Scottish Mortgage chief calls for patience following ‘painful’ year

The manager of Scottish Mortgage Investment Trust has defended the fund’s strategy after what he admitted has been a ‘painful’ year for shareholders.

Tom Slater, co-manager of the £11.5 billion trust, urged investors to “remain disciplined and patient” after the value of the company’s portfolio fell by nearly 18 per cent in the year to the end of March.

Hugely popular with UK investors, Scottish Mortgage has seen a surge in value over the last decade following a series of well-placed bets in the technology sector.

Its largest holdings include Elon Musk’s electric car company Tesla, as well as Dutch microchip maker ASML and computer graphics group Nvidia.

Shares in the 114-year-old trust soared during the pandemic as demand for tech stocks boomed, with the stock reaching an all-time high of around 1569 pence in November 2021.

But the outbreak of war in Ukraine, along with rising interest rates and rising inflation, has hit the portfolio hard as market sentiment in the tech industry deteriorated.

Shares are currently trading at around 622 pence, down 60.4 percent from the all-time high reached nearly two years ago.

In the company’s full-year results, Slater acknowledged that the “accelerated pace of change across the economy” “did not translate” into results for the fund, but said such periods were “inevitable.”

He added: “We have to remain disciplined and patient. Our approach will never be consistent and we must not deviate from it in order to avoid headwinds in the short term.’

But Slater co-manager Lawrence Burns warned that some of the fund’s private companies in which it invests could run into trouble as higher interest rates make it more difficult to raise funding.

“It is likely that some of our smaller private companies will fall victim to this new environment,” he said, though he emphasized that it was only expected to represent “a small percentage of the portfolio’s assets.”

Some of Scottish Mortgage’s largest holdings are in private companies, with rocket group SpaceX being its fifth largest investment, accounting for 3.7 per cent of the portfolio.

The trust also acknowledged a sharp shift in its share price, which fell over the year to a 19.6 percent discount to the value of its assets from just 0.5 percent previously, admitting that this was “unpleasant was for the shareholders’.

Scottish Mortgage was also rocked by an extraordinary boardroom bust-up in March that sent shockwaves through the usually sleepy world of investment funds.

It came after one of the company’s non-executive directors, Amar Bhide, launched an attack on corporate governance.

He accused the Scottish Mortgage Board of “a long series of procedural offences” going back months and said his concerns had been “brushed aside” by management.

He also addressed chair Fiona McBain directly, claiming that her role had been “to protect executives from criticism and questioning.”

It culminated in McBain announcing she would step down from the board following the group’s annual general meeting in June.