Scottish Mortgage Investment Trust (LSE: SMT) shares were marching higher today (23 May) after the FTSE 100 growth fund reported its annual results.
As I write, the stock is up 2.7% to 893p, which puts it within touching distance of a fresh 52-week high.
The Edinburgh-based trust possesses probably the most boring name on earth but also arguably the most exciting growth portfolio. Never judge a book by its cover, as they say.
It is a core holding in my retirement portfolio. Was there anything in the report to make me consider increasing my position? Let’s find out.
Back to growth
In the 12 months to 31 March, the fund’s share price increased 32.5% and the net asset value (NAV) of its holdings rose by 11.5%. This compares to a 21% gain for the FTSE All-World Index (in sterling terms).
The strength of the share price performance relative to NAV over the period reflects the sharp reduction in the discount (after deducting borrowings at fair value) from 19.6% to 4.5%.
Net returns after taxation totalled £1.37bn against a loss of £2.92bn in the prior year. As a shareholder, this was nice to see following two straight years of negative returns.
In March, the board announced at least £1bn for the purpose of share buybacks over the following two years. This has generally gone down well with analysts and investors.
Finally, the board recommended a 3.4% increase to the dividend, bringing it to 4.24p per share. This maintains a multi-decade run of dividend growth. That said, nobody is likely buying the 0.5%-yielding shares for income.
A decade of outperformance
Scottish Mortgage is only interested in the long term and asks to be judged over five-year periods or more.
How is it doing on that front then?
Very well, actually. Over 10 years, it has absolutely crushed its benchmark. On a five-year share price basis, it’s a lot tighter, mind.
Total return performance (to 31 March)
| 5 years | 10 years | |
| Scottish Mortgage NAV | 91.2% | 381.9% |
| Scottish Mortgage share price | 78.7% | 358.4% |
| FTSE All-World Index | 77.0% | 218.2% |
It’s all about AI, of course
Unsurprisingly, the standout theme driving the returns was artificial intelligence (AI). The two top holdings, Nvidia and ASML, surged 219% and 40%, respectively over the period. Amazon shares jumped 71%.
Meanwhile, the trust added global chip foundry Taiwan Semiconductor Manufacturing Company (TSMC) to the portfolio.
Deputy manager Lawrence Burns said: “TSMC can be thought of as a royalty on global computing power, just as Nvidia can be thought of as a royalty on AI.”
He cited celebrated economist Brian Arthur, who previously predicted that AI would become the most significant invention since the Gutenberg printing press in 1440.
Burns said AI is “externalising intelligence” and its impact is likely to be “profound and immeasurable“.
Final thoughts
Tom Slater, the trust’s lead manager, said there had been a reduction in Tesla, meaning that SpaceX was now a larger holding. Meanwhile, Chinese tech giant Tencent was sold completely.
One thing I’d highlight here is that the portfolio is now very heavily tilted towards AI. Any slowdown in this tech boom could hit the value of the trust’s holdings.
Going on Nvidia’s latest blockbuster results, I don’t expect that to happen any time soon. But it’s a risk.
Still, if I didn’t already have such a large holding, I’d certainly consider buying Scottish Mortgage shares today as a way to invest in AI.
