Baillie Gifford’s £4.8bn Scottish Mortgage trust saw earnings per share fall by more than a third, largely caused by many companies within the portfolio reinvesting for future growth instead of paying out to shareholders.
According to the company’s half-year results ending 30 September, earnings per share stood at 0.80p over the six months, compared with 1.23p for the same period last year.
Baillie Gifford said this marks a continuation of the trend of lower earnings, adding: “The fall is due to the large number of companies in the portfolio reinvesting for their future growth, rather than paying out cash to shareholders.
“As growth investors, disciplined long-term focused capital allocation is precisely what the managers seek in a company.”
Despite this, Scottish Mortgage, which is the largest investment trust listed on the London Stock Exchange, has continued to outpace its benchmark, even though it was faced with a backdrop of political and economic turmoil.
Scottish Mortgage has seen its net asset value per share jump by a quarter in six months, compared to the FTSE All World Index, which increased by 18 per cent over the same period.
Over the last five years, the net asset value total return stood at 165 per cent, while the index delivered a 105 per cent return over the same period.
In the results, a spokesman for Baillie stated: “Despite wider macro-economic and political concerns around the world, which are preoccupying many investors, over the past six months a number of the largest holdings in the portfolio have released strong operational results.”
Some companies which have seen a re-acceleration in their growth rates include Facebook, Alphabet (Google), and Amazon.
Baillie said the growth of some of these firms was driven by strong corporate cultures, a focus on providing what their customers either want or need, and a willingness to invest for the long-term to enable them to adapt to their customers’ evolving demands.
“These network businesses now seem to have reached a critical tipping point, whereby their sheer dominance and scale become a reinforcing competitive advantage,” Baillie stated.
Baillie pointed out it is becoming increasingly hard to catch up with tech firms at the forefront, and said the trust managers sold out of “second tier” network businesses which they believe will be the losers, such as Twitter and LinkedIn.
Back in May, the trust’s manager James Anderson defended his move to let unlisted companies make up to a quarter of the portfolio, as he looks to reap the benefits of the private sector.
“The board continues to view its comparative scale and low cost structure as clear competitive advantages.”
