Slower than expected progress from some of the healthcare investments in the £8.4bn Scottish Mortgage investment trust have contributed to a period of stark underperformance.
Half year results out this morning (November 8) showed the net asset value of the trust rose by 3.2 per cent in the six months to the end of September, compared with a return of 9.9 per cent for the FTSE All World Index in the same time period.
Over the past five years however, the trust has returned 126 per cent, compared with 44.8 per cent for the FTSE All World Index and 84 per cent for the average trust in the AIC Global sector in the same time period, according to data from FE Analytics.
The trust has significant investments in the global technology sector, with holdings in Facebook, Alphabet and Tesla, and healthcare companies.
Tom Slater, who jointly manages the trust, told FTAdviser this week that the healthcare investments had been dragging the fund down.
He said: “One of the issues has been the longer than anticipated time it is taking for some of the new drugs that have been developed to be taken up by the market, to be used in the treatments.
"We are long-term shareholders in these companies, and we still like the long-term trajectory of what they are doing.”
The trust had 84 investments at the end of September, of which 42 companies were not listed on any stock exchange. This accounted for 22 per cent of the capital in the trust.
In today's results statement, the trust’s chairman Fiona McBain wrote the investments in unquoted companies were "critically important".
She wrote: “We believe that our ability and willingness to invest in unquoted companies at scale and globally as part of a portfolio offering high overall liquidity is critically important to both our future returns and to the unique proposition Scottish Mortgage can offer to individual shareholders.
"We are convinced that the long-term risk taking, essential to economic and social progress, is continuing to migrate to private markets and at an accelerating pace.”
Scottish Mortgage invested in Facebook prior to it being listed on the stock exchange.
Mr Slater said: “Scottish Mortgage and Baillie Gifford now have a really strong reputation among the entrepreneurs on the West Coast of the US and in China, for being long-term shareholders in companies, and for being willing to back founders. This gives us an advantage in terms of the access we get to the company chief executives.”
Mr Slater and his joint manager James Anderson place huge weight on the character and ability of the founders to run their companies.
They declined to invest in Ebay years ago because they took the view that its chief executive was not thinking long-term.
Mr Slater acknowledged this meant they ran the risk of becoming too close to the individual founders which could make it more difficult to sell the company later on.