Annual Report 2020 Annual Report for the Year Ended 31 December 2020 Annual Report and Financial Accounts 2020
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Annual Report 2020 Annual Report for the year ended 31 December 2020 Annual Report and Financial Accounts 2020 Investing for Generations Catering for every generation, Alliance Trust aims to grow your capital over time and provide rising income by investing in global equities. ALLIANCE TRUST. EXPERT MANAGER SELECTION ADAPTING TO CHANGE. Shareholders benefit from having Willis Towers Watson Alliance Trust has both a modern vision and a rich heritage. (WTW) as our Investment Manager.4 WTW is a leading Established in 1888, we have successfully navigated many global investment group, directly managing $153 billion5 for market crises and adapted our strategy over time. Today, institutional investors and advising them on $3.4 trillion.6 we offer a responsibly managed portfolio, which provides Its scale helps us to keep costs down for investors, while the individual UK investors with exclusive access to the top global breadth and depth of WTW’s resources has enabled stock selections of some of the world’s best1 investment it to build and manage a diverse team of best-in-class1 managers; at a competitive cost. Stock Pickers with complementary investment approaches for Alliance Trust (see pages 20 and 21). Risk-controlled Our multi-manager approach reduces risk and volatility, Focused Stock Picking smoothing out the peaks and troughs of performance WTW tasks each Stock Picker with investing in no more than normally associated with a single manager. 20 stocks in which they have the highest level of conviction.7 The resulting portfolio is diversified across countries and Designed to perform industries but its individual holdings are very different from High conviction stock picking gives the portfolio potential any index-tracking fund. to outperform world stock markets.2,3 We believe this diversified but highly active approach makes Rising dividend Alliance Trust an ideal holding for all generations of investors, We have increased our dividend every year for 54 consecutive whether you’re paying for university or a first home, saving for years, putting us among the top three of the Association of retirement or leaving a legacy. Investment Companies’ “Dividend Heroes”. Responsible Investment We integrate environmental, social and governance (ESG) factors into our investment processes. We firmly believe that, in doing so, we will not only have a positive impact on us all, but also outperform portfolios that do not. 2 INTRODUCTION Our unique multi-manager approach brings together the ‘best ideas’ from world-class1 stock pickers. Each is responsible for selecting and investing in a selection of high conviction equities. Our portfolio aims to outperform world stock markets2 over the long term, while shielding you from some of the risks of active investing.” Gregor Stewart Chairman CONTENTS Investment Strategic Report Introduction 2 Our Performance in 2020 4 objective Chairman’s Statement 6 Investment Manager’s Report 10 Costs, Discount and Share Buybacks 34 The Company’s objective is to be Dividend 35 a core investment for investors that Our Principal Risks and How we Manage them 36 delivers a real return over the long Directors’ Report Board of Directors 42 term through a combination of Corporate Governance 46 capital growth and a rising dividend. s172 Statement 52 Viability and Going Concern Statements 54 The Company invests primarily in Audit and Risk Committee 56 global equities across a wide range Directors' Responsibilities 59 of different sectors and industries Remuneration Report 60 to achieve its objective. Independent Auditor’s Report 66 Financial Statements 74 Other Information Glossary: Performance Measures and Other Terms 100 Information for Shareholders 102 Ten Year Record 105 1. As rated by Willis Towers Watson. 2. MSCI All Country World Index. 3. Sebastian & Attaluri, Conviction in Equity Investing, The Journal of Portfolio Management, Summer 2014. 4. Alliance Trust has appointed Towers Watson Investment Management Limited (TWIM) as its Alternative Investment Fund Manager (AIFM). TWIM is part of Willis Towers Watson (WTW). In this document we refer to TWIM as Willis Towers Watson or WTW. 5. Willis Towers Watson, as at 30 September 2020. 6. Willis Towers Watson, as at 31 December 2019 (latest data available). 7. Apart from GQG Partners, which also manages a dedicated emerging markets mandate with up to 50 stocks. 