Scottish Mortgage NAV, earnings down; dividend up

Scottish Mortgage Investment Trust said it made a full year £6.6m loss on investments against a £747.8m gain a year earlier as turbulent equity markets hit share prices.

Earnings per share fell 26% to 1.66p while net asset value was down to 263.8p a share from 268p.

Pre-tax net losses were £13.9m from a return of £723m in 2015. Income fell to £32.9m from £38.9m a year earlier.

Total dividend for the year is up 1% to 2.96 pence per share. This will be part financed through reserves to supplement income earned during the period.

The trust, part of Baillie Gifford, took a controversial position this year to allow unquoted companies, which provide little income, to make up 25% of its portfolio.

Chairman John Scott warned investors that they “should expect that there will be periods when our investment approach is out of favour, when there is a disconnect between share prices and the underlying fundamentals of the companies, and in such circumstances our share price may well suffer”.

“A pleasing outcome of the last 12 months was that 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,” he said.

“We do not try to disguise the fact that our portfolio is a concentrated one and in many cases invested in businesses (of which Tesla is a prime example) whose intention is to disrupt the present incumbents and which has been constructed in accordance with the convictions of our managers and with no heed to benchmarks or indices.”

Scott said "passive investing" was no longer an adequate approach if investors wanted to preserve capital in the medium term.

"There are simply too many competitive threats to established businesses, many of which will not survive," he said.

"Secondly...many of the companies in our portfolio offer the potential for growth based on structural rather than cyclical changes over the long term."

On the dividend, Scott said that the the trust would not have enough cash from income and revenue reserves to continue to pay at comparable levels over the coming years.

“The company is, however, permitted to make distributions from capital profits. The board will be willing to do this in order to continue to grow our dividend payments so long as it believes that the total returns being earned by the company over the long run justify this.”

“The Baillie Gifford savings scheme, and many other platforms, give shareholders an opportunity to re-invest dividends in the Company, and the Board hopes that shareholders who have no immediate need of income will take advantage of this facility,” he said.