Scottish Mortgage stages comeback

SCOTTISH Mortgage, one of Scotland's biggest investment trusts, staged a dramatic recovery in the second half to end its financial year on a par with its index.

The 2.05 billion trust, Baillie Gifford's largest, saw its net asset value (NAV) rise by 4 per cent, having delivered a loss of 5.1 per cent in the first six months, counteracted by a 9.5 per cent increase in the second half.

The benchmark index - comprising an equal split between the FTSE All-Share and the FTSE World ex-UK - also rose by 4 per cent over the 12-month period.

An 11.8 per cent increase in the total dividend for the year to 9.5p has been recommended, making a 25-year record of increases above inflation.

Robert O'Riordan, investment trust development manager at Baillie Gifford, put the turnaround in performance down to how fund manager James Anderson repositioned the portfolio.

O'Riordan said: "During the second half, the manager took the opportunity to reduce his UK holdings from 33 [stocks] to 18 and invest in other areas such as emerging markets."

He added that the trust's holding in US technology stocks improved in the second half.

Over four years, the trust's increase in NAV of 126 per cent has outstripped its benchmark index, which returned 78 per cent.

During this period, Anderson took the decision to reduce the holdings in the trust from 160 to the present level of 75. O'Riordan added: "The final stage of the process was a reduction is some of the large UK companies and changing the benchmark to the FTSE All World Index, which includes emerging markets.

"That was about the right level to have meaty holdings in companies that are perhaps off the beaten track for other people. It gives good diversification but means the trust is way off being a tracker. As the four-year figures demonstrate, it is not an index tracker."

Over the year, which ended on 31 March, Anderson reduced his UK weighting from 35 per cent to 24.8 per cent, in favour of continental Europe, which he increased from 10.5 per cent to 16.1 per cent.

The other major move was an increase in emerging markets holdings, up to 15.7 per cent from 12.6 per cent.

Of the individual holdings, the largest was oil producer Petrobas, with a holding of 3.6 per cent of the assets of the trust, followed by eBay, 3.4 per cent, and Royal Bank of Scotland, 3.3 per cent.