Scottish Mortgage’s net asset value (NAV) tumbled 17% for the year to 31 March in a difficult 12 months for Baillie Gifford’s flagship investment trust.
In comparison, the trust’s FTSE All-World Index benchmark fell 0.9% over the period, while Scottish Mortgage’s share price also fell 33.5% over the year.
Outgoing chair Fiona McBain recognised that while macroeconomic headwinds had played their part, recent performance had been “disappointing”.
She said: “The board shares this disappointment but remains confident that Scottish Mortgage is a strong long-term investment. We firmly believe in the fundamentals of our investment portfolio, which has delivered so much value over many decades.
“The challenges we have faced have not been unique to Scottish Mortgage. Market turbulence has impacted all companies, and it would be wrong to allow short-term market volatility to influence our long-term investment decisions.”
After starting the year at 0.5%, the trust’s discount widened to 19.6%, which the board recognised as “discomforting” for shareholders.
The company bought back 36.5m shares over the 12 months at a total cost of £283.3m.
Manager Tom Slater (pictured) also added that while investors had turned to assets that are profitable, he warned shareholders not to “resort to following the crowd”.
He said: “Buying predictability may provide temporary comfort, but it is by embracing discomfort that we can entertain the possibility of outsized returns from exceptional companies.
“We know this has been painful for shareholders, but history shows that periods of poor performance are inevitable. Our approach will never be consistently in favour, and we should not deviate from it to avoid short-term headwinds.”
Reaffirming the trust’s ‘buy’ rating, Jefferies analyst Matthew Hose described the annual report as “business as usual results” with limited new information following recent upheaval on the trust’s board.
Director Amar Bhidé exited the firm in March, citing concerns over the board’s investment experience and the risks posed by its exposure to unlisted assets.
Following his departure, Scottish Mortgage appointed Sharon Flood, who has a background in private equity, and Vikram Kumaraswamy to the board.
Unlisted exposure back below 30%
Scottish Mortgage reined in its allocation to private markets, falling back below the 30% limit approved by shareholders in 2020. At the end of H1, unlisted assets made up 31.8% of the trust’s portfolio.
McBain said: “Five companies make up nearly half of the company’s overall exposure to private firms, and they have generally performed better than their publicly listed peers, raising money at higher valuations than last year, despite the market turmoil.”
“We continue to believe [the 30% limit] provides the company with the appropriate flexibility to invest in some of the world’s most exceptional growth companies that have chosen to remain private.”
Jefferies’ Hose added: “Importantly, there is further evidence of Scottish Mortgage fairly writing-down private holdings, but also continuing to allocate capital to this part of the portfolio.”
