Tesla, Amazon and chip makers: What Scottish Mortgage trust has been betting on in turnaround year

“Artificial intelligence, digitalisation and the opportunities presented by transitioning our energy model will provide fertile investment territory for years to come.”

Scottish Mortgage Investment Trust, the 115-year-old flagship fund of Edinburgh-based Baillie Gifford, has seen its share price rise by almost a third over the past year as it taps into trends such as AI, space tech and digitalisation.

The venerable trust, which has assets amounting to more than £14 billion, has also narrowed the discount to net asset value, which has been a key concern of shareholders. In the year to the end of March, that discount has been cut from 19.6 per cent to 4.5 per cent, after hitting a mid-year level of 22.7 per cent. Over the year, the trust delivered share price and net asset value returns of 32.5 per cent and 11.5 per cent, respectively. It follows two years of negative returns.

Fund manager Tom Slater said there was “a lot to be excited about”, as he highlighted several areas for potential investor growth.

While Smit reduced its holding in Tesla partway through the year, it said the EV maker was at a 'fascinating juncture' as its massive investment in AI looks to be paying off.

“Artificial intelligence, digitalisation, scientific and engineering progress, and the opportunities presented by transitioning our energy model will provide fertile investment territory for years to come,” he noted.

The trust’s largest holdings - Nvidia and ASML - are in the semiconductor industry but it also holds stakes in the likes of Amazon and electric car pioneer Tesla, which has had a bumpy ride of late.

Slater added: “Tesla, which we reduced partway through the year, is at a fascinating juncture. Its recent products have been hugely successful, and preliminary sales data indicate that the Model Y was the best-selling vehicle in the world last year.

“However, the rise in interest rates has reduced the affordability of all high-ticket items, including Tesla vehicles, depressing demand. At the same time, the rapid scaling of Chinese electric vehicle production, along with improving quality, is a powerful source of competition and pricing pressure.”

Scottish Mortgage Investment Trust, often referred to as Smit, has been investing in private companies since 2012. During that period, it has invested in 96 of them, 36 of which have subsequently listed. It is focused on investing in late stage private businesses that are scaling up and becoming profitable. Private companies make up more than a quarter of the fund.

In March, the board took “concerted action” to narrow the discount and announced it would make at least £1bn available for share buybacks over the following two years. Since April 1 last year to date, Smit has bought back 68.5 million shares at a total cost of £592 million.

The trust was launched in 1909 and has been a constituent of the FTSE 100 since March 2017. The board is recommending that the total dividend is increased by 3.4 per cent to 4.24p per share. Assuming approval by shareholders, a final dividend of 2.64p will be paid on July 11.

Last year it emerged that Fiona McBain had resigned as chairwoman of the trust as the board was reshuffled in the wake of a bust-up over corporate governance.

Current chair Justin Dowley said: “The board and managers are committed to facilitating trading around net asset value (NAV) in normal market conditions.”