Scottish American (SAIN), the £866m global equity income investment trust managed by Baillie Gifford, has offered itself as an “island of sanity in the eye of the storm” after providing a positive half-year return during the market turmoil over US tariffs.

The company, nick-named “Saints”, grew net asset value by 1.1% in the first six months of this year, with its shares returning 3.7% to beat its global equities benchmark’s 1% return.

Lord MacPherson, the trust’s chair, said this was a good performance given the risks to elevated stock markets at the end of last year.

Scottish American’s comparatively defensive portfolio holds a small amount of property, bonds and infrastructure alongside its more dominant holdings in the shares of companies the managers view as quality, long-term growth compounders. 

That combination smoothed out some of the volatility as stock markets plunged and then rallied after US president Donald Trump’s “Liberation Day” announcement of high tariffs on imports in early April. 

However, it left the trust continuing to trail rivals such as Invesco Global Equity Income (IGET) and Murray International (MYI) whose shares have leaped by 23% and 14.7% this year.

“Troubling” markets

Fund managers James Dow and Ross Mathison said markets were “troubling” with the dollar plunging while US government bond yields rose.

“Investors seem to be holding two conflicting ideas: that corporate earnings will keep rising, but that growing deficits and protectionism may cause problems in the long term. Currently, optimism is still priced in, even as unease quietly builds,” they said.  

The market volatility boosted stock exchange operators with higher trading levels at Deutsche Börse, B3, Hong Kong Exchanges and CME. Deutsche, which owns the Eurex derivatives exchange, saw a significant increase in volumes after Germany announced an increase in borrowing to fund defence spending, a move that saw the price of German government bonds fall as their yields rose.

UK insurer Admiral Group also continued its rally and is up more than 50% since the managers bought the shares two years ago.

Testing time for Novo

However, obesity drug maker Novo Nordisk weighed on performance after it issued a profits warning and replaced its chief executive in response to increased competition from US rival Eli Lilly. 

Dow and Mathison said they were re-testing the investment case for the Danish pharmaceutical but noted that the last time the shares plunged in 2016 proved to be a great time to buy. Their base case is that Novo and Eli will continue to trade positions as the market for weight loss drugs grows.

Consumer goods companies Procter & Gamble, PepsiCo and Watsco also detracted from returns as their lack of profits growth disappointed the market.

Accenture added

The market turmoil created an opportunity to add new stocks, with the managers jumping at the chance to buy two companies on their watch list. They bought Accenture after the global consultant’s share price slumped on fears the Trump administration’s aggressive cost-cutting drive under Tesla founder Elon Musk would deprive it of government contracts. 

“We saw this as an over-reaction (government contracts are only a small part of Accenture’s revenue) and we did not view Mr Musk’s efforts as likely to endure.” Musk subsequently left his government role after a row with Trump.

They also bought Jack Henry, a US provider of banking software, when its shares retreated on fears of slowing growth. “We know from observing the company over the years that this is likely to prove temporary,” said the fund managers.

Infrastructure steals the show

Scottish American funds its non-equity holdings with £95m of debt that leaves it with gearing of nearly 10%. It pays just under 3% interest on the borrowing and invests the money in properties, bonds and infrastructure.

In the first half, rental income helped generate a real estate return of 3.6% as the commercial property sector looked forward to more interest rate cuts from the Bank of England. Bonds returned 2.3%, helped by the additions of Nestle and Tesco.

Infrastructure stole the show with a 15% return as over-sold UK investment companies rallied from steep discounts and Terna, the European grid operator, advanced on growth plans and investor demand for defensive assets.

Baillie Gifford was among institutional investors who supported Primary Health Properties (PHP) in its bid for Assura (AGR), preferring to maintain access to an enlarged listed fund rather than see it fall to a KKR-led private equity consortium. The merger is expected to complete this month.