In its half-year results to 30 September, the trust said that due to “company-specific circumstances”, which have “challenged the economic reality of the liquidation preferences”, the average private investee company securities price fell in value by 2.4%
Overall, the trust’s net asset value declined by 2.7% during the reporting period, compared to a rise of 4.3% for the FTSE All-World index.
Private companies currently represent 31% of the trust’s gross assets and 35% of NAV at £3.9bn, according to Stifel, despite SMT’s 30% exposure limit to unquoted companies. Five companies account for almost half of the trust’s private holdings.
Scottish Mortgage welcomes FCA review into private markets valuations
SMT manager Tom Slater noted that, despite the drop in valuations, the average revenue growth rate of the top ten private holdings of the trust was 38% in 2022, arguing that “market scepticism around the performance and valuation of our private assets is misplaced”.
Over the last six months, the trust deployed about £74m into six of its private holdings, while beauty company Oddity went public.
Stifel analyst Iain Scouller noted that,, while the trust had benefited from the strength of Nvidia over the last six months, it had “little or no exposure to most of the other small number of mega-cap US tech stocks that performed strongly during the period”.
Nvidia represented the best performing holding for the trust over the last half-year, rising 58.7%, while other contributors included Tesla (22.4% rise) and Pinduoduo (30.8% rise). Meanwhile, the trust’s largest detractors included Moderna (-31.9%), Adyen (-52.3%) and Kering (-27.8%).
SMT’s manager added that rising rates had had “little impact”, as “the majority of our borrowings do not come due until after 2036 and our interest cost is below 3%”.
Scottish Mortgage top ten unlisted holdings deep dive reassures analysts
Scouller also pointed to a sharp decline in share buybacks, with £11.5m in shares being bought back in the last six months, compared to £283.3m that was bought back in the year before.
SMT’s Slater concluded: “Progress is being made across a broad swathe of technologies. What makes this so exciting for growth investors is that the number of ways companies can combine these technologies grows exponentially.
“Accelerated computing drives artificial intelligence, which can be applied to vast datasets in the cloud, enabling breakthroughs in healthcare and so on. Our companies are fitter for the future, and the opportunity they address grows at an accelerating pace.
“Economic news is usually dreary, and geopolitics rarely reassuring, but entrepreneurs’ collective creativity and productivity are a source of great confidence and optimism.”
