Your money in their hands

Your money in their hands

They come no larger in the investment trusts world than the Alliance twins. The trusts - Alliance and smaller Second Alliance - began in Dundee almost before the dawn of time (nearly 120 years ago to be more precise) and control more than £2.2bn.

And that's very big by anyone's reckoning. But does big also have to be bad and boring? If you like words like spectacular and soaraway then disappointment awaits. For while the two trusts have been popular with private investors - they now hold 80% of the stock - their success owes more to an efficient savings scheme and an ultra-low 0.33% cost than to performance.

The two Alliance trusts (they have identical investment aims and portfolios) have been far from inspiring. The performance tables, rating Alliance against other big global investment trusts that aim at growth such as Bankers, Foreign & Colonial, and Witan do not make fun reading over any recent time scale.

The trusts have managed a reasonable return at lower risk over the past 10 to 20 years. Long-term risk-averse customers are happy. Investors with shorter timescales could have done better elsewhere.

To his credit, Alan Harden, the chief executive, is the first to admit this. "The past performance was not eye-catching," he says with an air of self-deprecation. "The way we ran money was too complex. We went for industry sectors first and then geography. And that didn't allow us to see things in the round." Mr Harden used.....continued below

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to run Asian stocks for Citigroup out of Tokyo.

"We became process-oriented and did not have analytical cover," he adds.

So where does the duo go now? Mr Harden does not like the multi-manager "outsourcing" approach used by rival Witan. Instead, he has turned previous methods upside down.

Overseeing all decisions is a new acronym - Alico. That stands for the Asset Liability Investment Committee. Below that, fund managers now look at geography, and only then sectors and individual companies. So far, Alico has come up with big holdings the same as everyone else's - oils, banks and resources. Mr Harden agrees there's little originality here. But it works - providing other funds continue to hold. And he's a fan of Japan, where he hopes for a new dawn for the rising sun.

It's not all big stocks, though. Fund manager John Ewart looks at small companies within the fund. He's plunged into Paladin, an oil company that exploits parts of the North Sea too small for BP or Shell. Paladin is up 20% since the June purchase.

And he's buried some money into undertaker Dignity. Funerals are not a growth area but Dignity has been clever with financing. The shares, bought at 275p, are now worth 440p.

Now Alliance is likely to borrow to gear up its returns - something it has not done in living memory. "We want to put pounds into the till but at a lower risk," says Mr Harden.

Fund facts

Performance

Alliance Inv Trust: 3yr: +32.8% 5yr -1.6%

Sector average: 3yr: +40.1% 5yr: -7.5%

Largest holdings (at 31/08/05)

BP 3.9%

Royal Dutch Shell 3.4%

GlaxoSmithKline 3.1%

Vodafone 2.1%

HBOS 1.9%

Rio Tinto 1.5%