Scottish Mortgage Results

I am sure many of my readers hold the Scottish Mortgage Investment Trust (SMT), as it has been one of the most popular UK trusts in the last couple of years. They published their preliminary results this morning.

The commentary from the Chairman and the Fund Manager made lots of positive noises about the long-term success of the company but the share price has fallen by 5% today at the time of writing, continuing the negative short-term trend. That probably is a result of the S&P 500 falling by 4% yesterday. In addition the negative impact on investors has been compounded by the company moving to a discount to net asset value (6.5% as at last night) when it is has often traded at a premium.

The NAV declined by 13.1% last year while the company’s benchmark (the FTSE All-World Index) rose by 12.8%. The discrepancy is simply down to the fact that SMT hold many technology stocks. Apparently the Managers have “remained calm and focussed on what they have been entrusted to do” in such bumpy market conditions. Which is good to hear but it does not help with answering the question of whether to continue holding the stock or not.

Will growth companies, which SMT focusses upon, come back into fashion? Two of their biggest holdings are vaccine maker Moderna and Tesla. Moderna has fallen 70% from the highs of last year because of doubts about the longevity of the Covid vaccine market but SMT argue that the company’s technology can be applied to other diseases so they have increased their stake in the company by part selling Amazon and Tesla. It’s worth reading the announcement for more details of the bets they are making.

I have no reason to believe that their investment choices are not sensible ones but clearly the market perceives growth stocks as being unfashionable at present as investors move more into commodity stocks. How long this trend will last is difficult to say as predicting global economic events is a fool’s game. In the short-term it may be best to follow the trend, i.e. join the herd who are selling while keeping a close eye on any rebound or change of market perception. But that only makes sense if you are not crystallising any capital gains tax by selling – unless of course you are crystallising a loss. Moving in and out of investment trusts in the short term while ignoring the tax implications is never wise.

I do hold some SMT but I certainly won’t be giving up on the company completely.

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Roger Lawson (Twitter:  )

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