It has been a weird few years for FTSE 100 stock Scottish Mortgage Investment Trust (LSE:SMT). After surging for years, it crashed by 59% in just 18 months between late 2021 and mid-2023. And the share price today still remains 30% beneath its Covid-era peak.
Yet there are signs things are back on track, with a 53% jump in Scottish Mortgage stock in the past two years. And looking at the interim results released on 7 November, I think shareholders like myself can feel optimistic that the next few years will be better than the last five.
A very strong period of performance
In the six months to 30 September, the growth-focused investment trust outperformed the FTSE All-World Index. Its net asset value (NAV) per share increased 22.9%, beating the index’s 15.4% gain.
Meanwhile, the trust bought back 75.2m of its own shares in this period, at a total cost of £765.4m. That was part of a whopping £2.6bn repurchasing programme in place since March 2024, which has helped narrow the gap between the share price and the NAV per share.
The growth-oriented portfolio doesn’t generate much income. But having increased its annual dividend for 43 straight years, Scottish Mortgage is classed as a ‘Dividend Hero’. It left the interim dividend unchanged at 1.6p per share.
Gearing reduced from 13% in March to 11%.
Gainers and detractors
The key holdings that drove performance were Roblox (+128.1%), Taiwan Semiconductor, or TSMC (+50.9%), Nvidia (+65.1%), MercadoLibre (+14.9%), and Cloudflare (+82.9%). Happily, these five shares have been driving my portfolio higher too this year.
Top detractors included Chinese stocks like food delivery giant Meituan (-35.7%), EV maker BYD (-18.6%), and unlisted financial services firm Ant International (-23.7%). Meituan stock has collapsed due to China’s escalating delivery price wars.
Scottish Mortgage is more bullish on food delivery apps than I am. By my count, it’s invested in five today.
A mistimed sale
The report mentions AI quite a bit, so it’s worth mentioning that the trust sold out of Palantir a few years back. I cannot find any explanation for this disposal, but in hindsight, it was a poor decision. Palantir stock is up around 2,200% since ChatGPT’s launch!
For a trust that prides itself on finding big winners, to sell very early what’s turning into an era-defining AI software company is disappointing for shareholders.
Perhaps I’m unfairly nit-picking here, though. As Wall Street legend Peter Lynch once said, to be right six times out of 10 when picking stocks is doing well.
Scottish Mortgage’s NAV return was nearly 500% in the 10 years to 30 September. Clearly it’s doing something right.
Getting stronger
As always, a big sell-off in US tech stocks is a risk to performance moving forward. As I write, the Nasdaq Composite is on the slide, so this is worth monitoring.
Taking a long-term view though (five-to-10 years), I expect Scottish Mortgage to outperform. With the shares trading at an 11% discount, I think they’re worth checking out as a diversified way to play the AI/tech revolution.
Large holdings like SpaceX (the largest position), Amazon, TSMC, BYD, Nvidia, Shopify, and Stripe are only getting stronger. Interestingly, Elon Musk has recently been talking up a possible SpaceX IPO, which could unlock big gains for long-term backer Scottish Mortgage.
