THE £18 billion Scottish Mortgage Investment Trust achieved its strongest-ever return in the year to March, exceeding those it recorded in the wake of the Great Depression and more recently the global financial crisis.
Unveiling a 111.2 per cent total return on net asset value yesterday for the year to March 31, nearly three times the 39.6% recorded by the FTSE All-World Index over the same period, the Baillie Gifford-run trust hammered home its long-term approach. It also highlighted the contribution to its performance of companies including US electric vehicle pioneer Tesla, headed by Elon Musk, and pharmaceuticals and biotechnology group Moderna, which has found itself in the global spotlight as a result of its coronavirus vaccine development success. Scottish Mortgage also flagged the part played by another portfolio holding, Illumina, in Covid-19 vaccine success.
Scottish Mortgage’s board said: “For the financial year to 31 March 2021, shareholders saw the strongest-ever return produced by the company, surpassing the returns delivered during the company’s expansion post the Great Depression and, more recently, in the aftermath of the global financial crisis. As a result, the company reached new market capitalisation highs during the year, closing at just over £18 billion.”
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It added: “The year...was clearly overshadowed by the Covid-19 pandemic. Quite apart from the devastating human cost, it has also created enormous social, economic and business disruption. However, this has also been a period that has supercharged the prospects of several portfolio companies, faster than many might have expected. We could point to Illumina and Moderna who, between them, took only four days to sequence the virus and make a candidate vaccine; online platforms such as Amazon that provided goods to our doors; or Zoom, the video conferencing service that turned into a verb overnight.”
James Anderson, who is retiring from funds house Baillie Gifford and stepping down as joint manager of Scottish Mortgage on April 30 next year, declared: “After many years of anodyne reviews perhaps some bluntness is permissible in this final and twenty-second version. There’s much that I have misunderstood and misjudged over the two decades but my ever-growing conviction is that my greatest failing has been to be insufficiently radical. To be blunt: the world of conventional investment management is irretrievably broken. It demands far in excess of the canonical ‘six impossible things before breakfast’ that Alice in Wonderland propounds.”
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Looking ahead, Mr Anderson said: “There will almost certainly be more wrenching, inspiring and dramatic change in the next decade than we have ever seen. I’m very envious of the opportunities and experiences that my successors will enjoy. Even in the last year, amidst the tragedies of the pandemic, there have been hints of what is to come. I don’t mean the surge in digital platforms that helped to navigate the constraints of the pandemic but still more dramatic and important rising forces.
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“From the extraordinary revolution that will transform our societies for the better in renewable energy becoming mainstream to the emerging wonders of synthetic biology to the possibility that healthcare innovation becomes a regular series of beneficial revolutions rather than a complex and frustrating drain of resources the potential is wonderful and the threat to old empires looms. It would have been hard for us to have educated ourselves in these areas of unashamed excitement without our involvement in venture capital. We are forever grateful that we have found our way to interact with the extraordinary minds and energies in the unquoted world.”
He added: “We need to remain eccentric. In fact we need to become more so and more prepared to be radical. We’ve always claimed to learn from the remarkable leaders we are lucky enough to meet in managing Scottish Mortgage.”
Fellow joint manager Tom Slater flagged an “apathetic response” to climate-change warnings. He drew a parallel with the lack of preparedness for a pandemic, in spite of scientists having long highlighted the possibility. He also underlined the scale of the value created by Tesla.
Mr Slater said: “Scientists had been clear about the potential for a global pandemic for some time, but their warnings had not prompted the necessary preparation. The apathetic response to similar scientific warnings about climate change ought now to be questioned. While we hope that lessons will be learned by our institutions and governments, we can also take inspiration from the leadership that the corporate sector has shown in delivering us from Covid.
“As with vaccines, so with decarbonisation; the value that Tesla has created by addressing the need to decarbonise has forced a hostile investment community to reconsider its position. Tesla has become one of the world’s largest companies as its highly-rated products have continued to improve, along with its ability to manufacture them at scale. Other companies are now following, and history tells us that the more generous funding environment that has ensued is a prerequisite for further progress.”
Emphasising a long-term approach, Mr Slater added: “We would caution against elation after the past 12 months just as we would counsel against misery following unprofitable years. To create long term value, we seek companies pursuing big opportunities and investing in projects with uncertain payoffs. Their shareholders will need to hold their nerve, take the long view and offer thoughtful ongoing support. We aim to be one of those shareholders. It is the accomplishments of the entrepreneurs running our holdings that drive underlying wealth creation.”
Scottish Mortgage is raising its total dividend by 5.2% to 3.42p a share.
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