Scottish Mortgage Investment Trust ‘optimistic and enthused’ after its 1,072% return

THE £21 billion Scottish Mortgage Investment Trust yesterday flagged “much-needed energy transition” as a key driver of “opportunity” over the next decade and highlighted a major increase in its biotechnology holdings.

The trust’s managers declared they were “optimistic and enthused” about the next 10 years as Scottish Mortgage published first-half results.

Covid-19 vaccine developer Moderna, the trust’s largest holding, was the biggest single contributor to Scottish Mortgage’s total return over the six months to September 30.

Scottish Mortgage, jointly managed by James Anderson and Tom Slater of Edinburgh investment partnership Baillie Gifford, reported a 16 per cent total return on net asset value for the six months to September. This exceeded a 9% return on the FTSE All-World index.

Highlighting their long-term approach,the trust’s managers noted the net asset value total return over 10 years had been 1,072%. The total return on the FTSE All-World index over this period was 275%.

The trust’s investment team, which also includes deputy manager Lawrence Burns, flagged its focus on a growing number of companies benefiting from “the intersection of biology and information technology”.

It noted Scottish Mortgage’s investment in healthcare and biology companies had grown to 21.4% at September 30, from 11.6% a year earlier.

READ MORE: Ian McConnell: Tories outdo themselves with trade deal offering 0.00% boost

Scottish Mortgage’s managers said: “Our largest holding, Moderna, has been the greatest contributor to this change, writing what is effectively code in the form of RNA (ribonucleic acid) to program human cells. Moderna has helped the world to start escaping the tragedies and confinement of the last 18 months. However, it is the breadth and scalability of its mRNA (messenger RNA) technology platform rather than its Covid vaccine that holds the greatest promise. Its pipeline of programs is both large and growing, targeting diseases such as flu, Zika, HIV, cancer and many more.”

Commenting on other holdings, they declared Recursion Pharmaceuticals and Tempus are “successfully leveraging growing quantities of big data combined with machine learning to powerful effect in drug discovery and cancer treatment”.

The managers also flagged the trust’s new holding in 10x Genomics, noting this company’s products “enable the analysis of single cells complementing Illumina’s next-generation sequencing and enabling a more granular understanding of biology”.

Illumina is a longstanding holding of Scottish Mortgage. It was the trust’s second-biggest holding at September 30, accounting for 5.8% of total assets. Moderna accounted for 9.2% of Scottish Mortgage’s total assets.

READ MORE: Ian McConnell: Taiwan strives for regional cooperation as UK turns back on partners with Brexit

The trust’s managers said: “Over short periods, such as the last six months, the market has naturally found various things to worry about. A long-term approach is helpful here. It enables us to focus not on the cacophony of the stock markets but the more predictable drumbeat of deep underlying progress. It has been the long-term and exponential improvements in computing technologies, genomic sequencing and energy storage that continue to strike us as the most important determinates of long-term returns.”

US group Tesla, which is run by high-profile chief executive Elon Musk and is a pioneer in electric vehicles, energy storage systems and solar power, was Scottish Mortgage’s fourth-largest holding at September 30, accounting for 4.7% of total assets.

The trust’s managers flagged pressure on the share prices of many of Scottish Mortgage’s Chinese holdings, noting “particular vigour” from China in its regulatory approach to big technology platforms.

They said: “We continue to see opportunities for technology platforms to improve resource allocation in the economy across a growing range of areas such as freight, food and finance. At the same time the question of how to regulate big tech platforms continues to challenge law-makers across the globe. China has taken to this task with particular vigour. It has demonstrated far greater speed and forcefulness in approach than elsewhere.

“This sharp adjustment has naturally presented challenges both in market sentiment and for technology businesses that are having to adapt to a rapidly altering regulatory environment. At the same time there has been a push for the rewards of China’s growing prosperity to be more evenly distributed. Together these shifts have negatively impacted the share prices of many of our Chinese holdings.”

Scottish Mortgage’s managers declared, however, that the underlying progress of these companies “remains surprisingly strong”. They added: “Alibaba and Tencent both continue to grow revenue in excess of 20% whilst Meituan and Pinduoduo are both growing considerably faster.”

Noting “attention remains focused on maximising returns over the next 10 years for Scottish Mortgage shareholders”, the trust’s managers said: “We have no right to claim insight over the possible gyrations of stock markets over shorter time periods.

“As we anticipate the next decade we are both optimistic and enthused. It strikes us that there are multiple drivers of change and thus opportunity. These include the continuing digitisation of our economy, the intersection of information technology and biology and the much-needed energy transition. Together they provide an opportunity set that is profound and diverse. We look forward to continuing to back the companies and visionaries that drive and take advantage of these powerful long-term trends.”

Holdings in unlisted companies accounted for more than 19% of the trust’s total assets at September 30. Scottish Mortgage is raising its interim dividend by 5% to 1.52p per share.

Mr Anderson is retiring as the trust’s joint manager on April 30 next year.