Scottish mortgage posts double digit returns and raises over £400m – Scottish Mortgage (SMT), the £7.7bn market cap global growth trust, reported another strong set of annual results (to March 31, 2019) earlier today. Total return NAV was up 14.6% while the shares rose 16.5%. SMT holds a number of companies in the technology space that are driving structural growth. Alibaba, Amazon, Tencent, Telsa and Netflix sit among its top ten holdings.
Given the level of performance achieved by many of these companies over recent years, their overall weightage has grown in lockstep. SMT is keen to point out that its portfolio includes several other sector strategies beyond technology, which the trust’s chairman, Fiona McBain, notes in her outlook statement (an extract is shown below).
SMT’s headline return number for the year include:
- Total Return (%) NAV 14.6 (NAV after deducting borrows at fair value)
- Share Price (%) 16.5
- FTSE All-World Index (%) 7
- Global Sector Average (%) – NAV 9.9
- Global Sector Average (%) – share price 11.7
SMT maintained the policy of paying a small and growing dividend (37% growth to 1.64pc in 2018/2019). Although the board stresses that long-term returns will continue to come from capital appreciation, it is recognised that a significant number of shareholders value the dividend augment (current dividend yield of 0.59%).
Going after unquoteds
SMT raised over £400m in new stock over the financial year as investor demand remained very strong. SMT used a chunk of the new capital to further grow its exposure to unquoted companies, which now account for around 17% of the fund’s allocation. Technology firms in particular are staying private for longer, helped by ample access to private capital and as we have seen recently with some major initial public offering’s like Uber and Lyft, listing brings its own risk.
Look beyond tech
Fiona McBain, chairman of SMT, had this to say on their outlook: ”The strengths of SMT’s strategy tend to be recognised most clearly when markets focus their attentions on company fundamentals. However, there will almost inevitably also be periods of broad-based swings in sentiment when that is not the case and short-term views prevail in markets. The board does not view such oscillations as a true investment risk for the patient investor who is prepared to hold steady; it is why we continually emphasise that this a long-term investment.
The ability to cope with uncertainty is key to all investment. The best long-run risk mitigation strategy remains flexibility. SMT can invest in companies in any industry or geography. The overall approach remains consistent, although the reflection of this within the portfolio evolves through time as countries, industries and companies themselves change.
Today, Scottish Mortgage has perhaps become best known for its holdings in the tech giants but investors are cautioned that defining the portfolio in such terms gives too narrow a perspective on this company’s future prospects. The portfolio not only includes retail, advertising and media businesses but also a wide variety of companies in healthcare, manufacturing, transportation, financial services, food production and consumption. There will inevitably be some portfolio companies whose future progress does not match their ambitions. Yet while this is a clear investment risk, it is mitigated by the asymmetry of the capital exposure compared with the potential scale of returns from those which do succeed.
The board and managers acknowledge the potential risk of changes to the regulatory environment for some of the larger portfolio holdings, but believe such risks are manageable as the likelihood, scope and impact of any such changes may be anticipated to a reasonable degree. There is also a range of macro level risks facing SMT, such as issues around global security and rising geopolitical tensions as a result of the eastward shift of economic power and influence. Macro factors such as these have far reaching, interconnected consequences but are more properly considered general risks which all investors must acknowledge and accept.
Over time, the board believes that it is likely that the winners and losers from the deep structural shifts taking place will become more apparent but that the transition period will likely be challenging and more volatile. Once again, shareholders are cautioned not to expect any attempt by the board or managers to mitigate short term market swings. We will continue to stand resolutely behind the long-term strategy.”
SMT: Scottish mortgage posts double digit returns and raises over £400m