Register Log-in Investor Type


ScotGems reflects on challenging year

ScotGems reports losses in year-end results

The global emerging markets company, ScotGems (SGEM), which invests in small-caps, has published its annual accounts to 31 December 2019. It was a difficult year results-wise with SGEM’s shares falling by 23.2% and the NAV by 6.5%, over the year. This compares to a rise in the MSCI AC World Index of 19.3%, a rise in the MSCI Emerging Markets Small Cap Index of 5.5% and a rise in the MSCI Emerging Markets Index of 11.0%. The discount widened from 0.6% to 18.4% (it is not currently the board’s policy to buy back shares).

SGEM has been undergoing some major changes over over the past few months. The management team at Stewart Investors (the manager) resigned in October (click here to read more). Stewart Investors was subsequently retained as manager with  Tom Prew assuming the role of lead manager, and Chris Grey that of co-manager.

The new investment management team proposed two changes to the investment policy, which were passed at a general meeting on 9 December 2019:

  1. To increase the number of investments permitted within the company’s portfolio from between 20 and 30 to between 30 and 50; and
  2. To clarify that the company’s focus will continue to be on small cap companies which are primarily listed in emerging markets as opposed to small cap companies listed on any global stock market.

View from the manager – reduced exposure to Asia

“Stewart Investors notified the Board of ScotGems of the resignation of lead manager Ashish Swarup in September, and that of his co-manager Tom Allen shortly afterwards. The board of ScotGems consequently decided to review the contract of the Trust. This review included an invitation to Stewart Investors to submit a proposal to the Trust, showing how the new investment team would manage the Trust on a long term basis should they be retained to do so. This proposal was accepted on 22 October 2019 and a shareholder resolution confirming the above was passed on 9 December 2019. 

The investment philosophy followed by the trust’s new investment team, based in Edinburgh, is identical to that elsewhere in Stewart Investors. We believe that the strategic vision, execution capability and governance of a company – in particular the integrity of its management and owners – are far more important than shorter term considerations such as next year’s earnings.

In compiling this proposal, we identified changes we intended to make to the portfolio so that the Board had all the information required to make a decision. Our indicative proposal retained 12 out of the existing 25 companies held, leading to approximately 60% turnover by value. Our proposal also contained a longer, but still concentrated, list of 34 stocks. With regards to geographic distribution, the indicative portfolio continued to be composed almost entirely of smaller companies, albeit with less of a slant towards Asia.

The main reason to change stocks is not necessarily because of a strong dislike, and certainly not a lack of knowledge, of the companies held. As the risk of capital loss in earlier stage companies can be acute, stock-picking is even more about personal choice than it might be for mid or larger capitalisation companies. Our investment philosophy prioritises integrity of management and ownership above all other things; clearly, degrees of integrity are impossible to quantify making personal comfort with holdings, especially of smaller companies, vital. Stewart Investors has always defined risk as the permanent loss of capital for clients, as opposed to shorter term index underperformance.”

SGEM: ScotGems reflects on challenging year

Leave a Reply

Your email address will not be published. Required fields are marked *

Please review our cookie, privacy & data protection and terms and conditions policies and, if you accept, please select your place of residence and whether you are a private or professional investor.

You live in…

You are a…