Shares in growth-oriented investment trust Scottish Mortgage (SMT) were flat at 517p despite the £8.4bn firm reporting an uncharacteristic dip in performance in the first half of its current financial year.

Over the six months to 30 September the trust’s net asset value (NAV) with debt at fair value rose by just 3.2% against an increase of 9.9% for the FTSE All-World Index on a total return basis.

As the managers are keen to stress, the opportunities in front of them are still ‘compelling’, and in no way have they become less optimistic, but ‘there are and will always be periods of underperformance’.

The recent lag has been compounded by the shares falling to a discount from the premium that has been the norm for most of the firm’s recent history, although in fairness the discount is miniscule compared with many other trusts.


While the overall value of the trust’s investments grew by just under £100m during the half, several of its larger holdings in the technology sector acted as a drag on performance.

Among the biggest negative contributors to performance were holdings in two US-listed stocks, electric vehicle manufacturer Nio which lost more than two thirds of its value and biotech firm Bluebird which almost halved in value.

There were also big negative contributions from TV and movie subscription firm Netflix, where the trust’s holding lost over £50m, electric vehicle maker Tesla, which lost close to £40m, and holdings in New York-listed Chinese firms Baidu and Ctrip, which together lost £88m in value.


While the managers are used to the short-term vagaries of the market and are usually content to take a long-term view on their stocks, they acknowledge that there may be ‘gathering evidence of cracks in the dominance of some of the internet platforms that we have invested in both heavily and successfully in the last decade’.

‘This suggests that their longevity may be more questionable than we thought. But there is an irony here. It's not in the US that these fissures have emerged despite market nerves provoked by regulatory and media scrutiny. Instead the issues have been in China. The threat to incumbents has come neither from regulators nor public discontent but from extraordinary dynamism. The major casualty has been Baidu (once a very significant holding) and the major disruptor has been Bytedance’.

Adept as ever at spotting opportunities, the trust recently bought a £60m stake in the unquoted Bytedance thereby hedging its bets on the Chinese social media sector.


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Issue Date: 08 Nov 2019