Alliance breaks silence over attacks

Remarks about Alliance Trust by a Winterflood research head were unfair and amounted to a “glass half empty” view, says Evan Bruce-Gardyne, the trust’s head of investor relations.

Alliance Trust has endured a barrage of criticism from shareholder groups and analysts but until now has refrained from defending itself.

Evan Bruce-Gardyne, the trust’s head of investor relations, says statements made by Simon Elliot, the head of investment trust research at Winterflood, were particularly unfair. He says: “On the basis of our results, Collins Stewart [Wealth Management] upgraded [Alliance Trust’s] status from a hold to an add. They sat in on the same meeting [as Winterflood], and heard the same presentation. They also each asked the same questions.

“Winterflood came out with a sell note and Collins Stewart with an upgrade. So from our point of view I guess it depends on if your glass is half full or half empty.”

Winterflood’s criticisms were frank and hard-hitting. It is easy to understand why Alliance Trust has taken its time to pen a response. (Investment trusts continues below)

Elliot questioned changes made to the trust’s investment strategy. He said: “Alliance Trust continues to disappoint. Investment performance is, at best, dull and, in our view, made less attractive by considerable style drift.

“This fund was once characterised by its conservative investment approach, which protected shareholders’ funds in difficult markets. This is no longer true, as evidenced by the fund’s struggles in the second half of last year, while outperforming year‐to‐date. We believe that this is a function of the considerable change in investment personnel at Alliance over the last few years.”

Elliot was also critical of Alliance Trust’s other ventures, Alliance Trust Investments (ATI), a boutique fund management business, and Alliance Trust Savings, a fund platform.

Bruce-Gardyne, explaining the troubles the trust has faced, says: “If your glass is always half empty, it is always possible to find bad results. It is down to statistics, and moving start and end points. Considering the latest period we were reporting, we were top quartile on a total shareholder return basis, and above the median on a net asset value basis.”

Performance data shows the fund has performed better than the AIC Global Growth sector over one year, but not over three. Over one year to March 13, Alliance Trust has returned 10.4%, against a sector average return of just 1.3%, according to FE Trustnet. Over three years the trust returned 61.5%, while the sector returned 73.3%.

“Over a three-year view, yes, we have underperformed,” says Bruce-Gardyne. “This is down to what happened three years ago. This is when we had the bottom of the market and [the subsequent] ’trash rally’. Companies which had been pummelled bounced back very sharply, even though the fundamentals hadn’t changed. Some of the banks fell 90% in 2008. We didn’t hold the banks through the rally because we don’t believe in them. So companies holding those back-bounced as well, while we didn’t bounce as much.”

HSBC is one of the few banks in the Alliance Trust port­folio, and is there because it is not too heavily exposed to Britain. Bruce-Gardyne says long-term investors should not panic when the market “does strange things”, adding: “If you stick to your guns, good wins out in the end”.

”They sat in on the same meeting … Winterflood came out with a sell note and Collins Stewart with an upgrade”

Meanwhile, Laxey Partners, the rebel shareholder in Alliance Trust, was the latest investor to call for change, in a letter to fellow shareholders. While the trust is still considering its response to Laxey’s memo, Bruce-Gardyne says the hedge fund has tried the same tactic before. “Initially, our view is that our performance is top quartile, or second quartile over net asset value,” he says. “They put a resolution to us last May, which was two thirds voted against them. We do not believe it is in the best interest of the company.

“It is frustrating. [Laxey] is basically re-running the same old argument under a different guise. We are taking our time to regroup and figure out what it means.”

Bruce-Gardyne confirms that Alliance Trust aims to increase ATI to the same size as the investment trust over three to five years. “It is a young company. ATI is going through growing pains but is building its track record.”

Alliance Trust Savings also came under scrutiny. “Alliance Trust Savings has reduced losses by 38% on an annualised basis and underwent a revolution,” says Bruce-Gardyne. “It is now scalable and is the only platform totally RDR [retail distribution review] ready. We need to get it profitable and it needs to make its way in the world. There are few people who want it to be profitable more than we do.”

Meanwhile, Alliance Trust’s management is sticking to its values as a long-term, bottom-up investment vehicle. It also aims to please its long-term backers.

Bruce-Gardyne says: “I’ve encountered shareholders who inherited shares from great-grandparents who first bought them in 1988. That is long-term investing. We know our shareholders will look to invest and tuck shares into a bottom drawer. They do not want to check in the Financial Times every morning to see how shares have moved.”

The trust’s top 10 holdings include some familiar FTSE 100 names. Bruce-Gardyne says the aim is that they are globally diversified, have good growth prospects and pay a dividend.