Fund Review: Alliance Trust Global Thematic Opportunities

Having just passed its second anniversary, the £197.6m Alliance Trust Global Thematic Opportunities fund has utilised its strong stockpicking process and holdings in financials, energy and material, to outperform its benchmark in 2013.

Launched in December 2011, the fund, run by Ilario Di Bon, head of equities at Alliance Trust Investments, aims to generate superior long-term outperformance by holding a concentrated number of high-quality global equity investments. Mr Di Bon explains: “The investment process is predominantly bottom up, with strong emphasis on company fundamentals and with a number of structural themes underpinning the long-term growth prospects of the portfolio holdings. This process has been consistent since inception, and has not changed.”

The manager points out that when building the portfolio the focus is “first and foremost, on companies”. He adds: “Macro considerations are related to selected themes that are used in the research process. For example, superior GDP growth in emerging markets will support the emergence of new middle classes, representing the new customers of portfolio holdings like Reckitt Benckiser, Volkswagen and Samsung Electronics. In this regard, monitoring macro developments is important to assess whether value creation is on track.”

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The portfolio currently has approximately 57 holdings, spread across the globe, with the largest regional weighting in the US at roughly 58.3 per cent of the fund. It also has a 12.5 per cent weighting to the UK and just over 4 per cent in Japanese stocks.

In 2013, the fund returned 23.53 per cent, compared with 20.51 per cent from the MSCI All Country World Index and the IMA Global sector average of 21.65 per cent. Since inception the fund has returned 30.7 per cent to January 1 2014 according to FE Analytics, slightly behind the sector average of 33.93 per cent and the benchmark return of 33.06 per cent.

Mr Di Bon says there have been limited additions to the fund in the past few months, but adds: “The fund aims to identify high quality companies that are out of favour – recent additions that exemplify this focus are Banorte, a Mexican bank, SAP, a German software company, and Aberdeen, the British asset manager.”

The manager notes that the fund’s holdings in financial stocks have performed strongly during the year, even though the sector is technically 1.2 per cent underweight compared with the index, as of the end of September.

Not all sectors have performed well for the fund, however, with Mr Di Bon noting that selected holdings in the Information Technology sector, which is roughly 2.3 per cent overweight compared with the index, have detracted from performance. He highlights Samsung Electronics, one of the fund’s top-10 holdings with a weighting of 2.4 per cent, as a particular detractor. In addition, Cadence Design Systems – a US software company – has also underperformed. Although he adds both Samsung and Cadence are still held in the portfolio in spite of the recent drag on performance.

The fund’s largest weighting is to Express Scripts, a healthcare stock, which was also one of the fund’s detractors in the third quarter, although other large positions such as United Technologies, an industrial play, and Resolution, another financial stock, were among the fund’s biggest contributors in the third quarter.