Thursday, 16 May 2019

Scottish Mortgage Trust - Final Results


Scottish Mortgage is an actively managed, low cost investment trust, investing in a high conviction, global portfolio of companies. The managers aim to achieve a greater return than the FTSE All World Index (in sterling terms) over a five year rolling period.

This investment trust was added to my SIPP portfolio at the start of 2017 at the initial purchase of 338p. A year later, following a little turbulence in the share price, I added SMT to my ISA portfolio at 415p. The share price has advanced to currently 530p however the price can be volatile as witnessed towards the end of 2018.

Results

The trust has today issued results for the full year to end March 2019 (link via Investegate). Share price total return for the past year is up 16.5% compared to 10.7% for the benchmark FTSE All-World index.  

Scottish Mortgage has increased total net assets to more than £7bn making it one of the UK's largest investment trusts. In 2017 it became the only investment trust to be listed in the FTSE 100.

The managers, James Anderson and Tom Slater run a conviction portfolio of around 70 to 80 shares. The result is a portfolio dominated by big holdings in some of the companies involved in the world of social media, the internet, healthcare, eco-friendly energy and gene therapy. 

The top ten holdings account for 51% of the portfolio and include Amazon 9.6%, Illumina 7.6%, Tencent 6.6%, Alibaba 6.6%, Tesla Motors 5.3% and Netflix 3.1%. The managers have authority to hold up to 25% of the trusts assets in unquoted companies such as early stage start-ups. Currently, some 17% of the portfolio is invested in 40 unquoted companies - Dropbox, peer-to-peer lender Funding Circle and airbnb to name three I am familiar with.


China

Some 22% of the trust's portfolio are allocated to China. In the past year, the trust made their largest single investment in Ant Financial as a result of a long standing relationship with its parent company Alibaba. 

China's economy is growing at a rapid pace as it becomes increasingly consumer-led. It is now the second largest economy in the world behind USA and has been the largest contributor to global growth since the meltdown of 2008. Annual growth is averaging 7% each year and over just the past 10 years, real terms household income has increased by 120% and more and more of the huge population of 1.3bn continue spending (and also saving).

Tencent, the Chinese internet giant behind the WeChat messaging app (over 1bn users), has surpassed Facebook in value after it became the first company in China to be worth more than $500bn.

Scottish Mortgage offers a clear, consistent and simple proposition: a portfolio of long term investments in what the managers believe to be the best growth businesses, operating in any industry and anywhere around the world.
Many of the companies held in the trust's portfolio are disrupting the traditional ways of doing business. They create new markets or impact significant changes on old markets in a wide range of industries such as auto, health, advertising, retail and manufacturing which are transformed by advances in the technological revolution. 

SMT (blue line) V Vanguard Lifestrategy 100 past 5 yrs
(click image to enlarge)

I was however, a little disappointed to see they have acquired a holding in Space Exploration Technologies which is an unlisted enterprise involved in the design, manufacture and launch of rockets and spacecraft. And on a linked theme, nothing to indicate concern about the threats posed by our climate emergency. I hope this will be an issue that is taken up at the AGM on 27th June.

Over the past ten years, the trust has delivered a return of 737%. Although this is essentially a global growth trust, it is worth noting it has increased its dividend every year for the past 35 years. The increase this year will be 2% making a total of 3.13p and the current yield of 0.6%.

The ongoing charges remain at 0.37% which makes it one of the most competitive trusts on offer.

Obviously I am pleased with progress since my purchases but I hope the managers will switch on to climate at some point and until they do, I probably will not be adding to my position. For now the current holdings can return to the bottom drawer.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

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