Scottish Mortgage blames unlisted investments for “flat” yearly performance

Added 13th May 2016

The investment trust experienced a negative total return on NAV (-0.1%), share price (-0.7%) and benchmark (-0.5%) amidst a 12% increase in its investments in private companies.

Scottish Mortgage blames unlisted investments for “flat” yearly performance

Scottish Mortgage Investment Trust (SMIT) announced that it had brought in 26% lower earnings per share for the year to 31 March 2016 relative to its performance the previous year.

The investment trust attributed the drop in income to its decision to move away from higher income-paying stocks in favour of longer term growth investments, including unlisted holdings. SMIT admitted that approximately 12% of its portfolio consisted of investments in private or unquoted companies at 31 March 2016.  

Though SMIT explained that their private company holdings do not provide much in the way of income currently, the company defended its decision to increase the percentage of unquoted company investments within its portfolio by labelling the move a “direct response to a shift in the balance within the capital markets between the providers and consumers of capital.”

“The Board believes this shift in the functioning of capital markets is likely to persist, rendering the flexibility to undertake investments ahead of public offerings of increasing importance for growth investors across the world.”   

SMIT’s chairman, John Scott, urged shareholders to put the flat performance of the past financial year into the context of a five year investment horizon.

He likewise pointed out that there had been promising outcomes within the year:

“Good individual company results managed to reverse share prices falls, mitigating broader negative sentiments which might otherwise have had a greater impact on the portfolio, for example regarding China, healthcare and technology.”

Despite the “effects of short term market gyrations” Scott remained hopeful about the future potential for growth and returns.

“Over the past twelve months, behind the turbulent movement in their share prices, a number of the companies in the portfolio have reported strong operational results, reaping the benefit of prior years’ capital investment. This is particularly pleasing to see against a wider backdrop of slowing investment and companies which have been returning cash to their shareholders.” 

Scottish Mortgage’s share price fell by 0.74% during late morning trading on Friday to £25.43 per share. 

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