THE £6.44 billion Scottish Mortgage Investment Trust highlighted the “continual rise of China” and its managers’ focus on technological advances as it revealed it had trounced its benchmark.
Scottish Mortgage, managed by James Anderson and Tom Slater of Edinburgh investment house Baillie Gifford, reported a total return on net asset value of 25% for the year to March 31. The total return on the trust’s benchmark, the FTSE All-World Index in sterling terms, was only 2.9%.
Setting out the factors which the trust’s board considers among the most relevant for Scottish Mortgage’s long-term prospects, chairman Fiona McBain flagged “the continual rise and development of China, in particular of its world-leading digital economy; the spread across all industries of the gathering and computer-facilitated use of data; the structural shifts in the global healthcare industry and the industrialisation of biology; [and] the long-run shift in much of the transportation infrastructure to electric and autonomous vehicles”.
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She also highlighted “shifts in energy generation to renewable sources and the proliferation of energy-storage solutions for domestic and commercial use, [and] greater social, political and regulatory scrutiny of large corporations”.
Several Chinese companies figure among Scottish Mortgage’s biggest holdings. Chinese internet services company Tencent Holdings was the trust’s second-largest holding at March 31, with this stake valued at nearly £501 million or 7.5% of total assets.
Scottish Mortgage’s third-largest holding was online retailing and financial services company Alibaba Group, with the trust’s stake in this Chinese company worth nearly £498m.
The trust’s sixth-largest holding was Chinese online search engine company Baidu, with this stake valued at £265m.
US online retailer Amazon was again Scottish Mortgage’s largest holding. This stake was valued at £661m at March 31, accounting for 9.9% of the trust’s total assets.
Illumina, the US-based biotechnology equipment company, was the trust’s fourth-biggest holding at March 31, with Californian electric car, autonomous driving and solar energy pioneer Tesla Inc the fifth-largest.
Spanish company Inditex, owner of the Zara clothing retail chain, was Scottish Mortgage’s seventh-largest holding.
Netflix, the television show and movie-streaming service, is among the trust’s other big holdings.
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Ms McBain said: “The approach of the managers, focused on the long-term fundamental characteristics of businesses, favours the selection of companies which are adopting the advances in technology to enable them to provide what their customers want or need. This should offer the potential for durable growth in the long run.”
However, she added: “Progress is almost always bumpy and stock markets tend to exacerbate these swings. There will be times when share prices diverge from company fundamentals and during such periods the companies in Scottish Mortgage’s portfolio may fall out of favour. No attempt will be made to mitigate short-term volatility and the board will continue to stand resolutely behind the managers during such times.”
Ms McBain thanked Mr Anderson and Mr Slater for their “insight and continuing success for shareholders”.
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She added: “In considering the outlook at the start of this financial year, my predecessor John Scott noted ‘a number of political risks, from President [Donald] Trump’s unpredictable approach to policy-making, to questions over North Korea’s true intentions, to the escalation of the troubles in the Middle East’.
“Sadly those political risks remain the same today. However, the task of the board also remains the same, as John noted, ‘to consider the outlook in the context of the portfolio of Scottish Mortgage’.”
The trust is recommending a final dividend of 1.68p per share. This will result in a total dividend of 3.07p for the year to March, up by more than two per cent on the payout for the prior 12 months.
The trust noted that it had, over the last 10 years, delivered a total return on net asset value of 287.8%. The total return on its benchmark over the same period was 159.4%
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