As a shareholder in Alliance Trust (ATST) I have been reading their Annual Report. They had a very good year last year with a Total Shareholder Return of 20.2%, beating their benchmark MSCI index which only managed 15.3%. Total Return over 10 years was 206.7.
Alliance Trust now use a multi-manager approach to achieve their performance. The investment manager’s report says this which is interesting: “As in previous years, we kept all our so called “factor” positions well balanced relative to the benchmark in 2023 through regular small adjustments to stock picker allocations, allowing stock selection to shine through as the key source of return. However, we did add a Japan specialist, Dalton Investments (‘Dalton’) in July, which was discussed in detail in the Interim Report. Excluding Dalton, the table on page 15 which details stock picker weights at the beginning and end of the year shows little change. But this disguises the fact that, to keep pace with shifting market dynamics, from one factor to another, we regularly take money away from the best performing stock pickers and give it to those who are underperforming. It may seem counterintuitive to trim exposure to “winners” and increase exposure to “losers” but this process helps to keep portfolio exposures balanced across sectors, countries, and styles, thereby avoiding the build-up of excessive concentration risks that can result from leaving allocations unchanged. The idea is to ensure that stock selection based on business fundamentals makes the key difference to returns, not over or underweight sector or country exposures, which can be subject to sentiment-based mood swings. However, this rebalancing process is not automatic. Although we have target weights for each stock picker, changing allocations is ultimately a judgment call. For example, we did not add to Jupiter Asset Management (‘Jupiter’) or Lyrical Asset Management (‘Lyrical’) last year, despite their underperformance, as they often invest in smaller companies that are inherently riskier than the stocks typically chosen by of some of the other stock pickers, such as Veritas Asset Management (‘Veritas’), who tend to focus on large, higher-quality value, companies.”
Coincidentally one of my contacts pointed out that Witan Investment Trust (WTAN) who are another global equity trust with a multi-manager approach seem to have run into problems. They have recently announced a review of “investment management arrangements” and also said this: “In 2004, in a major strategic shift, Witan adopted a multi-manager approach to investing in global equities, at the same time becoming independent of any single investment management group. For much of the subsequent period, the approach proved successful and, although the volatile conditions in recent years have eroded earlier outperformance, Witan’s performance remains in line with its equity benchmark in net asset value total return terms and ahead in share price total return terms since making that strategic shift. However, in more recent years the asset management and investment trust sectors have seen considerable changes in markets, competition, governance and regulation. These pose new investment and communication challenges for independently managed investment trusts to address successfully and cost-effectively. In view of these structural changes, Andrew Bell’s forthcoming retirement after over 14 years as our CEO is an appropriate opportunity for Witan to review proposals for the future management of the Company’s portfolio.”
According to the AIC, Witan’s one year share price total return is 15.1% and only 136.7 over ten years so you can see why shareholders might be getting nervous and it is time to review the management of the portfolios.
If you are a holder or prospective holder of Witan shares there is a webinar organised by ShareSoc at which you can learn more – see https://www.sharesoc.org/events/sharesoc-webinar-with-witan-investment-trust-plc-wtan25-april-2024/
A question to ask might be “why has Alliance Trust made a success of a multi-manager approach but Witan has not?”
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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