Scottish Mortgage Investment Trust PLC (LSE:SMT) reported a 14.3% decline in the value of its assets for the year to end-March as manager James Anderson stepped down after 22 years in charge.
Anderson left after the company delivered returns of 1,155% in net asset value (NAV) terms during his tenure since end-April 2000, with the share price up 1,483%, compared to a FTSE All-World Index return of 354%.
Though the past few years have accelerated the gains, helped by a huge holding in Tesla Inc (NASDAQ:TSLA), it could have been even better, with NAV down 14.3% or 13.1% in the final year depending if borrowings are at book value or fair value.
Shares of the FTSE 100-listed fund fell 9.5% in the same period, though it has consistently remained the most popular investment trust in London, while the FTSE All-World index was up 12.8%.
On Friday the shares were down nearly another 5% in early trading to 740p, near two-year lows.
However, it finished with “a tough year” as manager Baillie Gifford's current team of Tom Slater and Lawrence Burns put it, with their purpose of providing long-term funding for growth currently “out of favour”.
The managers urged “resilience” and said they will not change their approach, though saying they “do not enjoy discomfiting our fellow shareholders”.
Addressing their large holdings of Chinese companies, the managers noted that their China companies have remained “largely unchanged” through what has been period of rather larger turbulence, though admitted they could have acted differently.
“In retrospect, it has been a mistake to reduce our holdings in western online platform companies rather than their Chinese counterparts,” they said, following Beijing’s regulatory crackdowns on various companies.
“The challenge now for western investors is twofold: incorporating the low but increased chances of future US sanctions into their evaluation of Chinese investments and considering how the Chinese state may limit the upside in stock prices for the breakthrough winners.”
Although the war in Ukraine and the central bank tightening have combined to put the squeeze on the share prices for many companies in its portfolio, especially those focused on the shift of media and commerce online, the personalisation of medicine and decarbonisation, the managers are sticking to their guns and said they have not made meaningful changes to the portfolio.
“We still own all the top 30 stocks we owned a year ago,” they said, noting it was a particularly relevant measure as roughly three-quarters of the portfolio by weight is in the top 30 holdings, with the biggest being RNA vaccine innovator Moderna and three Chinese giants in its top ten: Tencent, Meituan and Alibaba.
The most significant reduction has been Amazon, which had been the largest holding for many years.
“Founder Jeff Bezos stepping back from the CEO role is a source of concern given how central he has been to the corporate culture. At the same time, the maths of future growth is more challenging,” the Baillie Gifford pair said.
On the outlook the managers said they are "still expecting most to deliver high levels of growth" this year, despite geopolitical uncertainty, significant increases in the cost of living and rapidly rising interest rate expectations in many parts of the world.