Scottish Mortgage heading for where

[SebsCat]

https://www.investegate.co.uk/scot.mort ... 00055951T/

Board Update

The Board of Scottish Mortgage Investment Trust PLC announces certain role changes on the Board resulting from succession planning which has been developed and supported by all of the directors over the course of the last 12 months: Mr Justin Dowley, the Company's current Senior Independent Director, will succeed Ms Fiona McBain as Chair of the Board with effect from the conclusion of the 2023 AGM, subject to his being re-elected by shareholders at the AGM; Professor Patrick Maxwell will, subject to being re-elected by shareholders, succeed Mr Dowley as the Senior Independent Director; Professor Paola Subacchi will retire from her role as a Director at the conclusion of the 2023 AGM, having served nine years on the Board; and Ms McBain will step down from the Board at the same time.

Justin Dowley, Senior Independent Director, commented: "On behalf of the Board, I would like to thank Paola for her substantial contributions during her nine years as a Non-Executive Director. I would also like to thank Fiona for her 14 years of loyal and exceptional service to the Company, in particular over the last few years (and at the request of her fellow directors) providing essential continuity, reassurance and leadership during the extraordinary circumstances of Covid-19 and through a period of transition on the Board and with the Managers."

In addition, as part of the Board's overall planning, over the last few months the Board has been conducting a recruitment process, using an external search firm, with a view to further Board refreshment. That process is now well advanced.

Finally (and further to the Company's announcement on 17 March 2023), the Board announces that Professor Amar Bhidé has now left the Board and is no longer a director of the Company.

[Dod101]

https://www.investegate.co.uk/scot.mort-inv-tst--smt-/rns/board-update/202303210700055951T/

Board Update

The Board of Scottish Mortgage Investment Trust PLC announces certain role changes on the Board resulting from succession planning which has been developed and supported by all of the directors over the course of the last 12 months: Mr Justin Dowley, the Company's current Senior Independent Director, will succeed Ms Fiona McBain as Chair of the Board with effect from the conclusion of the 2023 AGM, subject to his being re-elected by shareholders at the AGM; Professor Patrick Maxwell will, subject to being re-elected by shareholders, succeed Mr Dowley as the Senior Independent Director; Professor Paola Subacchi will retire from her role as a Director at the conclusion of the 2023 AGM, having served nine years on the Board; and Ms McBain will step down from the Board at the same time.

Justin Dowley, Senior Independent Director, commented: "On behalf of the Board, I would like to thank Paola for her substantial contributions during her nine years as a Non-Executive Director. I would also like to thank Fiona for her 14 years of loyal and exceptional service to the Company, in particular over the last few years (and at the request of her fellow directors) providing essential continuity, reassurance and leadership during the extraordinary circumstances of Covid-19 and through a period of transition on the Board and with the Managers."

In addition, as part of the Board's overall planning, over the last few months the Board has been conducting a recruitment process, using an external search firm, with a view to further Board refreshment. That process is now well advanced.

Finally (and further to the Company's announcement on 17 March 2023), the Board announces that Professor Amar Bhidé has now left the Board and is no longer a director of the Company.

Many thanks. You beat me by a couple of minutes. Bit of a storm in a teacup I think. At least Bhide could have stayed on to give us the benefit of his wisdom; as it is it just looks like a personal vendetta against the Chairman. Silly man.

It does though look a bit messy, because there suddenly seems to be a lot of changes all at once. Usually better for these to be phased in. Anyway, blame Covid.

Dod

[scrumpyjack]

I was amused to see that Professor Bidet had stepped down as non exec director.

It reminded me of the old joke about Non Execs being rather like Bidets. They look good but no one is quite sure what they are for!

[Dod101]

I was amused to see that Professor Bidet had stepped down as non exec director.

It reminded me of the old joke about Non Execs being rather like Bidets. They look good but no one is quite sure what they are for!

On the face of it it looks as if he was 'not one of us'. That of course is the problem with ITs. Most of the directors are chosen by the existing directors but it is always useful to have an outsider who will ask awkward questions.

This problem of course applies not just to ITs but to most PLCs.

Dod

[scrumpyjack]

According to the Times, he got in a huff about his suggestions for new Non Exec directors not being taken up.

