Alliance Trust, £3.4bn Dundee Fund, boosts dividend

Alliance Trust plc, the £3.4 billion Dundee-headquartered fund, has declared a fourth interim dividend of 6.34p per share, up 5.7% on the equivalent dividend of 6p paid in the same period of the last financial year.

The total Alliance Trust dividend for 2023 is therefore 25.20p, an increase of 5% on the company’s 2022 dividend.

“This marks the 57th consecutive annual increase, one of the longest in the investment trust industry, and, with substantial reserves, the board is confident that this track record can be extended well into the future,” said Alliance Trust.

“The fourth interim dividend will be paid on 28 March 2024 to shareholders on the register at the close of business on 1 March 2024. The ex-dividend date is 29 February 2024.”

The fund’s share price is up about 15% for the past year.

Alliance Trust uses external fund managers Willis Towers Watson (WTW), which in turn appoints a number of other stock picking firms with different styles “who each ignore the benchmark and only buy a small number of stocks in which they have strong conviction.”

Those stock pickers include Black Creek Investment Management, GQG Partners, Jupiter Asset Management, Lyrical Asset Management, Sustainable Growth Advisers, Veritas Asset Management, Vulcan Value Partners, Sands Capital Management, Metropolis Capital Limited and Dalton Investments.

The Alliance Trust fund’s 20 biggest investments at January 31, 2024, were Alphabet, Microsoft, Amazon, Visa, Nvidia, Mastercard, Petrobras, UnitedHealth Group, MercadoLibre, Meta Platforms, ASML,, Airbus, Diageo, Canadian Pacific, HDFC Bank, Novo Nordisk, TotalEnergies, Fiserv and Vinci.

In its most recent investment commentary, Alliance Trust said: “After last year’s late surge in valuations globally, equity markets had a mixed start to the New Year amid strong economic data in the US and signals from central banks that dashed hopes of early and rapid reductions in interest rates.

“Developed market stocks rose, led by the TOPIX index in Japan, while emerging markets equities were down, despite newly announced stimulus from China’s central bank. Our benchmark index, MSCI ACWI, returned 0.7% in January.

“The portfolio outperformed the index, with the NAV returning 2.0%. The total share price return was slightly higher at 2.2% due to a narrowing of the discount.

“Most of our stock pickers added value last month but the biggest contributions to returns came from GQG and Veritas, with only Jupiter and Black Creek detracting.

“Dalton and Sands also delivered strong absolute returns, but their relatively small weights in the portfolio meant their contributions to overall portfolio performance were more modest.

“At the stock level, the largest contributors to the portfolio’s outperformance versus the index were stocks we didn’t own that performed poorly, namely Tesla, whose share price dropped after warning of slower sales growth in 2024, and Apple, which is beset by worries over weak iPhone 15 demand and regulatory scrutiny.

“We also avoided the hit to the index’s returns from Boeing, whose share price fell 19% in the month on the back of mounting problems for the US plane maker following the mid-flight blowout of a section of the fuselage of a Boeing 737 Max 9 aircraft.

“Our exposure to aerospace is through Airbus and French jet engine maker Safran.

“We like to think that not owning Tesla, Apple and Boeing highlights the importance of active management, which is often about avoiding losers as well as picking winners.

“This seems particularly relevant now that the index is so concentrated, with the ‘Magnificent Seven’ mega cap US stocks (Tesla, Nvidia, Microsoft, Alphabet, Amazon, Apple, and Meta) accounting for around 30% of the S&P 500 index.

“While selective ownership of some of these market leaders has been beneficial for portfolio returns, we are wary of analysing them as a collective entity.

“The top five winners in the portfolio that helped performance the most were all from different industries globally, emphasising our managers’ bottom-up approach to stock picking, as opposed to sector or country- based investment strategies.

“Shares of ASML, the Dutch microchip manufacturer, owned by Sands and GQG, rose by more than 15% in Jan after its fourth-quarter 2023 results suggested the potential start of an upswing in demand for semiconductors.

“Sands says the business continues to operate a chokepoint in one of the world’s largest secular growth trends. MercadoLibre, Latin America’s answer to eBay, which is owned by SGA, Sands and GQG, rose by 9%.

“It benefitted from the release of stronger than expected gross merchandising value data for December.

“SGA says the company is well-positioned to capitalise on e-commerce growth in Latin America given its dominant e-marketplace position.

“Visa, the US-based payments group, owned by SGA, GQG, Sands, Vulcan and Metropolis, rose after it posted better-than-expected revenue.

“The company’s chief executive cited the benefits of resilient consumer spending. GQG’s stake in Adani,the Indian infrastructure conglomerate, gained another 10%, extending the rally that started in late November after a state probe into fraud allegations found no evidence of wrongdoing.

“Petrobras, the state-controlled Brazilian oil and gas company, also owned by GQG, continued its good performance, rising by 6% in line with crude oil prices.

“GQG says oil prices rallied as inclement weather in the US curtailed production and a fuel tanker was struck near Yemen, underscoring geopolitical risks to crude supplies.

“Mitsubishi UFJ, a major Japanese banking group, was Dalton’s top performer, rising over 11% on expectations of a normalisation of monetary policy in Japan.

“This represents an unusual holding for Dalton, which has held minimal exposure to Japanese banks since the inception of its strategy, given the historic poor capital allocation and alignment of interests of Japan’s banks.

“However, Dalton says Mitsubishi UFJ is the bank that has most embraced the Tokyo Stock Exchange’s demand for companies to assess their cost of capital relative to return on capital and address any structurally low valuations.

“It has also been the most aggressive in providing restricted stock to senior management as an incentive to perform.”