance Trust (ATST) has named the eight asset managers who will run its portfolio if shareholders approve a move to a multi-manager structure at a general meeting on 28 February. Last month the trust's board proposed outsourcing its management to Willis Towers Watson (WTW), a consultancy that creates portfolios for institutions, which would select eight external managers to run the underlying equities.
The managers selected include three directly available to UK private investors - Jupiter, River And Mercantile, and Veritas, as follows.
Proposed Alliance Trust equity managers
| Manager | Lead individuals | Investment focus | Style |
| Black Creek Investment Management | Bill Kanko | Undervalued market leaders | Quality |
| First Pacific Advisors | Pierre Py and Greg Herr | Absolute value and quality | Quality |
| GQG Partners | Rajiv Jain | High quality growth and emerging markets | Growth |
| Jupiter Asset Management | Ben Whitmore | Contrarian | Value |
| Lyrical Asset Management | Andrew Wellington | US normalised value | Value |
| River and Mercantile Asset Management | Hugh Sergeant | Recovery stocks | Value |
| Sustainable Growth Advisers | George Fraise, Gordon Marchand and Rob Rohn | Long-term consistent growth | Growth |
| Veritas Asset Management | Andy Headley | Quality at attractive valuations | Growth |
Source: Alliance Trust/Canaccord Genuity/Kepler
Each manager will run a global equities portfolio of about 20 stocks, and GQG Partners will also run an emerging markets portfolio of about 50 stocks.
"This distinctive approach means that every stock selected is one in which the equity managers have their highest conviction," explains Alliance Trust's board. "WTW will maintain overall oversight of the combined portfolio, including income, risk and concentration characteristics."
The WTW investment team is led by Craig Baker with David Shapiro and Mark Davis as co-managers, and they have the support of a 115-strong research team. WTW has done research on 3,700 products out of a universe of 2,800 equity managers and 16,500 products, and only around 40 global equity products receive their highest rating. WTW says that the eight managers it has selected for Alliance Trust received its highest rating and should create a portfolio where long term returns relative to benchmark will be primarily driven by stock selection rather than macroeconomic factors.
WTW assesses the competitive advantage of each manager and whether it is likely to be sustained. Its selection criteria include: the calibre of the key people; stability of the team; the depth of fundamental analysis involved in investment decisions; and, specifically for Alliance Trust, evidence of skill in managing concentrated mandates.
In 2015 WTW launched an institutional multi-manager fund, Global Equity Focus, which outperformed MSCI World index by 2.7 per cent a year net of sub manager fees and expenses between 17 August 2015 and 11 January 2017. A WTW portfolio for an advisory charitable foundation, meanwhile, outperformed MSCI All Country World index by 3.3 per cent a year net of manger fees between 1 October 2011 and 30 September 2016.
WTW's proposed equity portfolio for Alliance Trust would have a geographic break down and sector allocation similar to MSCI All Country World index, albeit slightly underweight the US. But the underlying stock selection would be very different to the index.
Transitioning to the new portfolio would take around two months and cost about 0.3 per cent, according to analysts at Kepler. But lower trading costs in the following months might offset some of this.
And total annual costs will be targeted to be below 60 basis points – less than its current ongoing charge of 0.78 per cent.
Since announcing the proposals for a new structure in December Alliance Trust has resumed share buybacks and bought in around 5 per cent of its market cap. If the trust is smaller it could mean that the ongoing charge figure increases as it is spread over a smaller number of shareholders.
However, an Alliance Trust spokesperson said buybacks at this level wouldn't make a huge difference to the market cap or the targeted charge of below 60 basis points. Alliance Trust had a market cap of £3.17bn as of 17 January.
Analysts at Kepler add that the trust's Alliance Trust Savings subsidiary may contribute higher revenues over time helping to bring down the ongoing charge.
Global sector investment trust Witan (WTAN) also has a multi-manager structure. However, Mr Baker says the proposed Alliance Trust structure is different as all the underlying managers would run global rather than regional portfolios, and these would be specially created for Alliance Trust - rather than being the managers' existing funds.
Alliance Trust would have around 200 underlying stocks in contrast to Witan's roughly 450, and it would not have a performance fee like Witan which has an ongoing charge of 1.08 per cent.
Laith Khalaf, senior analyst at Hargreaves Lansdown, adds: "There will be no hard evidence the new approach is working until the trust has a few years of performance under its belt, with the new strategy in place. The concept of blending the best ideas of a handful of top managers together in one portfolio has intuitive appeal, though previous incarnations of this approach have not always ended in success. Sometimes the whole ends up being less than the sum of its parts. [But] a blend of managers with different philosophies should serve to cushion the trust from any particular investment style falling out of favour."
Alliance Trust is holding the following forums to enable shareholders to put questions on the new investment approach to Alliance Trust's directors, and Craig Baker and David Shapiro at WTW.
• 14.30, Wednesday 25 January. The Institution of Engineering and Technology, 2 Savoy Place, London, WC2R 0BL
• 14.00, Friday 27 January. The Sidlaw Suite, West Park, 319 Perth Road, Dundee, DD2 1NN
• 14.30, Monday 30 January. Edinburgh International Conference Centre, The Exchange, 150 Morrison Street, Edinburgh, EH3 8EE
