Home Commodities Alliance loses 11.3% despite boost from commodities exposure

Alliance loses 11.3% despite boost from commodities exposure


The global multi-manager trust delivered a net asset value return of -10.5%, marginally ahead of its benchmark, the MSCI All-Country World index, which returned -11%.

However, as the discount widened to an average of 6.3%, up from the 5.9% average of the same period last year, the trust’s shareholders were left with a -11.3% return. The trust fared better than its rival global investment trusts, which lost 18.6% on average.

Alliance reported a portfolio turnover of 32.7% over the period, significantly higher than its target of 10% to 15% per year. This was due to the termination of the mandate with River & Mercantile and its 0.5% exposure to Russian stocks, which were sold in March.

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“The investment team at R&M was stable but the business had gone through significant change. We expected more corporate activity in the future and a focus on business growth,” said chair Gregor Stewart.

“We believed that this did not provide the best environment for the manager of one of our concentrated stock-picking mandates.”

R&M’s allocation, which represented around 6% of the portfolio, was redistributed among the other nine managers, with the bulk of the allocation going to Black Creek and Jupiter, which both have a smaller cap and value bias, similar to R&M.

The value-oriented stock pickers of the trust outperformed over the six month period ended 30 June 2022, while the performance of growth-oriented managers fell short. 

The trust’s overweight position in UK stocks, such as BAE Systems and Booz Allen Hamilton, contributed to performance, as did the underweight to consumer discretionary and overweight to energy. The overweight bet to communication services was one of the performance laggards.

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GQG’s investments in large oil and gas companies Petroleo Brasileiro and ExxonMobil were the first and third biggest contributors to performance, up 43% and 59% respectively, on the back of higher oil prices. 

“Today’s results show some ‘churn and burn.’ Portfolio turnover was far higher than normal and a higher allocation to energy stocks compromised climate goals,” said Dzmitry Lipski, head of fund research at interactive investor. 

“The environmental setback, for now at least, will not make easy reading. But hands on, active management will not always come with easy answers and the trust points to its engagement approach around climate goals.”

The carbon footprint of the trust rose over the last 12 months as the portfolio’s allocation to energy and materials increased. The trust’s investment manager recognised that this seems “at odds” with what they are trying to achieve. 

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However, the manager noted that its stock pickers are recognising that the valuations placed on these companies by the market appeared too cheap, even after factoring in the financially material ESG risks posed by the energy transition.

“Some of the stock pickers took advantage of the investment opportunity, and while the companies are held in the portfolio, we seek to vote and engage with them on these issues to ensure they move towards alignment with the Paris Agreement pathways to Net Zero,”  the investment manager’s report read.

Within the trust’s portfolio, gross gearing was maintained at approximately 9% over the last six months, below its target level of 10%. This hurt returns given the sharp market sell off over this period. 

The trust announced a second interim dividend for 2022 of 6 pence, up on 2021’s 3.702 pence. The total of the first two interim dividends paid for 2022 is 12 pence, representing an increase of 62% on the same payments for 2021.

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