Scottish Mortgage: Big Improvement In The Annual Results

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Scottish Mortgage: Big Improvement In The Annual Results

The final accounts for Scottish Mortgage (LON: SMT) reveal a significant turnaround in the performance after a difficult couple of years and give a real insight into the explosive potential of the portfolio.

In the 12 months to the end of March the £14bn trust made an NAV total return of 11.5%, which represents a big improvement on 2023, despite being well behind the 21% gain from the FTSE All-World benchmark. Investors will not be complaining, as the shares were up 32.5% thanks to a narrowing of the discount due to the massive programme of buybacks announced in March.

Baillie Gifford’s flagship fund aims to invest in the world’s most exceptional growth companies that are able to deliver transformational change, which they think will dominate stock market returns. In order to do this the managers look for businesses that are resilient, but that are able to adapt.

Big changes in the underlying holdings

The portfolio has been designed to provide exposure to many of the most exciting growth trends, such as the digitalisation of more aspects of life, particularly through AI and the impact of technology on healthcare, as well as the energy transition.

There have been some significant changes with five new additions during the year including: Coupang, South Korea’s largest online marketplace, as well as Oddity, a beauty and wellness technology business that was acquired when it was still a private company.

Two longstanding positions have also been fully sold. The Chinese mobile platform Tencent had been a significant holding for 15 years, but had become increasingly constrained by political and regulatory developments, while Illumina was exited after execution issues.

The result is a concentrated portfolio in which the ten largest allocations account for 48.8% of the assets. These consist of well-known names such as: Nvidia, ASML, Moderna and Amazon, as well as private companies like SpaceX and Northvolt.

A Third Of The Portfolio Is Invested In AI

Without doubt, the biggest revelation in the accounts was that nearly a third of the fund was invested in Artificial Intelligence (AI), which deputy manager Lawrence Burns thinks could be the most significant invention since the Gutenberg printing press in 1440. Opportunities in this area are divided into three layers: hardware, infrastructure and applications.

The first of these is about the physical computational devices that enable AI. Scottish Mortgage has exposure to this part of the process via the chip designer Nvidia, as well as the Taiwan Semiconductor Manufacturing Company, where many of the chips are actually made.

Infrastructure concerns the cloud service providers that buy the chips and offer scalable, on-demand access to allow companies to train and deploy AI models without building their own delivery mechanisms. This is where holdings like Amazon and Meta come into their own.

The final category, applications, refers to those businesses that are making productive use of AI to expand addressable markets, reduce costs and dig deeper competitive moats. Stocks that fall into this segment include: Recursion Pharmaceuticals, Tempus and Spotify.


It has been a tough couple of years for investors, but sentiment towards the fund seems to be improving, thanks partly to the Board’s announcement in March to return at least £1bn via buybacks. They have said that they are committed to see to the share price trade close to NAV in normal market conditions.

The broker Numis says that the managers have a unique approach and a long-term view that is difficult to replicate. Because of this, they believe that Scottish Mortgage deserves a place in almost every portfolio and has the potential to deliver strong returns, albeit with plenty of ups and downs along the way.

Numis is positive on the outlook for the NAV and think that the discount could narrow from the current figure of around eight percent. Despite the recent difficulties the trust retains an exceptional track record, with long-term NAV total returns of 406% compared to 203% for the MSCI AC World index.

If you are thinking of investing it is important that you are comfortable with the high level of risk associated with this type of concentrated portfolio, especially in view of the 13% gearing. Scottish Mortgage has experienced many significant peaks and troughs over the years and will probably continue to do so.

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