Results round-up: Alliance Trust and Polar Capital Technology

Both investment trusts reported results this week. Kyle Caldwell runs through the numbers.

Widening discounts negatively impacted shareholder returns for Alliance Trust (LSE:ATST) and Polar Capital Technology (LSE:PCT), which both reported results this week.

Alliance Trust

In share price terms, Alliance Trust matched the returns of its benchmark, the MSCI All Country World Index, for the first six months of this year. It reported a total shareholder return of 11.1%.

Its underlying investments, however, outperformed the benchmark, with a net asset value (NAV) return of 14.8%. The difference between the share price return and the NAV return reflected a widening of its discount from 3.5% at the start of the year to 6.7% at the end of June.

There was also good news for income seekers, as Alliance Trust said that a second quarterly dividend of 3.702p, an increase of 3% on last year, will be paid in September. In addition, the board expects to extend the company’s 54-year track record of increasing dividends.

Gregor Stewart, Alliance Trust’s chair, revealed that the board has started a review of the dividend, which will “examine if and how the company could deliver a more attractive and sustainable level of dividend to shareholders, without changing the investment strategy”.

Stewart added: “With increased dividends expected as a result of the global economy re-opening, and the further flexibility that the conversion of the company’s £645.3 million merger reserve provides, the board has started a review of the level and funding of its dividend payments.”

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It was also announced that Alliance Trust will introduce exclusions on investing in stocks with significant exposure to thermal coal and tar sands. This is part of the trust transitioning its portfolio to net-zero greenhouse gas emissions by 2050.

Since April 2017, Alliance Trust has adopted a multi-manager approach, overseen by Willis Towers Watson. Since its appointment in 2017 to the end of June, the company’s NAV total return and total shareholder return were 58.4% and 56.6% respectively, against 57.2% for the benchmark.

Polar Capital Technology

Polar Capital Technology’s share price returns were much more negatively impacted by its widening discount. The trust this week reported its full-year results to the end of April. Over the 12-month period, the trust narrowly underperformed its benchmark in terms of its underlying investments. Its net asset value return was 45.5% versus 46.4% for the Dow Jones World Technology Index.

In share price terms, though, shareholders picked up a return of 33.3%. The trust moved from a premium of 3.4% to a discount of 5.3% over its financial year.

Since the end of April, its discount has widened further. According to Winterflood, the discount is currently 8.2% versus 6% for its 12-month average.

Its wide discount has caught the eye of Ian Cowie and also been the subject of one of our investment trust Bargain Hunter columns, which both pointed out that its discount is a way for investors to gain exposure to technology shares at a cheaper price.

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In its annual results, Sarah Bates, chair of Polar Capital Technology, saidthe board is prepared to continue buying back shares in an attempt to reduce the discount.

“The sector is volatile and shareholders should perhaps expect a degree of volatility in premia and discounts, but we are also aware both that too much volatility is unwelcome, and that having issued shares, we also should make sure we don't leave shareholders in the lurch if the discount widens significantly.

“We do not have an absolute target discount level at which we will buy back shares but we have historically bought back significant amounts of the outstanding share capital when deemed appropriate and we remain ready to do so again. As always, we keep the level of discount under careful review and have been buying back shares actively in recent months and will continue to do so.”  

Manager Ben Rogoff has tilted the portfolio towards the biggest technology themes he believes have the best growth prospects in the coming years.

Over its financial year, Rogoff noted that he had “gradually moved the portfolio to better position it for a ‘new normal’ backdrop in which a staggered reopening of economic activity would take place”.

Rogoff added that he “reduced exposure to those companies likely to prove non-recurring beneficiaries of the move to working from home, such as PC-exposed stocks, and added to those we felt would benefit from more lasting changes, such as food delivery and exercise at home. We also took profits in a number of areas including software where multiple expansion left us uncomfortable.”