Scottish Mortgage launches £1bn share buyback

Baillie Gifford HQ in Edinburgh

Baillie Gifford’s flagship investment trust, the £14 billion Scottish Mortgage fund, announced it will make at least £1 billion available to buy back its shares over the next two years.

The fund said it intends to “take more concerted action to address the discount to net asset value at which the company’s shares continue to trade.”

Scottish Mortgage shares rose about 4% amid the news.

“The Trust sees this as an excellent investment opportunity and is in a strong position to buy its shares, having further strengthened its balance sheet by paying down debt in recent months,” said Scottish Mortgage.

“Scottish Mortgage shares currently trade at around a 14 per cent discount to NAV (net asset value).”

Scottish Mortgage shares soared during the pandemic in 2020 and 2021 but then gave back much of the gains in 2022. The shares are up about 18% for the past 12 months and up around 60% for the past five years.

Over the last 10 years, Scottish Mortgage’s NAV has delivered a total return of 359% and the fund’s share price increased by 291%. The FTSE All-World Index has risen by 211% over the same period.

Scottish Mortgage manager Tom Slater said: “We own a portfolio of established companies achieving rapid expansion, propelled by enduring structural trends.

“We intend to pursue this opportunity with conviction.”

The fund’s biggest current investments in public and private firms include ASML, Nvidia, Amazon, MercadoLibre, Moderna, SpaceX, Tesla, Ferrari, Spotify, Northvolt, PDD Holdings, Wise, Bytedance, Kering, Tencent and Stripe.

Measured by stock market value, Scottish Mortgage is one of the biggest plc firms run from Scotland, with a market capitalisation of roughly £11 billion.

Slater added: “Advances in foundational technologies are unlocking exciting new products, services, and business models.

“These well-funded public and private companies are shaping the future of the economy.

“The stock market has yet to fully recognise their progress, which creates the opportunity for us to buy the portfolio for less than its market value.

“In doing so, we can provide liquidity and augment returns for our shareholders.”

Over the last two years Scottish Mortgage has bought back £353 million of its shares. During this time, the board and managers have been actively considering increasing the level of buybacks to address the “discount” to NAV.

Scottish Mortgage chair Justin Dowley said: “We remain committed to using share repurchases strategically to enhance liquidity in our shares and to seek to facilitate trading around net asset value.

“Our company has a strong balance sheet, and its portfolio companies are delivering strong operational results.

“We are acting upon this investment opportunity by materially increasing the capital available to our liquidity policy over the next two years with the aim of maximising returns for our shareholders.”

In a stock exchange statement, the investment trust said: “Scottish Mortgage’s public and private portfolio is delivering strong operational results, evidenced in part by free cashflow from the portfolio companies having more than doubled over the past year.

“Collectively, portfolio companies have adapted to a higher cost of capital and are funding their future growth.

“Against this backdrop and having further strengthened the company’s balance sheet, the board now intends to take more concerted action to address the discount to net asset value at which the company’s shares continue to trade.

When allocating capital, the company considers a range of factors including, but not limited to, the level of gearing, exposure to private investments and general market conditions.

“Over recent months, the board has further strengthened the company’s balance sheet via debt reduction, leaving invested borrowings at 13% of net assets, at an average interest rate cost of 3.2%.

“Meanwhile, Scottish Mortgage has continued to provide patient growth capital, including to private companies.

“Currently, private companies represent 26.2% of the portfolio, which would rise to 28.3%, assuming £1 billion of share repurchases at current market levels.

Share buybacks are a key component of capital allocation decisions.

“Buybacks provide shareholders with significant benefits including improved liquidity in the company’s shares, an immediate accretion to the net asset value per share and are a strong demonstration of confidence in the underlying valuation of the portfolio …”


Aidan Moyle, investment analyst, Hargreaves Lansdown: “The (Scottish Mortgage) board has decided to use cash reserves to increase the buyback programme in the hope this will narrow that discount and bring the share price closer to NAV.

“It also shows a sign of confidence in the lead manager Tom Slater and his portfolio, which has had a tougher time more recently as the trust’s high-growth style has fell out of favour.

“Although the trust is currently trading at a double-digit discount, we have conviction in lead manager Tom Slater. He has an excellent long-term track record although the trust has struggled more recently as rising interest rates and inflation moved investors away from a growth style of investing to a focus on a value style of investing.

“With inflation falling and interest rates likely to fall, this could be a catalyst for the trust to move back into favour.

“The trust also invests in companies that could benefit from the advancements of artificial intelligence – a hot topic in 2023.

“Given Slater’s focus on long-term growth companies we believe he could outperform over the long term, though investors should be aware that this trust can be volatile, and its extreme style bias mean it can have prolonged periods when it is out of favour with the market.

“Any investment should be made on a long-term basis.”