Dundee investment trust company Alliance Trust plc, which now uses external fund managers Willis Towers Watson (WTW), said on Thursday the first six months of 2020 were “extremely turbulent” for the fund but that it remains on track for a 54th year of dividend increases.
Alliance Trust’s biggest investments at June 30 included stakes worth £127 million in Google parent Alphabet, £105 million in Microsoft, £102 million in Amazon, £62 million in Alibaba, £58 million in Mastercard, £40 million in Facebook and £31 million in private equity firm KKR.
The fund said income from its portfolio will be reduced this year as a result of company dividend cuts and cancellations.
But it said its “distributable reserves” remain strong with its revenue reserve currently standing at £109.1 million, more than twice last year’s dividend payment of £45.7 million.
Alliance Trust said its distributable reserves could be bolstered further if it gains approval from shareholders at next year’s AGM to convert its £645.3 million “merger reserve” into distributable reserves.
For the six months to June 30, 2020, the company’s net asset value (NAV) total return was -3.5% and total shareholder return (TSR) was -5.8% versus 0.5% for its benchmark, the MSCI All Country World Index (MSCI ACWI) and -0.8% for its peer group median.
Nonetheless, Alliance Trust is paying an interim dividend of 3.595p, an increase of 3%, and it vowed: “… unless market volatility is greater than anticipated in the second half of the year, the company expects to use its strong revenue reserves to maintain that level of increase for the remaining interim dividends for 2020 resulting in the 54th year of dividend increases.”
Alliance Trust chairman Gregor Stewart said: “Through this period of uncertainty and volatility, we saw the company’s total net assets fall from £2.9bn at the end of 2019 to £2.3bn at the end of March.
“Global markets subsequently rallied and our total net assets at the end of the period were £2.7bn.”
Stewart added: “After falling sharply in March as the pandemic spread rapidly across the globe, the value of the company’s assets recovered in subsequent months.
“However, against a particularly challenging market backdrop and during a period when our benchmark’s performance was skewed by very strong returns from the largest cap stocks, we lagged the market at the end of June.
“At this time, possibly more than any other, investors need a well-diversified portfolio that relies on individual company performance rather than gambling on macroeconomic bets.
“Our investment manager remains confident that our diversified, high conviction approach to stock picking across a broad range of countries, sectors and investment styles can deliver significant outperformance in the long run.
“In the meantime, we are pleased to declare a 3% increase in our second interim dividend.
“Unless we suffer greater market uncertainty than expected in the second half of the year, we expect to maintain that same rate of dividend growth for the whole year and to extend our current record of year-on-year dividend growth to 54 years and beyond.
“Although income from the portfolio will be reduced this year as a result of company dividend cuts and cancellations, our own distributable reserves remain strong.
“Our revenue reserve currently stands at £109.1m, more than twice last year’s dividend payment of £45.7m and our distributable reserves could be bolstered further if we gain approval from shareholders at next year’s AGM to convert our £645.3m merger reserve into distributable reserves.”