Online colossus Amazon and Chinese internet giant Tencent have supported a strong full year performance at £7.1bn Scottish Mortgage (SMT).
The FTSE 100-listed investment trust says net asset value (NAV) increased 24.5% in the year to 31 March 2018, modestly beating the 21.6% increase in the share price over the same period.
This represents a significant beat on the FTSE All-World Index, the benchmark that Scottish Mortgage likes to compare itself with. The index increase just 2.9% over the same 12 month period.
SPREADING THE RISK
Scottish Mortgage aims to benefit from a portfolio of companies that are adopting disruptive advances in technology to provide ‘durable growth’ in the long run.
It also wants to maximise total returns and generate dividend growth for investors.
Its top 10 holdings include Chinese e-commerce company Alibaba and electric vehicles specialist Tesla as well as Amazon and Tencent.
The three internet businesses have averaged a rough 60% gain over the past year, providing much of the uplift to the wider portfolio. A recent sell-off at Tesla means its' shares are down around 5% on a 12 month basis.
GROWTH & INCOME A TRICKY BALANCE
A potential drawback from this strategy is that these businesses tend to reinvest the majority of its earnings for future growth, which can lead to a low level of dividend income for the trust.
A 2% increase in the dividend has been recommended, leaving the full year payout at 3.07p per share, to be paid from a combination of earnings, revenue and capital reserves.
Chairman Fiona McBain says Scottish Mortgage’s long-term performance record remains strong, flagging NAV soared 171.6% and 287.8% over the last five and 10 years, respectively.
Looking ahead, the investment trust expects to benefit from the continual rise of China, wider data use, structural shifts in the global healthcare industry and more adoption of electric vehicles.
MANAGING THE RISKS
Political risks remain however, not least unpredictable policy making of US President Donald Trump. There's also the not insignificant matter of a possible escalation of strained relations in the Middle East and with North Korea.
Numis says Scottish Mortgage benefits from a low expense ratio of 0.37% and is confident it can continue to deliver despite a rally in tech stocks last year, but warns short-term volatility cannot be ruled out.
