Scottish Mortgage backs growth as tariffs rock markets
Investment trust Scottish Mortgage says its commitment to finding long-term, growth from disruptive companies should pay off as Donald Trump rattles stock markets. Few companies will be unaffected by changes in the global trading status quo, Scottish Mortgage says, warning the US administration is 'accelerating that moment of reckoning [for the US and global economies]'.
Tom Slater (pictured), the trust's investment manager, said: 'Equity markets offer no hiding places in such a landscape. Our task as investors is to seek out businesses with the adaptability to recalibrate and the cultural foundations to withstand disruption.' In spite of global volatility and fragile confidence, the trust said its holdings have performed well, delivering 'quietly impressive operational results'.
Revealing its annual results this week, Scottish Mortgage delivered a net asset value return of 11.2 per cent for the year ended 31 March. During the period, the firm's share price return was 6 per cent, beating the FTSE All-World Index's 5.5 per cent return. The results, released on Thursday, do not account for the weeks that have followed Trump's tariff 'liberation day'. After taking a steep tumble after the announcement, Scottish Mortgage shares have since clawed back all the ground lost and are up 4.7 per cent on their 2 April level.
Slater said: 'Just after our financial year end, the United States announced sweeping new tariffs on several of its key trading partners. The reaction from markets was immediate and severe. He added: 'We are cautious about leaping to conclusions, but we do not view these developments as transitory. The underlying imbalances in the US and global economy whether in trade, debt accumulation, inequality or political cohesion are increasingly unsustainable.'
The trust said its discount to NAV had widened to 9 per cent form a previous 4.5 per cent in the financial year just ended, however it says this is in line with the investment trust sector average of 9.1 per cent. During the year, the trust deployed £132m of new capital in private companies - up from £109.4m during the previous 12 months. Scottish Mortgage said its most promising holdings share a capacity to absorb shocks and 'reorient without losing momentum'.
Amazon, its says, is now reaping the benefits of its investment into fulfilment, while Shopify has refocused towards enabling merchants by offloading its logistics infrastructure. Slater said: 'In a world that is becoming more fragmented, more protectionist, and more unpredictable, this kind of organisational flexibility will matter more than ever.' The trust has also been reorienting itself, shifting its AI holdings to target businesses that can benefit from the adoption of AI technology.
Slater said: 'Few developments this year were more consequential than the rise of generative AI… AI is not a distant promise. It is driving real operational leverage today.' Scottish Mortgage has decided to cut its holding in Nvidia 'significantly', which was its largest investment at the beginning of the financial year. 'This does not reflect diminished respect for the company. It reflects our long-held discipline: we seek asymmetric outcomes. And at the prevailing valuations, the risk/reward looked more balanced than we prefer,' Slater added.
Instead, the trust has added to firms it thinks will benefit from adopting AI into their current operations. It said both Spotify and Meta were large contributors to its returns over the past year, with the latter having embedded AI further into its business model. 'It has many opportunities to drive its revenue growth today using this technology. Last year the company noted an 8 per cent increase in time spent on Facebook as a result of AI driven content recommendations to its users,' Slater said. The trust also invested into chipmaker TSMC. It said: 'compute demand will remain structurally strong as AI moves from the training phase to deployment at scale.'
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