"The board is also adding two new non-execs, one to replace the retiring Paola Subacchi. Bhide is said to be angry that none of the five nominees he put forward was accepted. But the trust says that two didn’t reply to headhunter Nurole and two said they weren’t interested, with only one being rejected."

"And, while Bhide claims the board lacks the “capabilities and governance clout” to monitor the unlisted stuff, its processes have rigour.

Holdings span the likes of Elon Musk’s SpaceX, TikTok owner ByteDance and battery maker Northvolt. And, as Dowley points out, these are not venture capital investments but stakes in large, latestage companies. All holdings are valued by four parties: the manager; independent valuer S&P Global; the directors; and auditor PwC. Last year, the trust’s total investments went through 585 revaluations."

[james51]

Article in the FT today: 'Inside the boardroom bust-up that shook Scottish Mortgage'

[seagles]

Article in the FT today: 'Inside the boardroom bust-up that shook Scottish Mortgage'

Link would be nice.

[Bouleversee]

Unless we have the heading and google it, I doubt you would be able to access it anyway.

[RockRabbit]

All holdings are valued by four parties: the manager; independent valuer S&P Global; the directors; and auditor PwC. Last year, the trust’s total investments went through 585 revaluations."

The fall in the IT's discount to NAV over the last year (0 to 20%) suggests to me that the market might be sceptical of SMIT's unquoted holdings valuation. Isn't there the significant risk, as there appears to be with Private Equity, that the 'four parties' valuation of the unquoted holdings lags the public market by several months?

[EthicsGradient]

The FT article can be found with the title above, and it let me in past the paywall. It has this to say:

The trust can invest up to 30 per cent of its total assets in unlisted securities — typically late-stage private businesses — measured at the time of purchase. The fall in prices for its listed investments has pushed the proportion to 29.9 per cent of total assets at of the end of February.

Pushing up at the threshold limits Scottish Mortgage’s ability to make new investments, meaning it cannot partake in new funding rounds by its portfolio of private companies.

Selling such private holdings is difficult, and would risk setting price benchmarks that further depress valuations and hit the trust’s asset-to-debt ratio. In a worst-case scenario, Scottish Mortgage could find itself in a downward spiral: if markets sell off further it could breach its leverage limit and be forced to sell down listed positions, which in turn could force it to breach the thresholds for private assets and precipitate a fire sale at the worst possible time.

And Bhidé said:
“If you plan to hold a large portion of your assets in illiquid, you then cannot be following a policy of buying back stock to narrow the NAV discount, because it simply cannot be done,” he said, calling for clearer communication: “This is what we do. Do not count on being able to sell at NAV.”

[scrumpyjack]

I agree the market is probably sceptical of the valuation of the unquoted holdings, though they have apparently been cut 45% in the last year. The valuations could be halved again and that would be more than covered by the current 20% discount to NAV and that would also solve the problem of the 30% limit because they would then only represent 15% of the assets!

It is all uncertainty, which the market hates, and I think it best to do nothing but wait and see. Time will tell whether the managers have been as clever as they like us to think in their selection of companies to invest in.

ps the unquoted companies include some very well established ones. eg The Space X holding is 3.2% of SMT NAV on its own and that value has been rising based on what other people have paid to subscribe for shares. The latest funding valued it at $140 billion.

[TUK020]

article in FT today suggesting that short sellers are now paring back their positions on SMT.
If true, this might be a buy signal

[Dod101]

article in FT today suggesting that short sellers are now paring back their positions on SMT.
If true, this might be a buy signal

I am not sure that following every twist and turn will do any of us much good. The new Chairman (to be installed after the coming AGM) sounds like a good man and the BG managers have not suddenly lost their touch. The market is, probably rightly, a bit cynical at the moment re valuations but as has been said, the shares are/were at a fairly high discount to NAV, reflecting that.

Sit back and relax........or sell and move on. I will hold. With respect, if I wanted to buy I would buy but I am not concerned about an article in the FT one way or the other.

