results for the six months to 30 june 2015 july 2015 katherine garrett-cox chief executive simon...
TRANSCRIPT
Results for the six monthsto 30 June 2015
July 2015
Katherine Garrett-CoxChief Executive
Simon ClementsManager, Equity Portfolio
Patrick MillManaging Director, Alliance Trust Savings
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H1 2015 overview
• Focus on equity portfolio:
- Equity exposure increased to 100%
- Increased conviction by reducing portfolio to below 70 stocks
• Equity underperformance vs MSCI ACWI adversely affected in Q2 by weakness in some income holdings
- Sharp increase in bond yields in June
- Equity portfolio has outperformed benchmark since restructuring in late 2014*
• ATS grew assets by 12% organically
- Losses reduced H1 on H1
- Stocktrade deal increasing assets by a further 60% - Completion in H2 2015
We remain confident that our investment approach will deliver over the long term
* Source: Alliance Trust. Data as at 20 July 2015
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Financial highlights – H1 2015
H1 2015 H1 2014Total Shareholder Return 2.7% 0.4%
Net Asset Value (NAV) Total Return 1.4% 0.3%
30 Jun 2015 31 Dec 2014 % change
Share price 484.8p 478.9p 1.2%
NAV per share 545.9p 546.8p -0.2%
Discount to NAV 11.2% 12.4%
Quarterly dividend per share 2.5325p 2.4585p 3.0%
Indicated annual ordinary dividend 10.13p 9.83p 3.0%
Source: Alliance Trust
Performance chart to 30 June 2015
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Source: Alliance Trust, FactSet & Morningstar
Note: Peer group is AIC Global Sector
• NAV underperforming global sector during period
• TSR outperforming Global Sector index over 5 years
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Contribution analysis – H1 2015
Source: Alliance Trust and FactSet
• Equities contributed majority of return, with asset weighting increased towards end of the period
• Fixed Income & Other Investments generated positive returns
ContributionAnalysis (%)
AverageWeight
Rate ofReturn
Contribution to Total Return
Equity Portfolio 96.8 1.57 1.54
Fixed Income 5.6 0.97 0.05
Other Investments 7.5 0.80 0.06
Cash & Accruals 2.2 - 0.19
Gearing -12.1 1.09 -0.13
Expenses -0.35
Share Buy-backs 0.02
NAV Total Return 1.38
Discount Effect 1.35
Share Price Total Return 2.73
MSCI ACWI Total Return 2.09
Alliance Trust – a distinctive investment approach
• Experienced investment team with a clear, differentiated strategy
• Investing in well-managed businesses, favouring those with long-term, sustainable business models
• Businesses that are more sustainable are better placed to grow faster than the market
• Our expertise and understanding of social and environmental issues means we are well positioned to deliver for investors over the long term
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Investing in high quality companies, generating a combination of capital growth and a rising income
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Equity portfolio positioning and targets
• We target outperformance of MSCI ACWI by 1% - 2%
- Equates to top of the 2nd quartile in the peer group over three years
• We target a dividend yield from the equity portfolio above the index benchmark
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Equity portfolio performance
Performance in H1 2015
• 6 months to end June 2015 performance was -57 bps
• Stock Selection was negative with Materials and Technology the two weakest sectors
• Sector Allocation was positive: o/w Healthcare, u/w Energy
• Regional Allocation was negative; u/w Pan- Asia
Performance since 30 Sept 2014
• To 17 July 2015 +187 bps, driven by positive stock selection in Healthcare and Financials
Targeting 1% outperformance relative to MSCI ACWI in 2015
Source: Alliance Trust & FactSet
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Investment activity – Energy sector
• Sector Thesis: “new normal” means the oil price remains range bound with an $85 oil price ceiling
• We look for companies that:- Have adjusted their business models for the new normal- Can generate free cash flow at lower oil prices - Can produce a healthy buffer between their free cash flow and their dividend yield
• We avoid companies that:- Chase production growth, particularly production in assets that depend on a high oil price- We feel carry risk, from a political, execution and environmental perspective
Largest holdings % Equity portfolio New positions Positions exited
Enterprise Product Partners 1.5% Statoil ENI
Statoil 1.2% Noble Energy
Total SA 1.1%
Source: Alliance Trust. Data as at 30 June 2015
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Energy sector example: Statoil
Action Analysis
Restructuring plan was implemented in early 2014, targeting significant cost savings and capital efficiency initiatives
