The Dundee-headquartered investment firm attributed the volatility to several factors, including worries about slowing economic growth in the US, mixed earnings for the large cap technology stocks that have been driving market returns year-to-date (YTD) and an increase in interest rates by the Bank of Japan.

The rate rise caused a rapid unwinding of the so-called “carry trade”, whereby investors borrow in Japan’s cheap currency to invest in countries and assets offering higher yields, including global equities. US large-cap tech stocks and Japanese equities, which had delivered strong year-to-date performance and were popular levered trades, were notably exposed.

However, these concerns all proved short-lived, reflecting shifts in sentiment rather than persistent changes in economic or corporate fundamentals. By 29 August, the US market was back close to its YTD high, Japan’s Nikkei Index rebounded from a 5% YTD loss on 5 August to a 15% gain. 

Alliance Trust’s portfolio slightly underperformed the 0.2% gain in the benchmark index, returning -0.3%. The total shareholder return was -3.2%, due to the discount widening to 5.7% from 2.9% at the end of July.

The firm said explained the performance is mainly due to overweight positions in the communications and industrials sectors. Individual stock performances varied, with Synopsys and Carlyle Group being notable detractors, while Workday, Elanco, and Lojas Renner contributed positively.

Looking ahead, Alliance Trust remains cautious about the outlook for the rest of the year. Despite strong gains since January, uncertainties about interest rates and the upcoming US elections could undermine confidence in the markets.