Cookie Policy

We use cookies on our website and have placed these on your computer. By continuing to use our website you consent to this. For more information, including how to change your cookie settings and to disable our non-essential Google Analytics cookies, please refer to our Cookie Policy. If you do not wish to be reminded of this on each visit, please use the close button.

Alliance Trust: Looks can be Deceiving

September 2021

Categories: DIY Magazine




Top-down portfolio characteristics can obscure the investment characteristics of a trust, particularly when it comes to multi-manager portfolios. Here, we examine how Alliance Trust maintains a high active share while still offering a diversified underlying portfolio…


It’s easy to take things at first impression. But, as we are all aware, appearances can be deceptive.

When it comes to investment trusts, a cursory glance at portfolio characteristics can mask the true nature of a trust and its investments, with investors potentially misunderstanding the proposition at hand. Nowhere is this truer than for multi-manager funds.

By their nature, multi-manager funds tend to have higher numbers of portfolio holdings than their single-portfolio peers. Many also opt to have a diverse range of sub-portfolios, with the top-down effect being a portfolio that looks remarkably similar to its benchmark. However, these characteristics can be misleading when taken out of the context of a trust’s overall portfolio construction.

By employing sub-portfolios tactically and with dynamism, some trusts are able to maintain a high active share, even while benefitting from the diversification that the multi-manager structure offers.


Clear-eyed vision

One of the trusts for which this is especially true is the £3.7bn Alliance Trust (ATST). At first blush, the trust has country, style and sector weights that are closely aligned to its benchmark’s. With over 140 portfolio holdings, it is easy to assume the trust could be a ‘closet tracker’ – as one of our Twitter followers did just last month.

This assumption belies the painstaking and proven portfolio construction process that has been carefully developed by the trust’s manager Willis Towers Watson. Alliance Trust gives private investors an exclusive opportunity to tap into WTW’s expertise, with this process previously being accessible to large-scale investors only.

The trust invests in a suite of eight to twelve sub-portfolios, each with a distinct investment style and with each manager given discretion to invest as they wish, without considering benchmark risk (instead, risk is managed across the portfolio). Crucially though, the managers are limited to 20 stocks each, encouraging them to pick only their very best ideas.

This concentration contributes to a portfolio that has a much higher active share – a measure of its differentiation versus its benchmark – than its top-down characteristics would suggest. Typically, the trust has an active share of 75-80%, significantly above the 60% threshold that the European Securities and Markets Agency cites as the marker of a closet tracker.


Top draw

When building the portfolio, Willis Towers Watson benefits from deep internal resources to access information on a broad range of strategies. Its in-house analysts consider over 4,000 strategies, whittling these down to its 200 top-rated managers.

From this, the three managers of Alliance Trust draw a ‘bench’ of 20 managers that they believe are complementary to, but distinct from, one another. Eight-to-twelve of these make up the final portfolio.

The advantage of this bench system is that it means the management team know which strategies to consider next should they need to replace a strategy within the portfolio – for reasons varying from portfolio adjustments to changes at the underlying management company. While each sub-investment is made with a long-term view, factors like these can and do crop up, with the managers moving dynamically to respond.

Earlier in 2021, they added two new managers to the core portfolio. One of these, Metropolis Capital, is a UK-based boutique with its managers describing themselves as value investors with a private equity approach to public markets. In practice this means that they seek returns through cash dividends and long-term market recognition of the fundamental value of their investments. Often, they seek businesses which are still founder managed.

By contrast, the other new manager, Sands Capital, is a large independent investment manager based in the US. It focuses on companies from around the world that can sustain above-average growth over the long term.

These two new additions alone reflect the diverse and idiosyncratic nature of the Alliance Trust manager suite and show how the trust’s managers combine several distinct points of view into one balanced portfolio.

This balanced approach is paying off for the trust, which is ahead of the MSCI ACWI NR USD benchmark over one and five years.


See the latest research note on Alliance Trust here >


Click to visit:


Disclosure – Non-Independent Marketing Communication. This is a non-independent marketing communication commissioned by Alliance Trust. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.


Now that's what I call a discount! - 2021

Join the investment companies’ team at Kepler Trust Intelligence on 30 September as we examine investment trusts trading on discounts that, in the view of our analysts, don’t reflect their true potential…

Kepler Trust Intelligence will be joined by seven investment trusts for its forthcoming online event on Thursday 30th September, all of which have the potential to benefit from narrowing discounts, and each with a compelling argument to support the case for that to happen.

When:                               0900 - 1700, Thursday, 30 September 2021

Where:                              Online event

Confirmed Speakers:       




Author: DIY Investor Magazine Categories: DIY Magazine

Read the latest edition of DIY Investor Magazine

DIY Investor Magazine

The views and opinions expressed by the author, DIY Investor Magazine or associated third parties may not necessarily represent views expressed or reflected by EQi.

The content in DIY Investor Magazine is non-partisan and we receive no commissions or incentives from anything featured in the magazine.

The value of investments can fall as well as rise and any income from them is not guaranteed and you may get back less than you invested. Past performance is not a guide to future performance.

DIY Investor Magazine delivers education and information, it does not offer advice. Copyright© DIY Investor (2016) Ltd, Registered in England and Wales. No. 9978366 Registered office: Mill Barn, Mill Lane, Chiddingstone, Kent TN8 7AA.