The company had adjusted its business model before the crash in oil
Improvements in the quality of their capital investment
Driving a doubling of ROE by 2018
FCF to grow 30% CAGR in next 3 years despite “new normal”
Ensures a strong balance sheet and underpins a consistent and sustainable dividend
New producing assets primarily in Norway Carries little geopolitical risk, and environmental risk management is considered best in class
5%+ dividend yield well underpinned
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Investment activity – Information Technology sector
Big Data and Cloud Computing
• Data growth is exploding and is expected to grow 10x between 2013 and 2020, (40% CAGR) and more than half will be stored in the Cloud
• Cloud computing is a highly cost effective and energy efficient solution in the digital age• We look for companies / industries that:
- enable the build-out of Cloud infrastructure- have adjusted for the Cloud computing age
• We avoid companies with legacy offerings which are no longer cost competitive in the Cloud computing age
Largest holdings % Equity portfolio New positions Positions exited
Accenture 2.7% Seagate Technology
Equinix 1.4%
Seagate Technology 1.3%
Source: Alliance Trust. Data as at 30 June 2015
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Technology sector example: Seagate Technology
• Industry consolidation in HDD sector leaves 2 key players, each with 40%+ market share (Seagate and Western Digital)
• 2 segments, PC has been contracting, but demand from “hyper” client growing at 15%+ (Cloud computing super data centres). The business is on verge of returning to growth
• High return, well run business
• Attractive dividend (4.5%), an industry leader, with growth returning, driven by two thematic drivers:- cloud computing- efficiency in the data centre industry
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Equity portfolio risk characteristics
Source: Barra and FactSet. Data as at 30 June 2015
† Weightings are calculated on a look-through basis whereby the Trust’s exposure is combined with that of its holdings in Alliance Trust Investments’ funds in order to calculate total exposure.
Active Exposure Sector Allocation (%) †
Portfolio volatility: 11.7%
Benchmark volatility: 11.6%
Tracking error: 2.44%
Beta: 0.98
Active Share: 89%
Portfolio yield: 2.7%
Portfolio Style (%)
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Equity portfolio characteristics
Source: BloombergData as at 30 June 2015
Return on Assets Return on Equity
Return on Invested Capital
Operating Margin
Long Term Debt/Capital Asset Turnover
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ATS update
• H1 AUA +12% to £7.2bn
• Stocktrade adds £4.6bn AUA and 45k customers
• Revenue up 8%, operating losses reduced to (£0.2m)
• New technology which will go live over the summer
• Development of 3rd distribution channel – D2C, Intermediaries & Partnerships
• Develop the proposition to maximise the benefits of the banking licence to appeal to a wider target audience
• Deliver meaningful profit from 2016
Source: Alliance Trust. Data as at 30 June 2015
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Looking ahead
• Enlarged Board of Directors
- Anthony Brooke & Rory Macnamara formally appointed on 24 June 2015
- Search for one additional Non-Executive Director progressing well
• Collation and analysis of investor feedback
- Board anticipates announcing intended changes in Autumn
• Build on progress at ATS
- Integration of Stocktrade and roll out of new platform technology
• Strong focus on capital growth and rising dividend
- Conviction in long-term, sustainable approach
Important information
• The value of investments and the income from them may go down as well as up and are not guaranteed. Investors may not get back the amount invested.
• Past performance is not a guide to future performance. Future returns are not guaranteed.
• The Trust has underlying holdings which are denominated in currencies other than Sterling and therefore may be affected by movements in exchange rates. Consequently, the value of these investments may rise or fall in line with exchange rates.
• Whilst care has been taken in compiling the content of this presentation, no representation or warranty, express or implied, is made by Alliance Trust as to its accuracy or completeness. Some slides may been compiled from external sources. Whilst these sources are believed to be reliable, the information has not been independently verified and therefore no representation is made as to its accuracy or completeness.
• The opinions expressed are those held by Alliance Trust at date of issue and are subject to change. Examples used are to demonstrate our investment philosophy and should not be interpreted as recommendations to buy or sell.
