The giant closed-ended fund – which has £3.2bn in assets under management (AUM) – has been struggling under restructuring programmes, with a new savings and investment business making losses, and the discount on the trust falling to 17.31 per cent in 2011.
However, it has seen its best start to a year in two decades, with the share price up 16.02 per cent since 1 January compared with 15.69 per cent for the MSCI AC World index and 12.31 per cent for the IT Global Growth sector.
Performance of trust vs sector and index in 2013
Source: FE Analytics
This follows a strong 2012 in which the NAV performance on the fund grew 12.1 per cent, slightly above the 11.7 per cent of the MSCI World index.
Last year saw the appointment of Ilario di Bon as head of equities, with a remit to make the portfolio more concentrated and focus on global rather than regional themes.
According to Numis analyst Tom Tuite-Dalton, although the early signs are positive, investors should withhold judgment on the success of this strategy until they see how it pans out in 2013.
"Many potential investors will want to see a three-year record before signing up," he said.
"In the meantime, with Alliance Trust’s discount at the top end of its 12-month range, we think a neutral recommendation is now appropriate."
The discount on the trust has narrowed to 14.6 per cent, according to the AIC, but that still puts it among the cheapest in the sector.
Investors who wait and see what occurs could end up missing out on a potential bargain if the turnaround continues.
According to Tuite-Dalton, one of the most significant stories in the annual results is the improving figures in the controversial savings and investment business.
Although Alliance Trust Investments continued to make regular losses, Alliance Trust Savings [ATS] lost only £400,000 in 2012 overall and actually made a profit in the fourth quarter.
However, Tuite-Dalton warns that this could yet prove to be an aberration.
"Valuing illiquid assets is not an exact science and in the case of ATS, it is not easy for analysts to extrapolate forwards on the basis of one quarter’s profits," he said.
"ATS most probably benefited from the flurry of stock-market activity witnessed in Q4 and year-to-date."
"The hope is that such profits can be sustained. The fear is that Q3/12 and Q1/13 prove to be an aberration in terms of stock market volumes."
Despite increasing losses on Alliance Trust Investments, the trust is sticking by the subsidiary, investing a further £10m in an attempt to turn it around.
Charles Cade (pictured), head of investment companies research at Numis, says that the performance of the subsidiaries is encouraging, but he agrees with Tuite-Dalton that more sustained outperformance on the underlying portfolio needs to be seen before a judgment can be made.
"We feel a continued improvement in NAV performance is needed to turn around investor sentiment towards the stock." "To date, performance of the equity portfolio has been solid, but has lagged behind global markets, with the key contribution to modest NAV outperformance coming from share buybacks."
The trust has announced its 46th consecutive annual dividend increase, which the AIC says means that it, along with the City of London IT, has the longest track record of doing so.
However, Tuite-Dalton warns against reading too much into this.
"As regards the 46 years of consecutive dividend increases, one needs context – the trust yields 2.2 per cent."
"It is easier to grow your dividend if you are not offering an above-average market yield in the first place."
However, he says that investors should keep an eye on the trust to see whether its turnaround strategy continues to gain traction.
"We will watch with interest for any future developments in the fortunes of both ATS and ATI and on the longer-term impact of having Ilario di Bon as chief investment officer and a more concentrated equity portfolio," he said.
Performance of trust vs index over 10yrs
Source: FE Analytics
In spite of the uptick in performance, the Alliance Trust is still short of its MSCI AC World benchmark over the last decade, with returns of 163.48 per cent.
The index has returned 168.71 per cent over the period and has been less volatile.