By Mark McSherry
The co-manager of Baillie Gifford’s flagship investment trust, the £13 billion Scottish Mortgage fund, has said that “most companies simply do not matter” in investment and that “only a small number of companies make investing in the stock market worthwhile.”
The views of Lawrence Burns came as Scottish Mortgage, a global fund, said net asset value (NAV) total return was 11.2% for the year to March 31, 2025, while the FTSE All-World index total return was 5.5%. The investment trust’s share price total return was 6%.
Total dividend increases 3.3% to 4.38p per share.
Burns wrote: “Most companies simply do not matter.
“Research shows that only a small number of companies make investing in the stock market worthwhile.
“These companies are outliers that exploit the asymmetric pay-off structure of equities: uncapped upside yet mathematically bounded downside.
“Whether the world is serene or chaotic, our objective remains the same: to find and invest in extraordinary companies capable of delivering outlier returns …
“Finding outliers is a challenging endeavour. They are, by definition, very rare, whilst their characteristics are heterogeneous.
“Define the parameters of your search too narrowly, and you risk missing out on a new generation of outliers that might look very different from those of the past.
“It is therefore important for us to be open-minded about the sources of growth, maturity, financial characteristics and nature of operational excellence that lead to outlier outcomes.
“Outliers can be young, fast-growing companies, such as Chinese e-commerce giant PDD, which is still less than 10 years old. PDD falls just outside our top ten outliers, but has still delivered a 6x return for shareholders since its IPO in 2018. This has been achieved through explosive growth, compounding revenues on average over 110% each year while going from heavily loss-making to generating $15bn in profit last year.
“Outliers can also be much older businesses with less explosive but steadier, more resilient growth. Ferrari celebrated its 85th birthday last year, but was still able to deliver an 11x return for Scottish Mortgage shareholders over the decade.
“Since we invested in 2015, the company has grown the number of cars it sells each year by less than 7%, but with incredible pricing power, rising margins, and the market’s growing appreciation of both the resilience and duration of demand for its products has still delivered outlier returns.
“We believe the portfolio today has a diverse range of potential outliers. With companies founded across the globe, from Stockholm to São Paulo to Singapore. The nature of the growth is also diverse, from rockets to digital banking apps to the most coveted handbags in the world.”
The biggest investments of Scottish Mortgage at March 31 included Elon Musk’s SpaceX, Latin American ecommerce platform MercadoLibre, Amazon.com, Facebook parent Meta Platforms, TikTok owner ByteDance, Chinese e-commerce firm Pinduoduo, semiconductor behemoth TSMC, Spotify Technology, local services aggregator Meituan Dianping, Ferrari, payments firm Stripe, money platform Wise, Shopify and semiconductor giant Nvidia.
Over the last 10 years, Scottish Mortgage’s NAV per share has increased by 320% compared to a 182% increase in the FTSE All-World index, on a total return basis.
Scottish Mortgage’s share price discount to NAV widened from 4.5% to 9.0% over the year.
Justin Dowley, Scottish Mortgage chair, wrote: “We sought to address the excess supply of shares by buying back 210 million shares over the period from 1 April 2024 to the date of this report, which represented 15.2% of the share capital in issue at the start of the year, at a total cost of £1.9 billion.
“The company has bought back shares for consideration of £2.0 billion since the board announced in March 2024 that the Company would make available at least £1 billion for the purpose of buybacks over the following two years.
“Over the last year, directors held useful meetings with representatives of several shareholders, whose clients represent a large portion of the register in percentage terms. Some advocate increased buyback activity, whilst others feel capital is best deployed into long-term investments.
“Balance is required. We take a pragmatic approach in making capital allocation calls between buying back shares and other uses of capital such as making new investments and reducing debt. The board and the managers remain committed to the continuation of the buyback.”
Scottish Mortgage co-manager Tom Slater wrote: “Few developments this year were more consequential than the rise of generative AI. The conversation has moved quickly from theory to practice.
“We see its impact most clearly in software engineering, where productivity is already rising dramatically. This matters because software sits at the core of the modern economy, and many of our companies are already putting these gains to work. Several have increased output without increasing engineering headcount. Others have launched new products with surprisingly lean teams. AI is not a distant promise. It is driving real operational leverage today.
“How should we, as investors, respond to such a powerful, yet hard-to-quantify force? Our largest holding at the start of the year, NVIDIA, sits at the heart of the current AI boom. Its dominance in training large AI models is unmatched. However, to be truly transformational, we believe AI must become ubiquitous — and that implies commoditisation.
“A world built on $70,000 chips and 60% margins may not be sustainable. As a result, we chose to reduce our position significantly over the year. This does not reflect diminished respect for the company. It reflects our long-held discipline: we seek asymmetric outcomes. And at the prevailing valuations, the risk/reward looked more balanced than we prefer.
“Conversely, we added to companies that will benefit from the broader adoption of AI tools. Meta has rebuilt its business with greater efficiency, while embedding AI more deeply into its product and advertising stack. It has many opportunities to drive its revenue growth today using this technology. Last year the company noted an 8% increase in time spent on Facebook as a result of AI driven content recommendations to its users. The performance of its stock reflected that progress.
“Spotify, likewise, is emerging as one of the most efficient scaled platforms in the world using AI to personalise content discovery, improve advertising targeting and, potentially, to create a broader content ecosystem. Both were among the strongest contributors to returns.
“We initiated a new position in TSMC, recognising that compute demand will remain structurally strong as AI moves from the training phase to deployment at scale. The appetite for semiconductors across datacentres, vehicles, devices and infrastructure continues to grow. TSMC has solidified its leadership in the global semiconductor foundry market as competitors such as Intel have stumbled.”