3 Strategic Report Our 933.9p Performance (2019: 875.9p) in 2020 2 Net Asset Value 8.5% (2019: 23.1%) FINANCIAL HIGHLIGHTS AS AT 31 DECEMBER 2020 NAV Total Return1 KEY PERFORMANCE INDICATORS On these two pages we set out the Key Performance Indicators (KPIs) the Board uses to measure performance. The benchmark we use is the MSCI All Country World Index (MSCI ACWI). NET ASSET VALUE (PENCE)2 NAV TOTAL RETURN (%)1 COMPARISON AGAINST PEERS (%) This shows the value per share of the This measures the performance of This shows our NAV Total Return against investments held by the Company less our assets. It combines any change that of the Morningstar universe of UK its liabilities (including borrowings). in the NAV with dividends paid by retail global equity funds (open ended the Company. and closed ended). 1000 933.9 100 92.2 100 875.9 81.7 81.1 81.7 777.7 80 800 723.6 80 667.5 600 60 60 41.4 40.7 37.9 37.9 400 40 40 31.9 30.5 26.4 26.4 200 20 12.7 20 12.7 8.5 8.5 0 0 0 2016 2017 2018 2019 2020 1 year 3 years Since 5 years 1 year 3 years5Since years 1 April 1 April Source: Alliance Trust. 2017 2017 Net Asset Value includes income MSCI ACWI Morningstar Global Equity Median and with debt at fair value. Alliance Trust Alliance Trust Source: Morningstar and MSCI Inc. Source: Morningstar. NAV Total Return based on NAV including income with debt at fair value and after Managers’ fees (including WTW’s fees). 1 April 2017 is the date of appointment of WTW as Investment Manager. 4 OUR PERFORMANCE 901.0p (2019: 840.0p) 14.38p (2019: 13.96p) Share Price 9.4% Total Dividend2 (2019: 24.3%) Total Shareholder Return1 SHARE PRICE (PENCE) TOTAL SHAREHOLDER RETURN (%)1 TOTAL DIVIDEND (PENCE)2 This is a simple means of identifying This demonstrates the return our YEAR TO 31 DECEMBER the change in the value of the Company. shareholders receive through dividends A steadily rising dividend is one and capital growth of the Company. of the objectives of the Company. 15 1000 100 901.0 92.2 92.1 840.0 14.38 800 746.5 80 688.0 13.96 638.0 14 600 60 13.55 41.4 41.0 13.16 400 40 31.9 13 27.6 12.77 200 20 12.7 9.4 0 0 2016 2017 2018 2019 2020 1 year 3 years5Since years 12 2016 2017 2018 2019 2020 1 April Source: FactSet. 2017 Source: Alliance Trust. MSCI ACWI Alliance Trust Source: Morningstar and MSCI Inc. 1. Alternative Performance Measure (refer to Glossary on page 100). 2. GAAP Measure. 5 Strategic Report Chairman’s Statement 2020 was marked by the far-reaching • In 2020 the Company’s share price increased to a near consequences of the Covid-19 pandemic. Global stock markets record high and Total Shareholder Return (TSR) amounted collapsed in March in the most to 9.4%. Net Asset Value (NAV) Total Return was 8.5% while intense decline since 1929. Massive the Company’s benchmark index returned 12.7%. fiscal and monetary interventions led to a rebound, which accelerated as positive news emerged about vaccines. • The Company’s TSR and its Equity Portfolio Total Return Markets also had to contend with are in line with its benchmark return for the period the protracted negotiations over the between 1 April 2017, when the Company appointed terms of the United Kingdom’s trade agreement with the European Union its Investment Manager and 31 December 2020. and one of the most contentious US elections in that country’s history. • The portfolio remains structured for long-term growth and has delivered a resilient performance in a year of global The Company’s Investment Manager, Stock Pickers and Executive team turmoil during which the benchmark return was skewed successfully transitioned to working by the performance of the very largest companies. remotely, with no interruption to our operations; they are all commended • Partly assisted by the benefit of accumulated reserves, for this. the Company has increased its ordinary dividend for Despite the economic effects of the 54 years and it expects to pay a higher dividend in 2021 pandemic, the Company delivered an increase in its NAV and dividend while and beyond. the discount remained steady and costs were kept competitive with an Ongoing Charges Ratio (OCR) of 0.64% (2019: 0.62%). PERFORMANCE Returns from investing in global equities have been dominated for the last three years by a small number of the world’s largest growth stocks (most notably in the US and China). The impact of the pandemic in 2020 was to amplify the market’s level of concentration in these 6 CHAIRMAN’S STATEMENT Despite the unparalleled turbulence of 2020, the Company ended the year with its share price at a near record level and its run of increasing dividends extended to 54 consecutive years. It is disappointing that the Company did not outperform its benchmark, but this is not surprising given that index returns were heavily skewed towards a handful of US large and mega-cap stocks. As the roll out of vaccines develops and the global economic recovery broadens out across industry sectors, your Board and our Investment Manager remain confident that the Company’s diversified but high conviction portfolio is well placed to deliver long-term outperformance.” Gregor Stewart Chairman stocks.