Baillie Gifford  

Scottish Mortgage performance slumps

Scottish Mortgage performance slumps
Fiona McBain, via Baillie Gifford

Scottish Mortgage saw its performance crash below its benchmark last year amid the "spectre" of inflation, its chairperson has said.

Baillie Gifford’s £11bn flagship trust posted a net asset value return of -13.1 per cent in the year to March 31, compared with the FTSE All-World Index which returned 12.8 per cent.

In the trust’s full year results announced to the market yesterday (May 19), chairperson Fiona McBain said the "spectre" of higher inflation and rising interest rates, combined with concerns over Chinese regulation and Russia’s invasion of Ukraine spreading fear in markets, had "significantly reduced" the valuations of many growth companies.

But she added: “In recent months, your managers have remained calm and focused on what they have been entrusted to do - to invest patiently in outstanding growth businesses from across the globe,” she said.

"They have not been blind to market gyrations but claim no insight over short-term reactions."

Scottish Mortgage Investment Trust underperforms its benchmark

Source: FE Fundinfo

“For Scottish Mortgage, our time horizons reach far beyond most others but a sunny long-term forecast is of little value if companies themselves cannot navigate the current storms.

"These last couple of years have been extraordinary and do not offer a suitable timeframe over which to judge investment returns," she said.

The trust’s share price has also fallen this year, losing 42 per cent since January 1.

McBain said while shareholders’ minds have no doubt been focussed on this drop, she would reiterate her annual caution against drawing any "meaningful" convictions for this data point.

“[This should be seen] as an expected shorter-term cost when the longer-term rewards on offer are potentially so high,” she said.

Tracy Zhao, senior fund analyst at Interactive Investor, said the trust remained a strong choice for investors who are prepared to invest in the long term, but patience is key.

“While the managers have never let their heads get turned by wild swings in performance, either up or down, these annual results are sobering," she said.

"But it’s the results since November that are the real party-stopper and remind us why Scottish Mortgage is an excellent adventurous holding, which needs to be tempered with some lower-risk options."

Scottish Mortgage Investment Trust performance to March 31 2022

Total Return

Twelve months  

Five years

Ten years

NAV

-13.1%

198.4%

633.9%

Share price

-9.5%

187.5%

697.3%

FTSE All-World Index

12.8%

68.1%

231.7%

Global Sector Average - NAV

-2.3%

123.8%

400.3%

Global Sector Average - share price

-2.5%

120.1%

445.8%

Source: AIC/Refinitiv/Baillie Gifford

Growth issues

Baillie Gifford's underperformance has mostly been the result of the sharp decline in the share price performance of the very same tech, biotech and other growth shares that carried the business upwards.

The firm has never hidden its fund managers' preference for using the growth style of investing, a style that has come under pressure as a result of the changed interest rate environment. 

The concentrated nature of the Baillie Gifford investment process – that is, building portfolios with relatively few stocks even as the funds got bigger – means that any shift in sentiment can have an outsized impact, commentators have indicated.

Leaving manager

McBain also paid tribute to departing manager James Anderson, who left the trust at the end of April this year. “It is difficult to find words to adequately thank James on behalf of shareholders,” she said.