The £40m that Scottish Mortgage is spending every week on share buybacks could be put to better use in making new investments, chair Justin Dowley said at its AGM yesterday (4th July).
It committed in March to spending a minimum of £1bn on buying back its shares over the next two years, and it is already halfway to that goal within just 15 weeks of the announcement – the trust has spent between £680m to £690m since March.
This programme – the largest in the trust industry’s history – has had an effect. Shares in Scottish Mortgage were trading at a 15.1% discount on the day of the announcement on 18th March but have shrunk to 8.6% today.
Yet Dowley said he would prefer to be allocating that £1bn elsewhere, stating: “We’d rather be spending that money on new investments, but our balance sheet is strong enough. It’s a balance and we can do both.
“We have an obligation to provide a liquid market for people who want to buy and sell at as close to the net asset value as possible.”
See also: Monks: Analysts weigh in after trust lags benchmark for third successive year
Scottish Mortgage also bought £311m of its shares from activist investor Elliott in May – the largest single-day buyback in trust history – after its position become uncomfortably large, according to Dowley.
Elliott took up a 5% stake in the trust a week after the buyback programme began in March, and Scottish Mortgage halved that with the repurchase in May.
Dowley said: “We actually bought back half of the stake that Elliott had assembled and we did that because we thought it was a little uncomfortable to have them at the size they were.”
Elliott claimed to be entering as an activist, after having influenced change previously at the likes of Alliance Trust, but some noted that its timing just a week after the buyback programme began was opportune.
AJ Bell investment director Russ Mould called it the “shortest activist investor campaign in history” and said Elliott was “laughing all the way to the bank as it has barely taken its feet off the desk”.
But Dowley said there was no hard feelings between them. Elliott had gained a reputation for being “hairy gorillas who are troublemakers,” he added, but praised the firm for its savviness.
“I take my hat off to them. They bought a lot of stock at an 18% discount and sold at a 6% discount – good on them,” Dowley said.
See also: Calastone: Equity fund flows have their best six months on record
With the discount narrower, the mood at this year’s AGM may have been more positive than in previous years. Shares in Scottish Mortgage were trading 21.9% below its NAV a year ago, but that has dropped to 8.9% today.
Likewise, its share price is up 33.9% over the past year having fallen 45.7% in 2022.
Despite this improved performance, Dowley said Scottish Mortgage was in greater need of support for its discount than most trusts.
As the 49th biggest company in the FTSE 100 index (with assets under management of £11.8bn), it has been combatting the outflows from passive funds – a headwind most other trusts have not had to face.
