Shares in Scottish Mortgage, Baillie Gifford’s flagship investment trust, continue their recovery gaining another 2% to 492p today following the release of impressive interim results.
We flagged Scottish Mortgage as a Great Idea in mid-October at 481p as a share to buy during the market sell-off.
In the six months to the end of September the trust’s net asset value rose 19% while its share rose 22.4% compared to an 11.4% gain for the FTSE All-World Index benchmark.
PATIENCE IS A VIRTUE
As always the managers point out that six months is too short a time over which to measure their success and as we flagged in October the value of the portfolio and the shares can be volatile due to the focus on growth stocks.
For an investment strategy to work it needs to be given time. The good news is that the managers are not given to chopping and changing a strategy which has served them and their shareholders well for many years.
This is reinforced by the opening sentence of the management report which lays it out plainly:
‘The managers have not changed their investment approach. If a company, public or private, has the potential to grow substantially over the next five to 10 years, then it is a good place to start looking for long-term value creation for shareholders’.
Sticking with this approach means that Scottish Mortgage has delivered an average annual return of 23% for shareholders over the last decade.
A DIFFERENTIATED APPROACH
The reference to private companies leads on to an interesting discussion about the total value created by investing in companies which go on to float.
Since June 2010 when the trust made its first unquoted investment, the entire portfolio (quoted and unquoted) has generated a total return of 344%.
The total return just on the holdings which were initially unquoted is 419%. The total return on the FTSE All-World Index is 163% by comparison.
The most obvious success story is Alibaba where the managers bought a stake in 2012. The return on investment pre-IPO was over 270%, while the return on investment including the IPO is over 1,000%.
Scottish Mortgage’s ability to invest early in these type of high-growth businesses while they are still private has been a key factor in adding value for shareholders and one which should continue to bring benefits for many years to come.
