Baillie Gifford flagship Scottish Mortgage tops £10bn

Fiona McBain, chair of Scottish Mortgage

Baillie Gifford’s flagship fund, the Scottish Mortgage Investment Trust plc, has soared above a record £10 billion stock market valuation this week — with its share price rising 50% in the last eight weeks amid the coronavirus crisis.

The Edinburgh-based closed end fund is now the UK’s largest investment trust — and is a major shareholder in many prominent global companies including Tesla, Amazon, Tencent, Netflix and Alibaba.

The fund on Friday issued its results for the year to March 31, 2020, saying that, ironically, the trust’s managers James Anderson and Tom Slater have been working in recent weeks via the technology of one of its other big investments — Zoom.

Scottish Mortgage has investments of around £9 billion.

The results showed the fund’s share price rose 12.7% in the year to March 31, with the trust’s underlying net asset value (NAV) growing 13.7% — with both doing better than than the fund’s benchmark, the FTSE All-World index, which fell 6.2%.

Over five years, Scottish mortgage NAV total return has grown 124.6% and its share price total return has grown 123.5%, compared to the 41.5% of the FTSE All-World index, the 69.1% of the investment trust global sector average NAV total return, and the 68.4% of the investment trust global sector average in share price total return.

Earnings per share for Scottish Mortgage over the period were 1.55p, slightly down on the 1.64p of 2019.

The fund’s board is recommending total dividend be increased 4% to 3.25p.

Scottish Mortgage chair Fiona McBain said: “The notice of the AGM will include a shareholder resolution proposing an update to the company’s investment policy.

“There is only one proposed change, which is to raise the current limit on all assets not listed on a public exchange by 5 per cent. to 30 per cent. at time of purchase of the next such asset.

“This flexibility to invest in the best companies which the managers find, regardless of the capital structure, has been an important driver of the returns generated for shareholders over the last decade.

“As an increasing number of the best growth companies have remained private until much later in their development, it has enabled the managers to maintain the quality and depth of their opportunity set and to invest simply in any company which met their investment philosophy and criteria.

“This capacity utilises the benefits of Scottish Mortgage’s closed-end structure and low-cost proposition to its shareholders’ advantage.

“The updated policy retains not only a limit on the ability of the managers to invest in unlisted assets to provide shareholders with clarity, but also crucially the pragmatic ‘at time of purchase’ caveat.

“The latter ensures that the company would not become a forced seller of such assets due to rises in the fair valuations of the private businesses or falls in the share prices of individual public companies in the portfolio alone, as this would clearly not be in the interests of shareholders.

“The managers recently reminded shareholders of the fair valuation process for the unlisted assets, as part of their wider Insight piece ‘Staying the Course for Scottish Mortgage” available on the website.

“It is also summarised in every Annual Report.

“The policy was consistently applied throughout the year and, as a result, additional valuation meetings were held in relation to a significant number of these holdings in March, in swift response to the large swings in public markets’ prices.

“The policy therefore helps to ensure that the published NAVs for Scottish Mortgage remain reflective of the prices one might expect to achieve for all the assets in the portfolio at that point.

“The forthcoming Annual Report includes a paper from the managers focused on this area of the portfolio which I encourage all to read when considering their vote.

“The proposed change will give the managers more capacity to invest simply in the best opportunities which they find, without changing the core investment proposition for shareholders.

“The board accordingly will be urging all shareholders to vote in favour of this resolution.”