• Alliance Trust may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that a relatively small movement, down or up, in the value of the Trust’s assets will result in a magnified movement, in the same direction, of that NAV. This may mean that you could get back nothing at all.
• Alliance Trust PLC is listed on the London Stock Exchange and is registered in Scotland No SC1731. Registered office, 8 West Marketgait, Dundee DD1 1QN. Alliance Trust PLC is authorised and regulated by the Financial Conduct Authority. Alliance Trust PLC gives no financial or investment advice.
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Appendices
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Performance stats to 20 July 2015
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Source: Alliance Trust, FactSet & Morningstar
Note: Peer group is AIC Global Sector
Investment process
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• Identify high quality companies from around the world, with strong long-term prospects
• Select those which are significantly undervalued
• Construct a high conviction, diversified portfolio
To generate growth of capital and incomeSource: Alliance Trust
Key investment themes
Climate Change
Quality of Life
Sustainable Consumption
Resilience
Every major economy has legislation in place to decarbonise and improve energy efficiency.
Sectors: Transport, Energy, IT, Automotive, Construction
Lifestyle diseases account for more premature deaths than infectious diseases globally. Education drives economic success.
Sectors: Healthcare, Food Producers, Education
Population and affluence are increasing. To keep resource consumption and pollution levels stable, efficiency needs to improve rapidly.
Sectors: Industrials, Utilities, Automotive, Transport, Chemicals
Successful economies need to be robust and secure. Companies involved in protection, security, and stability will flourish.
Sectors: IT, Retail, Automotive, Finance, Testing Companies
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Source: Alliance Trust
Analysing environmental, social and governance factors
• Product rating – Are the companies’ core products/services helpful or harmful to society and the environment?
• Management rating – Do the companies have structures, policies & practices in place to manage ESG risks?
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Source: Alliance Trust
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Investment team’s portfolio of funds
Fund name £m 6 months
quartile ranking3 year
quartile ranking5 year
quartile ranking
Alliance Trust PLC 3,472 4 3 3
Sustainable Future Managed Fund 480 1 1 1
Monthly Income Bond Fund 374 2 2 NA
Sustainable Future Corporate Bond Fund 326 2 2 2
UK Ethical Fund 311 1 1 1
Sustainable Future UK Growth Fund 215 1 2 2
Sustainable Future European Growth Fund 133 1 3 3
Sustainable Future Pan-European Equity Fund 123 1 1 1
Sustainable Future Global Growth Fund 114 3 3 3
Sustainable Future Absolute Growth Fund 102 3 1 1
Dynamic Bond Fund 92 NA NA NA
Sustainable Future Defensive Managed Fund 12 2 NA NA
Sustainable Future Cautious Managed Fund 12 2 NA NA
Less Trust holdings and cross holdings in ATI funds (291)
Total 5,475
Past performance is not a guide to future returnsSource: Alliance Trust InvestmentsData as at 30 June 2015
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Attribution H1 2015
Alliance Trust MSCI All Country World Index
Average Weight
Total ReturnAverage
WeightTotal Return
Sector Allocation
Effect
Stock Selection
Effect
Total Relative
Effect
Consumer Discretionary
7.68 12.39 12.36 5.84 -0.17 0.49 0.32
Consumer Staples 8.33 3.47 9.77 1.09 0.01 0.19 0.21
Energy 5.22 -7.40 7.66 -3.89 0.14 -0.18 -0.04
Financials 25.29 2.15 21.49 1.76 -0.01 0.10 0.08
Health Care 17.34 6.67 12.06 9.16 0.37 -0.42 -0.06
Industrials 7.74 -0.88 10.58 0.71 0.04 -0.12 -0.08
Information Technology
18.45 -0.96 13.76 1.06 -0.05 -0.36 -0.41
Materials 4.80 -10.38 5.33 0.20 0.01 -0.50 -0.49
Telecommunication Services
1.56 5.87 3.69 4.20 -0.04 0.03 -0.02
Utilities 3.59 -9.17 3.19 -7.78 -0.04 -0.05 -0.09
Total 100 1.57 100 2.09 0.26 -0.82 -0.57
Source: Alliance Trust and FactSet