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Scottish Mortgage boosted by strong showing from Amazon, Tencent
FTSE 100-listed investment trust Scottish Mortgage lifted its net asset value 23.6% to 443.5p year on year, though its portfolio's earnings will be "insufficient" to keep its dividend equivalent flat.
With nearly 10% of the £6.65bn portfolio held in Amazon stock and 7.5% in China's Tencent and Alibaba, this tech trio contributed a combined 10.3% of the trust's absolute performance during the year.
But while the sort of tech companies that Scottish Mortgage is invested in tend to retain and invest most if not all of their earnings to support future growth, which tends to result in a relatively low level of dividend income for the trust.
Income during the year increased 9.6% to £30.66m in the year to 31 March, it "had remained low overall", with earnings per share of 1.20p, up just 12% on last year, leading the Baillie Gifford-managed trust to recommend a final dividend of 1.68p per share, down from the 3p a year before. Gains on investments slid 11% to £1.20bn.
The effects of currency fluctuations swung to a £21.1m benefit to the company, a 149% turnaround from the £42.95m it cost Scottish Mortgage a year earlier.
The trust, which has major holdings in the likes of Amazon, Tencent, Tesla, Netflix, Facebook and Alphabet, saw its gearing level continue to fall over the financial year as its level of debt increased just 10% compared to a 25% increase in total assets to £6.65bn.
Against the 2.9% gain of its the benchmark FTSE All-World index, Scottish Mortgage's share price grew 21.6% year-on-year.
Chair Fiona McBain highlighted several areas she felt were "the most relevant considerations" for the long term prospects of the trust, including the continual rise and development of China and its digital economy, use of data, structural shifts in healthcare and the "industrialisation of biology", the shift in transportation infrastructure to electric and autonomous vehicles, shifts in energy generation to renewable sources and the "greater social, political and regulatory scrutiny of large corporations".
She added that Baillie Gifford's approach, 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".
She reiterated the trust's line that while at times its share prices may diverge from company fundamentals, no attempt will be made to mitigate short-term volatility and the board will continue to stand resolutely behind the managers during such times.
McBain concluded: "Whatever the precise trajectory of stock markets turns out to be over the coming years, the board and the Managers strongly believe that attractive long term returns continue to be available to those who can turn time to their advantage."
As of 0940 BST, Scottish Mortgage shares had picked up 0.30% to 510.01p.
Looking at performance since March and further forward, Moira O'Neill, head of personal finance at Interactive Investor, noted that Scottish Mortgage's "stellar" performance in April, where returns came in at 12.6% for a single month, was likely to be a "one-off", given that its share price rally was on the back of strong showings by some of its holdings.
"Amazon, the biggest holding in its portfolio, surged after it reported expected quarterly profits of between $1.1bn and $1.9bn. At the same time, Baidu, the trust's sixth-largest holding, also helped boost Scottish Mortgage's fortunes, with its share price rising by around 14%.
"However, investors in the trust haven't had a smooth ride this year. In March, market downturn weighed slightly on Scottish Mortgage, with the trust's share price down -7.1% for the month," she added.