Investors in growth-oriented Scottish Mortgage Investment Trust (SMT) seemed to be in forgiving mood last week, sending the shares gently higher despite a slump in returns.

The Baillie Gifford-managed trust saw its net asset value per share slide from £10.22 at the start of March to 842p at the end of September, a return of -15% compared with a 7% fall in the FTSE All-World index.

Although the managers don’t give a breakdown of returns, unlike many other funds and trusts, most of the damage came from the company’s exposure to biotech and technology.

The top six listed holdings at the end of September – Moderna (MRNA:NASDAQ), Tesla (TSLA:NASDAQ), ASML (ASML:AMS), Illumina (ILMN:NASDAQ), Meituan (3690:HKG) and Amazon (AMZN:NASDAQ) – which made up 25% of total assets, lost 20% on average over the half.

In addition, the trust reduced its holdings in several large Chinese technology companies such as internet group Tencent (700:HKG) whose share price slumped 37% during the period.

As usual, the managers maintained their focus on the broader picture: ‘Scottish Mortgage’s long-term capital appreciation has come from financing and patiently supporting the development of growth companies. It is important at times of stress to remember this founding story: corporate potential has little to do with the cycles of greed and fear in stock markets.’

The trust continues to focus on key global themes such as digitalisation, decarbonisation and the intersection of technology and healthcare.

For that reason, the managers are sticking with therapeutics company Moderna, which lost 23% over the first half and recently posted disappointing results, and electric vehicle maker Tesla, whose shares lost a more modest 9% over the period but faces growing competition from Chinese rivals.

At their lowest point last week, Scottish Mortgage shares had fallen 50% from their late 2021 highs which has been painful for many thousands of small investors.

The last six months have been tough for growth stocks, and as the funds team at Numis observe the short-term outlook for the trust ‘will continue to be influenced by investor sentiment towards growth stocks’ which while it may have turned positive in the last few days ‘will no doubt be choppy’.

Not everyone will agree with the decision to stay invested in stocks such as Tesla, or to cut the trust’s Chinese technology exposure just as the country seems to be preparing to lift some of its Covid restrictions and free up the economy.

Over the long term, however, the team have shown the benefits of their ‘buy and hold’ approach and the faithful will no doubt do the same.

DISCLAIMER: The author owns shares in Scottish Mortgage

‹ Previous2022-11-17Next ›