The unloved stocks we’re sticking with

Craig Baker, who chairs the investment committee at Alliance Witan Ord (LSE:ALW), explains why the fund has struggled to keep up with global markets in the short term, what has worked in the longer run, and which current investments have more of a contrarian bent.

Speaking to interactive investor’s Dave Baxter, he also outlines the big differences between Alliance Witan and a global equity tracker, and how the investment trust might fit in a portfolio.

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Dave Baxter, senior fund content specialist at interactive investor: Hello and welcome to our latest Insider Interview. My name is Dave Baxter, and today I’m joined by Craig Baker.

Craig is the global chief investment strategist at Willis Towers Watson, which runs the investment portfolio for the Alliance Witan Investment Trust. Craig, thanks for joining me. 

So, Craig, Willis Towers Watson has been running the Alliance Witan portfolio since 2017. Many people will be familiar with the fact that they choose multiple stock pickers who run a portion of the portfolio, choosing their best ideas.

But to start off, it’d be great if you could run through just a couple of examples of the stock pickers and also tell us how many of the original 2017 line-up are still on the fund.

Craig Baker, global chief investment strategist at Willis Towers Watson, the investment manager for Alliance Witan: Yeah, of course. So, there are 11 managers as of today. Three of those have been in place for the full eight and a half years, but there have been changes to the portfolio through time.

We said at the outset that we’d expect about one manager change a year, so in eight and a half years the fact that eight of them are new managers and three of them are the original line-up is about in line with what we would have expected in terms of turnover of the managers through that period of time.

The way we do this, as you said, is we try and find managers that are going to give us their very best ideas, but we’re looking for managers that think about the world very differently to each other.

If I describe a few of them as we go through, they might sound like they’re quite similar in one or two sentences, but I can assure you that they all think very differently. That’s why we have very little overlap of stocks that each of them own in their 20 ‘best ideas’ portfolios.

At one end of the style spectrum, you’ve got managers that think more classic value, so they’re looking for very cheap companies and then picking the ones where they think that’s been overdone because they’re strong businesses that will continue to do well.

So, you’ve got someone like a Lyrical, which are based in the US, in New York, and they’re looking at US mid-cap stocks mainly, looking for the cheapest companies out there and deciding which ones are businesses that are going to continue to thrive, and the market has just overdone that poor valuation on the stock.

You’ve then got someone like a Dalton, which is also a value manager but works in the Japanese mid-cap space, so very different in that sense from a Lyrical.

Then you’ve got a few other managers that will call themselves more value managers, but they might start by looking at companies that are really high-quality companies and then decide which ones are cheap within that universe rather than starting with the cheapest companies and deciding which ones are the best quality of those cheap companies.

There you have people like Vulcan, which are based in New York. You have people like Metropolis, which are based in London. Veritas would be more in that quality camp and valuation camp, and they are also based in London.

At the other end of the spectrum, you’ve got some out and out growth managers, so Sands Capital, a US-based manager. They’re really looking for the growth companies of tomorrow, the ones that they’ll hold for a long period of time and that are going to really produce exceptional growth in earnings over a long period of time.

Another high-growth company is Jennison, so they’re also looking for growth companies, but they’re really focusing on the rate of change of growth, and so are a little bit different. They will move the portfolio around where growth is accelerating and come out of the ones where there may still be growth companies, but the rate of growth is decelerating. So, they’ll switch the portfolio around a bit more.

Then you’ve got some more quality-type managers. They really focus on high-quality companies, but again, there we’ve got two examples that are very different.

So, you’ve got a GQG, and they’re focusing on companies where they think there’s quality of cash flows. They won’t always be in traditional growth areas. Sometimes they will be, but sometimes they’ll move to what people would consider value areas of the market, so energy companies or utilities, where they think that the quality of the cash flows is really high at that particular point in time. So, they’ll switch the portfolio around more than others will. Whereas we have other managers that would stick to that style a lot more.

That just gives you a flavour of some of the differences that we’ve got between them. I haven’t mentioned all 11 in the interests of time.

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Dave Baxter: So, let’s talk about performance. Alliance Witan shareholders will generally be pretty happy over recent years with returns, but they have really lagged behind this year versus the MSCI All Country World Index. Can you explain what the main culprits are behind that underperformance?

Craig Baker: As you say, long-term performance has been strong and, actually, this year in absolute terms performance has continued to be absolutely fine. It’s just one of the best-performing things out there has been the index, and so this year to date, the first nine months of 2025, you’ve seen underperformance of that index and, actually, of the peer group by a lesser extent over that nine-month period.

The first thing to say is that hasn’t been because we’ve been in companies that have done particularly badly, had profit warnings, or anything like that. We’ve continued with positive absolute returns. We’ve actually not been invested in probably three things that have really been driving the market over those nine months.

One is US banks. We’ve had a decent exposure to financials generally, but we’ve had more in some emerging market banks, some payment processing companies such as Visa Inc Class A (NYSE:V) and Mastercard Inc Class A (NYSE:MA), some asset management companies on the private equity side and elsewhere. And we haven’t had much exposure to US banks that have done particularly well over the first nine months. That’s one part of it.

Second, we have, over time, reduced our exposure to some of the stocks that have really been driving markets for a number of years. Think of the Magnificent Seven. We’ve gone a bit underweight in that in recent times. We’re underweight NVIDIA Corp (NASDAQ:NVDA), for example. Nvidia and Broadcom Inc (NASDAQ:AVGO) are two of the stocks that have really driven the market in the last nine months, and we’ve been significantly underweight those two stocks, which has been painful in relative terms, obviously not in absolute terms.

