What’s keeping our stock pickers up at night

Craig Baker, who chairs the investment committee at Alliance Witan Ord (LSE:ALW), talks about the markets and shares currently offering good value, and looks at some recent changes to the trust.

He also tells interactive investor’s Dave Baxter about the outlook for the trust’s dividend and the level of turnover in the underlying portfolio.

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Dave Baxter, senior fund content specialistat 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, the trust is slightly underweight in terms of its allocation to the US. Where else around the world are you finding interesting buying opportunities?

Craig Baker, global chief investment strategist at Willis Towers Watson, the investment manager for Alliance Witan: As you can expect, when you’re asking managers just to give you their 20 best ideas, it’s unlikely that they’re going to be finding them all in one market. 

So, we’re definitely finding ideas in all sorts of places. For example, we have a number of stocks in the UK. The UK is a market that’s underperformed for a long period of time until kind of the last 12 months or so. There’s a number of good-quality global businesses that are on much lower valuations than in the US, for example.

Things like London Stock Exchange Group (LSE:LSEG), Admiral Group (LSE:ADM), Unilever (LSE:ULVR), and Diageo (LSE:DGE). So, there’s a number of stocks in the UK market that are looking interesting value at the moment.

We’ve then got a number of mid-cap names in Japan. We’ve got a a Japanese specialist in Dalton, which really focuses on that area and we think Japan’s a particularly interesting market because there’s been changes in that market to try and encourage corporates to spend their cash better and produce better shareholder value than has been the case for recent years. So, there’s lots of opportunity for a value manager in that space.

We’ve got some Indian banks that look attractive. We’ve also got some luxury goods companies in Europe. So, there’s quite a few interesting plays all around the world, as you can expect.

Dave Baxter: Of course, you end up kind of refreshing your list of stock pickers sporadically. You’ve had a couple of interesting recent changes. Can you just tell me what’s gone on there?

Craig Baker: Yes. In September 2025, we made two manager changes. So, in simple terms, SGA, Sustainable Growth Advisors, which is one of the managers that had been in place from the beginning in 2017, and ARGA, a value manager based in the US, [both] came out of the portfolio, and we put two new managers in.

So, that’s Artisan, which is based in Milwaukee in the US, which is a value manager. ARGA were a value manager, and Artisan is a value manager, a bit more focused on quality companies within that value bucket.

The second manager that’s come in is Brown Advisory, so the Brown team that run this global portfolio are split between Baltimore and London. They’re a quality bias manager, a bit like SGA who have come out, but they are very focused on what makes customers keep coming back to the companies that they own. So, what is it that’s getting customer loyalty?

That’s something that we think is particularly helpful in an inflationary environment - how they’re going to keep their customers when prices could be rising and the like.

So, those are good examples, actually, because nothing significant changed at either of the managers that have come out. We still continue to think they’re good managers. We just took an opportunity to upgrade in terms of our conviction in a couple of other managers who we’ve liked for a number of years, and it’s an opportunity to bring them into the portfolio. And they bring something a little bit different.

Over time, as managers change their portfolios, sometimes taking a couple of managers out and putting a couple of other managers in changes the balance of the portfolio, so that it looks more attractive for the market environment that we’re in. So, there’s an example [from] the last month or two.

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Dave Baxter: Obviously there’s been lots going on in markets and that can prompt stock pickers to move around their positions. I was wondering how much change there’s been in the actual underlying portfolio this year, and how does that compare with recent years?

Craig Baker: A good question. We typically are hiring managers that have got quite a long-term time horizon, and so they’re not typically running high-turnover portfolios. In some cases, that might be 20% turnover or less in some periods.

But the interesting thing is, when you’re running a ‘best ideas’ 20-stock portfolio, when you get very high volatility in markets, you tend to get more turnover in the portfolio because you’re taking the opportunity to take profits on the stocks that have run up a lot, and finding real bargains on ones that have fallen a fair bit.

