Trust update

Slater admits ‘painful’ year for Scottish Mortgage

Tom Slater
Tom Slater: no going back (pic: Terry Murden)

Tom Slater, manager of one of the UK’s biggest investors in innovative companies, has admitted the past 12 months have been “painful” for shareholders, but said it will continue seeking out exceptional growth opportunities.

Scottish Mortgage Investment Trust, with total assets of £13.3 billion, soared on the back of investments in firms such as car manufacturer Tesla and drugs developer Moderna.

But the slump in technology stocks saw its share price fall 33.5% and its net asset value dip 17.8% in the year to the end of March. At mid-day today the shares were off just 1.6p (0.26%) at 619.4p, well off their 12-month peak of 937.8p.

However, longer term performance has been strong. Over the last 10 years its net asset value per share increased by 347% compared to a 181% increase in the FTSE All-World index.

Mr Slater’s comments follow a boardroom bust-up at the Baillie Gifford controlled trust which will see its chairwoman Fiona McBain leave following a dispute over new board appointments and its policy towards non-listed investments.

He acknowledged the past 12 months have been “painful for shareholders” but that “significant operational progress continues, reflecting the accelerating pace of change throughout the economy.” 

He said the trust would “not deviate from [our approach] to avoid short-term headwinds” and that “if patient ownership of growth companies was easy, there would be far more competition.

“There is no going back to a world of static and unchanging industries. The retreat to perceived safety can only be temporary, as safety is ephemeral amidst such upheaval. It is by investing in the agents of change and partnering to develop big new opportunities, that exceptional returns for shareholders will be generated.”

Looking ahead, Mr Slater highlighted the trust’s largest holding, Moderna, and how it has “demonstrated that mRNA technology can be used to create effective personalised cancer vaccines” and “the number of potential applications for Moderna’s technology is multiplying.”

He noted the trust’s largest private holding, Space Exploration Technologies (Space X), made 60 launches in 2022, more than one per week and twice the number it achieved the previous year. He explained: “The commercial space market has finally become a reality thanks to SpaceX’s reusable rockets, which have reduced launch costs by 95% from those of the space shuttle.”

Investing in private companies has formed part of the trust’s strategy since 2012. Scottish Mortgage invests in in large, late-stage companies, with an average size of $10 billion and a global footprint.

During the year to 31 March 2023, 532 company revaluations were made with 84% of the private instruments held re-valued more than five times. The average change at company level was -27.8%, and -40.1% excluding companies revalued up.

Deputy manager Lawrence Burns said: “We have never aspired to become early-stage venture capitalists. We merely adapted to the type of companies we invested in choosing to stay private longer.”

“The companies that make up the bulk of our private company exposure are consequently neither small nor early-stage. We have several private holdings that already have many thousands of employees and billions in annual revenue.”

Another of the trust’s private holdings, European battery manufacturer Northvolt, made its first commercial deliveries in 2022. Mr Slater said the company is “tapping into enormous latent demand for electrification, with $55 billion of contracts to supply major automotive manufacturers.” 

Mr Burns concluded: “The role of Scottish Mortgage will continue to be to support the growth in entrepreneurship in good times and bad, whether public or private and through doing so generate long-term returns for our shareholders.”

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