Alliance Trust defensive over failure to spot market rally

Published on Monday 21 September 2009 21:35

KATHERINE Garrett-Cox, the high-flying head of Dundee's venerable Alliance Trust, yesterday admitted she had been surprised by the stock market rally in March and April which resulted in a slip in the fund's performance relative to its peers.

Nevertheless Garrett-Cox, pictured right – formerly one of the City's highest-profile fund managers – defended the group's investment strategy, arguing that its conservative approach meant its investors would benefit from capital growth in the longer term as well as robust dividend payments, which she said was "no mean feat".

Analysts yesterday rated the trust's performance "disappointing but not surprising", due to its defensive share buying strategy.

"The bottom line is we continue to do what it says on the tin, which for far and away the bulk of our investor base is really important," said Garrett-Cox.

"The bulk of our investor base don't judge us over six months. They judge us on a combination of two things – what are you doing in terms of capital growth over the long term, but also more critically at the moment, what are you doing in respect of the dividend."

"Over the last six months during a period of intense volatility, in which many companies have slash their dividends, we have put more dividend cover in the company," she added.

The group said it raised its dividend 1.25 per cent to 2.025p and that it intended to pay as much at least until 2010.

The trust's total shareholder return – including dividend – was up 8.8 per cent in the six months to 31 July against a 16.1 per cent rise in the FTSE All-Share, also including dividends – placing Alliance 36 out of a peer group of 44 funds in terms of global growth and income investment. But over the course of the past 12 months, its return ranked 16th out of 44.

Garrett-Cox admitted the share price rallies – particularly in UK banks – in March and April were a "surprise", but labelled it a "low-quality rally".

She admitted that the uplifts in global equities had provided "opportunities along the way", and that as a result the company had moved from a more defensive, high-cash position at the start of the year. The trust boosted equities to 89 per cent of its holdings from 77 per cent at the start of the period, including some "higher quality" UK bank stocks including HSBC and Standard Chartered.

So far, Alliance Trust has not boosted its share price by buying back its own shares – a common practice elsewhere in the sector. Garrett-Cox said the group might do so in future although she said "to date there hasn't really been a point" in doing so.

"Ultimately it is an investment decision," she added. "We are constantly revisiting this issue."

Simon Elliott, director of research at investment trust specialist Winterflood Securities, said: "You wouldn't have expected Alliance Trust to have shot the lights out. Yes underperformance is disappointing, there is no two ways about it.

"How they performed given what they told us and how they are running their money, clearly it is defensively positioned. You can't have it both ways."

Stephen Peters at stockbroker Charles Stanley said: "Their results come as no surprise. Some of the more defensive things have not performed as well as they could have done.

"What they are saying is fair but they have underperformed markedly."

Pre-tax profits in the half year rebounded to 179 million from a 95m loss in the same period a year earlier. Net assets in the period were down year-on-year, 2.27 billion from 2.57bn, but up from the 2008 year-end of 2.12bn.

Robert Burgess, chief executive of wholly-owned banking subsidiary Alliance Trust Savings, also yesterday joined the group's executive board. Until now, Garrett-Cox had been the sole executive director of the trust since the departure of finance director David Deards in April.

She confirmed that the search for a replacement finance director was "pretty close" to completing.