Investment trust manager James Anderson has said it was “reasonable to expect” the share price falls that have hurt his Scottish Mortgage trust recently, adding it has improved the long-term outlook.
The global equities trust, which has achieved top-quartile returns for investors in the past one, three, five and 10 years, suffered a performance wobble in March and April this year.
The trust’s share price fell by nearly 14 per cent peak to trough, as a number of the high-growth stocks the manager invests in suffered share price corrections.
Stocks such as Tesla Motors, Facebook and biotech firm Illumina all fell through the period as investors sold off most growth stocks due to concerns about high valuations.
And stock-specific moves were exacerbated by the trust’s shares starting to trade at a discount as investors sold out. The discount is the percentage by which the shares trade below the net value of a trust’s assets.
This came after the trust’s shares had moved to a premium in February for the first time since 2007.
But the share price of the trust has already regained a large chunk of that underperformance, and Mr Anderson (pictured) said the correction would benefit the stocks and investors in the trust in the long run.
In a report to shareholders, he said: “It is reasonable to expect that after the last year many of our stocks would experience share-price setbacks.
“In the long run it is better that this is so.”
He added: “It is never comfortable to see our holdings in the portfolios of momentum players and hedge fund princes.
“It is pleasanter to see them reappear amongst their preferred shorts and the objects of the habitual scorn of the Financial Times and Barron’s.”
Mr Anderson said it had been “rather to our surprise” that the stockmarket had favoured many of his stocks in the past year, leading to six of the top 30 holdings more than doubling in price in the past 12 months.
He said nothing particular had changed at these companies, it was just that market sentiment had turned from negative to positive.
Mr Anderson, who runs the trust with Tom Slater, said he had not made any changes to the portfolio based on market fluctuations, and stressed he was still looking to hold the companies for the long term.
One area in which the managers have been finding opportunities is Germany, specifically Berlin. Mr Anderson said the German capital may have turned into an “alternative Silicon Valley” in an “entirely accidental way” due to the “flurry of youthful, quirky, highly skilled and intensely multicultural start-ups” being set up there.
Mr Anderson said he was looking to access that area through a holding in Kinnevik, a Swedish investment company that is invested in a number of Berlin-based companies, and Mr Anderson said he and Mr Slater hoped to find similar opportunities in the future.
