Trust defended

Scottish Mortgage criticism ‘misplaced’ says Slater

Tom Slater
Tom Slater: Our companies are fitter for the future (pic: Terry Murden)

Investment trust manager Tom Slater has hit back at critics of its portfolio’s performance, claiming its assets will provide significant value in the years ahead.

Scottish Mortgage Investment Trust has taken big stakes in early stage technology companies such as Elon’s Musk’s Tesla and rocket venture Space X.

The FTSE 100 company has been rewarded with huge returns but its performance has flagged as the tech sector waned, raising questions over the strategy.

It was hit by major losses on other investments including Moderna, the Covid-19 vaccine company, Zalando, the German online fashion retailer, and Adyen, the Dutch payments company.

The company today reported a 2.7% decline in net assets in the six months to September, meaning it underperformed its benchmark, the FTSE All-World Index, which climbed by 4.3% over the same period.

The trust’s shares have traded at a discount to its net assets as investor confidence faded about its investments in hard-to-value and illiquid private companies.

This was regarded as a source of discontent which led to the resignation of the independent director Amar Bhide, and the departure of the chairwoman Fiona McBain.

Scottish Mortgage stressed in its latest statement that most of its investments were in more mature private companies that were closer to profitability. It shows it selling down some of its stake in Tesla and investing more heavily in Amazon. It has made a first investment in Oddity Tech, a Nasdaq listed cosmetics company.

“Market scepticism around the performance and valuation of our private assets is misplaced, and we believe they will be a significant source of value creation for the trust in the coming years,” insisted Mr Slater.

“We do not claim to be able to predict macroeconomic developments and are often bemused by the level of coverage given to the future course of interest rates. We can, though, observe the changes we have seen at the companies we own.

“Unable to assume that markets will provide capital, they are generating their own supply. They are trimming costs and focusing on the most promising projects. We are encouraged that they continue to spend heavily on research and development but believe a higher cost of capital introduces a healthy dose of prioritisation.

“The free cash flow from our listed portfolio more than doubled in the twelve months to the end of June.”

He said progress is being made across a broad swathe of technologies.

“What makes this so exciting for growth investors is that the number of ways companies can combine these technologies grows exponentially.

“Our companies are fitter for the future, and the opportunity they address grows at an accelerating pace. Economic news is usually dreary, and geopolitics rarely reassuring, but entrepreneurs’ collective creativity and productivity are a source of great confidence and optimism.”

The shares fell 11.8p (1.72%) to 674.5p.

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