Results
The net asset value per share (NAV) increased by 17.5% over the first half of the Company's financial year, whilst its share price rose by 15.4% as the shares moved to trade slightly closer to the underlying NAV. Global equity markets, as represented by the FTSE All-World Index, gained 1% in sterling terms over the same period.
Once again the Board and Managers wish to emphasise that six months is far too short a period over which to evaluate this investment strategy. The long term performance is much more representative of the investment approach of the Company. The total return from investing in the shares of Scottish Mortgage over the last 5 years to the end of September was 222.8%, with a corresponding performance in the underlying NAV of 193.1%. For comparison, had an investor simply passively invested in a global equities index over the same time, the return would have been considerably lower; for example, the FTSE All-World Index's total return over the 5 year period was less than half that of the Company's total share price return at 101.6%.
Over the six month period the Company continued to operate its long standing liquidity policy as documented in the Company's Annual Report. Between the start of April and the end of September, Scottish Mortgage issued 38.95 million shares from treasury in order to help facilitate the efficient functioning of the market in its shares so that they trade within a reasonable range around the underlying NAV. The Company did not buy back any shares into treasury over this period. Shareholders' funds increased by £153 million over the period as a result of the sales of treasury shares.
Outlook
The Board and Managers would like to emphasise that Scottish Mortgage is best suited to those who share its long term approach to investing. Without wishing to strike an unduly pessimistic note, shareholders are asked to bear in mind that there will almost certainly be periods when the focus of equity markets shifts away from company fundamentals. If this were to be the case, the portfolio investments may well fall out of favour for a period of time. In such circumstances, shareholders should expect that the Board and Managers will remain faithful to the long term investment approach taken by Scottish Mortgage and will not seek to mitigate periods of portfolio underperformance over the shorter term. At the margin, the Managers may well look to turn such market volatility to shareholders' advantage by making further investments if a particular company's share price has been disproportionately impacted by wider negative market sentiments. Most of the time, though, the appropriate response will in fact be to do nothing.
It is notoriously difficult to predict which events will or will not generate a market tantrum. The last six months have seen significant political tensions rising in the Korean peninsular and Sea of Japan, and there has been no shortage of news flow surrounding a US president who, at the very least, shows no diminution in his love of controversy and the limelight. This is to say nothing of the ongoing saga around Britain's exit from the European Union. Perhaps rather surprisingly, markets seem to have weathered the various geopolitical events of the summer almost with equanimity. This might have surprised many investors, had they been asked to predict the outcome of such events even just a year ago. The Managers do not attempt to make such forecasts.
What can be said with confidence is that the Managers will remain focused on the prospects of the underlying operational businesses in the portfolio over their investment time horizon. On this basis, they are excited by the rising potential of a broadening range of companies when compared with a year ago and remain convinced that this is a great time to be a long term growth investor.