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Scottish Mortgage Investment Trust (LSE:SMT) shares rose today (May 23) after the FTSE 100 The growth fund reported its annual results.
As I write, the stock is up 2.7% to 893p, putting it within reach of a new 52-week high.
The Edinburgh-based trust has probably the most boring name in the world, but it also arguably has the most interesting growth portfolio. Never judge a book by its cover, as they say.
It's a core holding in my retirement portfolio. Was there anything in the report that made me consider increasing my position? Let's find out.
Return to growth
In the 12 months to March 31, the fund's share price rose 32.5% and the net asset value (NAV) of its holdings rose 11.5%. This compares to a 21% increase for the FTSE everyone Index (in sterling terms).
The strength of the share price performance relative to NAV over the period reflects the sharp reduction in the discount (after deducting fair value borrowings) from 19.6% to 4.5%.
Net returns after tax amounted to £1.37bn, compared with a loss of £2.92bn in the previous year. As a shareholder, it was nice to see this after two consecutive years of negative returns.
In March, the board announced at least £1bn to buy back shares over the next two years. This has generally been well received by analysts and investors.
Finally, the board recommended a 3.4% increase to the dividend, bringing it to 4.24 pence per share. This maintains a multi-decade streak of dividend growth. That said, no one is likely to buy the 0.5% yielding stock for income.
A decade of superior performance
Scottish Mortgage is only interested in the long term and asks to be judged over periods of five years or more.
How are you doing on that front then?
Very good, actually. In 10 years, she has completely surpassed her benchmark. Considering the five-year share price, it is much tighter.
Total Return Performance (Until March 31st)
| 5 years | 10 years | |
| Scottish Mortgage NAV | 91.2% | 381.9% |
| Scottish Mortgage share price | 78.7% | 358.4% |
| FTSE All-World Index | 77.0% | 218.2% |
<h2 class="wp-block-heading" id="h-it-s-all-about-ai-of-course”>It's about ai, of course.
Unsurprisingly, the prominent theme driving returns was artificial intelligence (ai). The two main holdings, NVIDIA and ASMLthey increased by 219% and 40%, respectively, during the period. amazon Shares rose 71%.
Meanwhile, the trust added global chip foundry. Taiwan Semiconductor Manufacturing Company (TSMC) to the portfolio.
Assistant Principal Lawrence Burns said: “TSMC can be seen as a royalty on global computing power, just as Nvidia can be seen as a royalty on ai..”
He cited famed economist Brian Arthur, who previously predicted that ai would become the most important invention since Gutenberg's printing press in 1440.
Burns said that ai is “outsourcing intelligence” and its impact is likely to be “deep and immeasurable“.
Final thoughts
Tom Slater, senior director of the trust, said there had been a reduction in tesla, meaning SpaceX was now a larger holding. Meanwhile, the Chinese tech giant Tencent It was completely sold.
One thing I would highlight here is that the portfolio is now very heavily leaning towards ai. Any slowdown in this technological boom could affect the value of the trust's holdings.
Given Nvidia's latest box office results, I don't expect that to happen anytime soon. But it is a risk.
Still, if I didn't already have such a large stake, I would certainly consider buying Scottish Mortgage shares today as a way to invest in ai.
