- NAV down 17.8%
- No further investment in IPOs
- Shares down 13% year-to-date
Scottish Mortgage Trust (SMT) reported a 33.5% fall in its share price and a 17.8% fall in net asset value (NAV) compared to a 0.9% fall in the FTSE All-World Index for the 12 months to 31 March 2023.
In stark contrast, over the last 10 years, Scottish Mortgage’s NAV has increased by 432% compared to a 181% increase in the FTSE All-World index.
The fall in share price and NAV comes as no surprise to shareholders who have had a rough ride over the past year.
SERIES OF MISHAPS
The trust has suffered at the hands of difficult market conditions in 2022 – rising interest, rates, soaring inflation, the war in Ukraine, post-pandemic ‘blues’ as well as issues in the Scottish Mortgage boardroom.
On 21 March, Scottish Mortgage Trust’s chair of 14 years Fiona McBain stepped down with senior independent director Justin Dowley taking over on an interim basis after a boardroom row over corporate governance.
It was announced on 16 May that Dowley will take over as the company’s new chair subject to his re-election by Scottish Mortgage Trust shareholders.
PRIVATE COMPANIES INVESTMENT
The managers of Scottish Mortgage Trust - Tom Slater and Lawrence Burns - have also faced criticism from shareholders in relation to their investment in private companies.
The trust’s exposure to private companies currently stands at 28.6% as of 31 March 2023 which the board and manager ‘will continue to monitor closely.’
However, there were concerns that investment in private companies would go over 30%, both Slater and Burns has since reassured investors this will not happen.
This has caused Scottish Mortgage Trust’s shares to fall by 13% year-to-date and over 21% in the past six months, as investors started to lose faith in the trust..
Perhaps in an attempt to appease existing shareholders the trust’s managers have rolled out a few ‘sweeteners’ including a 14.2% increase in the dividend to 4.10p per share compared to 3.59p per share in 2022.
The rise in the dividend, the company said is because ‘over the year income received by the company more than doubled to £49 million.’
The trust also made a small increase in ongoing charges to 0.34% (0.32% in the previous financial year).
PORTFOLIO READJUSTMENT
The trusts managers also announced a few changes to the portfolio including a reduction in gene sequencing company Illumina (ILMN:NASDAQ).
Slater said: ‘We still believe gene-sequencing is a fundamental building-block for advances in healthcare, but the company's execution has been disappointing, which has been reflected in a weak stock price.’
Slater said the trust has added a new holding – gaming company Roblox (RBLX:NYSE): ‘Its audience use it as an entertainment platform initially and the conversion of those players into creators and paid users will underpin substantial growth over the next decade.
‘We also took a position in Cloud networking-provider Cloudflare which will be an essential enabler of the next generation of software systems,’ added Slater.
VALUE FOR CONTRARIAN INVESTORS
Stifel’s Iain Scouller remains positive about Scottish Mortgage Trust he said in a research note: ‘The shares, which used to trade on a premium to NAV, are currently on a 23% discount to NAV.
‘We think this offers some value for contrarian investors, who are prepared to invest in a trust which is also running with a relatively high level of leverage (14% of NAV). We note that US growth stocks have significantly outperformed value sectors in the past couple of months and if this continues it may boost sentiment towards Scottish Mortgage.’
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