So, you get a bit more turnover because it’s that one-in, one-out policy, in the sense that if you want to put a new idea into the portfolio, and keep to less than 20 stocks, you’ve got to take something out that you’ve got slightly less conviction in than the one you’re putting in.

So, there’s definitely been increased turnover in the portfolio this year than in previous years, although that’s focused more with a few managers than others. For example, Jennison in the technology space have made a fair few changes. As I mentioned earlier, they are a growth manager that focuses on accelerating growth and moving out of ones that have got slightly decelerating growth.

And so they actually turn the portfolio over a little bit, moving out of some of the US tech names that have done very well for them into some interesting ideas in China and Europe. So, luxury goods in Europe, for example. More recently they’ve actually been buying back some of those companies in the US. So, that’s seen a bit of turnover in their portfolio.

Then perhaps the other one I’d pick out is GQG. Now, GQG is a manager that will always turn their portfolio over a bit more than others. They will be quite comfortable sometimes being in more growth-oriented names, sometimes in more value-oriented names in other people’s parlance. In their view, it’s on the quality of cash flows.

They were, if we go back about 12 months, very much overweight the large tech names, and they made a big switch into more defensive names over the course of the last 12 months. Now, that’s hurt performance over the last 12 months in relative terms, because obviously the market’s continued to do very well and be led by a lot of those technology AI themes.

But GQG are very much of the view that valuations have become a bit stretched, and so they’ve really changed their portfolio.

So, those are a couple of examples, but most of the managers haven’t changed the core of their portfolio, but have changed things around the edges.

Dave Baxter: Alliance Witan does pay a dividend. The shares have a yield of around 2%. How safe is that dividend? And is it the case that you’ll need to dip into revenue reserves, or can you fund it through more natural income?

Craig Baker: Yeah, so over the long term we’re pretty comfortable that the dividends can be paid out of the natural yield. But there are years where the yield’s going to be lower on the portfolio because you’re finding areas of the market attractive that just happen to pay less dividends.

Technology is a good example. Companies tend to have lower dividends than you get in a number of other sectors,  and so we’re quite happy to dip into reserves. That’s one of the big advantages of the investment trust space.

In particular, it’s one of the big advantages of Alliance Witan. It has reserves of well over £3 billion.It can continue its progressive dividend policy for many, many years to come without that ever being an issue.

So, we don’t put any constraints on the managers that they have to produce a certain level of income. We’re comfortable over the long term that will cover what we need, but we will dip into reserves, and we did that in 2024. We will continue to do that if needed.

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Dave Baxter: So, you will regularly speak to your underlying stock pickers and get their views on what’s going on. What are the big concerns they currently have for markets?

Craig Baker: The first thing to say is that when you challenge them on the companies they own, they are pretty confident in those companies almost regardless of what happens, as long as you’re taking a long-term time horizon.

Their concerns are more around what could happen to markets in the short term, both in terms of the impact that could have on relative returns, as we’ve talked about for the first nine months of 2025, but also it could have an impact on absolute returns in the short term.

So, they’ll look at geopolitical risk as one of those things. They will look at stretched valuations in some parts of the market, the fact that you’ve seen some quite extreme moves in stocks and, in particular, stocks driven by the AI theme. But elsewhere in the market as well, you’re seeing very big increases in share price or decreases in share price based on earnings announcements that are ever so slightly above or below expectations. And you’re seeing quite extreme changes in that.

A number of them are concerned about those sorts of things, but in terms of the robustness of the businesses that they are invested in, not at all. We certainly monitor how those businesses are doing in an underlying fundamentals perspective, their earnings growth and the like, and the portfolio looks very robust on that basis.

Dave Baxter: Finally, our standard question: do you have skin in the game?

Craig Baker: Yeah, absolutely. A very large proportion of my equity portfolio is invested in Alliance Witan stock, and that’s not just me, that’s true of the three of us who manage the portfolio on a day-to-day basis.

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.