Scottish Mortgage has highlighted the significant number of shareholders who value its “modest” income despite the investment trust’s increasing allocation to unquoted companies as its latest annual results detail 16.5% return for the one-year period ended 31 March.
The £7.7bn investment trust, managed by James Anderson (pictured) and Tom Slater, has comfortably outperformed the FTSE All World index, which returned 10.7% over the period.
Amazon was the largest holding by the end of the year representing 9.6% and Illumina comes in second at 7.5%. Alibaba and Tencent were both 6.5% and Tesla rounds out the top-five representing 5.3% of the portfolio.
Designer glasses and space exploration among unquoted companies
Unquoted companies represented 17.3% of the portfolio at the end of March, up from 15% the previous year.
Ant International, a spin-out from Alibaba, was added to the portfolio over the reporting period and sits in the top 10 holdings representing 2.4% of trust. Other unquoted companies in the portfolio include glasses retailer Warby Parker, Space Exploration Technologies and Airbnb.
Winterflood Investment Trusts head of research Simon Elliott said he likes private equity and unquoted companies.
Elliott said: “There’s increasing talk around the investment industry that to get exposure to those type of companies is a good thing, because companies are staying private for longer. They’re not capital intensive businesses so typically when companies IPO, particularly in America, it’s to provide investors liquidity – that’s one of the main drivers.”
The unquoted bucket at Scottish Mortgage is differentiated from private equity because the trust holds companies well beyond IPO, he said.
Modest dividend policy
Despite the investment trust’s increasingly growth focused portfolio, chairwoman Fiona McBain said a significant number of shareholders value the trust’s “modest level of income”. The trust has proposed a final dividend of 1.74p taking the total for the year to 3.13p – a 2% increase on the previous year.
Tilney managing director Jason Hollands said most Scottish Mortgage shareholders probably view the dividend as something “nice to have rather than a feature that they regard as sacrosanct”. The “all-out growth trust” is popular in Bestinvest Junior Isas given its long-term horizon, Hollands said.
“As the trust expands its unquoted holdings over time, natural income from the underlying portfolio could well come under further pressure as unquoted companies often do not pay any dividends.”
Revenue earnings do not cover the dividend so the balance is paid from capital reserves. However, a new allocation policy means more income comes from distributable earnings.