Then the third thing is that there’s actually been a really interesting thing happening in markets over this nine-month period where unprofitable companies have produced returns of 25% on average, and profitable companies have produced a return of 9%. We haven’t been in a lot of those really unprofitable companies that are fitting a theme, many of which will probably turn out to not be worth the valuation that they’ve seen. Some of these things have seen 200%, 300%, 400%-type returns over the nine months. We haven’t been in those.

Our stock pickers are very much long-term fundamental stock pickers focusing on businesses that are continuing to deliver on the earnings that are expected. And, actually, when you look at our portfolio’s earnings delivery, it’s been better than that of the index. It’s just that hasn’t yet been reflected in the share price.

Dave Baxter: The stock pickers do tend to coalesce around some of the biggest names in the market, so your Microsoft Corp (NASDAQ:MSFT), Alphabet Inc Class A (NASDAQ:GOOGL), Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM), and so on. But what are the more contrarian stock picks cropping up in the portfolio?

Craig Baker: Yeah, so the first thing to say is that there are about 200 stocks in the portfolio and almost all those are owned by just one manager.

But as you say, there are a small number of companies where two or three managers own them at the same time. Those tend to be some of those larger-cap names that you mentioned. But yes, there’s a number of things in there that are a bit more contrarian or things that people haven’t been focusing on in recent times. I can give a few examples.

Murata Manufacturing is one. This is an interesting company that provides a lot of parts to smartphones and other electronic devices, so it’s in a technology area that’s doing very well, but it’s been under the radar. It actually looks very cheap relative to others in the sector, really on the thinking that it’s got less demand from China than was expected, we think that’s a short-term phenomenon. There’s a company that we think could do very well.

Another example could be Lear Corp (NYSE:LEA). So, Lear Corporation is a company that provides seats and other electric components for cars. The market’s very much been focusing on internal combustion engine (ICE) versus electric vehicles (EVs) and which EVs are going to do well in self-driving and all these kinds of issues. Whatever wins, they’re going to need seats. So, Lear Corporation, we think, is an interesting company continuing to deliver on what’s expected, but it’s pretty cheap, and it’s been under the radar. It’s not something the market has been focusing on.

Another example might be Everest Group Ltd (NYSE:EG), which is an insurance and reinsurance company. It’s one of the few out there that produces underwriting profits. A lot of insurance companies produce underwriting losses and make up their returns from their investment portfolio. This is a company that, through strong management over many years, has been producing underwriting profits. It’s sitting there on very low valuations. That’s an interesting idea.

So, those are the ones that people might not have heard of. One that people would know better, I guess, is Salesforce Inc (NYSE:CRM). That’s a company that has seen its share price fall quite a lot, despite the fact that the company’s doing well, [over] fears that artificial intelligence (AI) is going to take over that industry.

Of course, AI is going to have a lot of impact on the technology industry, but we think with a company like Salesforce that’s got embedded relationships with its clients and can use AI itself, that’s going to be a company where it can continue to do well, and some of those share price movements have been overblown.

So, there’s some examples of things that may be a bit different.

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Dave Baxter: I guess sticking cheerfully with the share price falls, which ones are currently demanding more patience and having more of a difficult period?

Craig Baker: Maybe I’ll give an example with Diageo (LSE:DGE). So, Diageo’s a stock that we’ve got in the portfolio.

We had a couple of stock pickers in that around 2023-24, particularly 2024 after a 30% fall in the share price started buying a decent position in that. It has actually fallen a bit further since then. But that’s a company where a lot of things have hit the share price.

First, it did particularly well around Covid and lockdown with people staying at home and drinking alcohol. So, it brought forward a lot of orders and, of course, as people have been going out more since lockdown finished, that took a bit of the growth out of it[and] people were expecting that to continue forever. So, that was one hit.

You then had tariffs come in and people have expected that to hit Diageo in particular. And you’ve had a view from the market that younger generations are drinking less than the older generations, and you’ve had a view that emerging market growth in this sector’s going to be less than perhaps was expected a few years ago.

So, all those things have come together and led to this kind of 50% price drop that you’ve probably seen from peak to today. We think a lot of those things are overblown. The stock pickers have gone through all the analytics on that. You can really work out the value of tariffs on this and really feel as though this is something that can continue to do particularly well.

But if the market’s focusing on other areas at any particular point in time, that may take some time to come through. So, there’s one example of something.

But there’s a number of companies in the portfolio where the stock pickers are generally thinking three, five-plus years out, and the stock market in recent times has really been focusing on short-term dynamics. So, it can take a while for that to play out.

Dave Baxter: And imagine I’m one of the many investors considering putting a chunk of money into a global tracker fund. What would be your elevator pitch for me to choose Alliance Witan instead?

Craig Baker: So, look, a global tracker fund is a sensible investment, so I’m not going to say it isn’t. However, we would be very confident that Alliance Witan portfolio would do significantly better than a tracker over the long term.

There’s a few reasons for that. First, we’ve got lots of evidence over the years that we can pick who are the world’s best stock pickers, and that over a long period of time they can deliver when they’re investing just in their very best ideas.

So, we’ve followed a similar approach to Alliance Witan for institutional portfolios for close to 20 years, and that’s outperformed by about 4% per annum, to put that in perspective.

The second point to note is that if you look at the market index today, it’s quite concentrated in a small number of themes and in particular a small number of very large global tech companies that happen to be based in the US.

Our portfolio, the Alliance Witan portfolio, is much more diversified than that. So, we think over the long term that will deliver much more interesting returns and it isn’t just reliant on one big theme driving the portfolio.

Dave Baxter: Craig, many thanks for coming in. That’s it from our latest Insider Interview. Thanks for watching. Do let us know what you think in the comments, and if you enjoyed this series, do hit the like button and the subscribe button. I hope you enjoyed it and see you next time.