Dod

[yorkshirelad1]

Two articles in Saturday's FT (sorry, just catching up wth weekend papers)

page 14 main section: Scottish Mortgage bruised after board bust-up
ft.com: https://www.ft.com/content/84c6442c-4108-4094-b94d-8585517da00a
via Google: https://www.google.co.uk/search?q=site%253Aft.com+Scottish+Mortgage+boardroom+bust-up
via archive.today http://archive.today/2023.03.24-064840/https://www.ft.com/content/84c6442c-4108-4094-b94d-8585517da00a

page 3 Money section: "Rising rates hit investment trust performance"
ft.com: https://www.ft.com/content/28844c31-def ... bbd264e706
via Google: https://www.google.co.uk/search?q=site%253Aft.com+Scottish+Mortgage+rising+rates
not (yet) available via archive.today

[yorkshirelad1]

Today's (Fri 31 Mar 2023) Chronic Investor has a sidebar by Val Cipriani on SMT:
Print edition title: "Is Scottish Mortgage Investment Trust an opportunity for patient investors?"
Online version title: "It could be time to buy back into Scottish Mortgage"
https://www.investorschronicle.co.uk/news/2023/03/30/it-could-be-time-to-buy-back-into-scottish-mortgage/ (paywall)
via Google: https://www.google.co.uk/search?q=site:investorschronicle.co.uk+scottish+mortgage+buy+back

[Avantegarde]

I read an astonishing fact in the latest edition of Trust, the quarterly publication from Baillie Gifford for its investment trust investors. https://www.bailliegifford.com/en/uk/in ... -magazine/ In the last two decades (since the start of 2003) the Scottish Mortgage trust has owned 749 shares or bonds, of which 680 (91%) have made no contribution to the trust's overall return. The 12-times return earned in that time by the trust has come from just 69 investments. And 14 of them accounted for half of the trust's growth. Has this been revealed before? I know the trust has previously publicly favoured the idea that good stock market returns hinge on the picking few companies that do spectacularly well. Even so, to see the figures as starkly as this was something of a surprise. I suppose you could conclude that 91% of the trust's investment effort was a waste of time.

[Howard]

I read an astonishing fact in the latest edition of Trust, the quarterly publication from Baillie Gifford for its investment trust investors. https://www.bailliegifford.com/en/uk/in ... -magazine/ In the last two decades (since the start of 2003) the Scottish Mortgage trust has owned 749 shares or bonds, of which 680 (91%) have made no contribution to the trust's overall return. The 12-times return earned in that time by the trust has come from just 69 investments. And 14 of them accounted for half of the trust's growth. Has this been revealed before? I know the trust has previously publicly favoured the idea that good stock market returns hinge on the picking few companies that do spectacularly well. Even so, to see the figures as starkly as this was something of a surprise. I suppose you could conclude that 91% of the trust's investment effort was a waste of time.

This could be argument that "diworsification" isn't always a bad idea? Sometimes it works. It has for me very occasionally, but not as well as Scottish Mortgage's recent run. And irritatingly it can happen just after one sells after getting bored holding a share.

regards

Howard

[EthicsGradient]

I read an astonishing fact in the latest edition of Trust, the quarterly publication from Baillie Gifford for its investment trust investors. https://www.bailliegifford.com/en/uk/in ... -magazine/ In the last two decades (since the start of 2003) the Scottish Mortgage trust has owned 749 shares or bonds, of which 680 (91%) have made no contribution to the trust's overall return. The 12-times return earned in that time by the trust has come from just 69 investments. And 14 of them accounted for half of the trust's growth. Has this been revealed before? I know the trust has previously publicly favoured the idea that good stock market returns hinge on the picking few companies that do spectacularly well. Even so, to see the figures as starkly as this was something of a surprise. I suppose you could conclude that 91% of the trust's investment effort was a waste of time.

This is a feature of stock markets as a whole - Hendrik Bessembinder's research:

To conduct the study, Bessembinder and his team examined the performance of 62,000 stocks traded in more than 40 countries, covering the time span of 1990 to 2018.
...
Taking a step back, the top 306 stocks in the global study — about 0.5% of the total — accounted for an incredible 73% of equity wealth creation. Almost three quarters of the stock market gains, across the entire planet over nearly 30 years, came from 306 names.

If you zoom out a little further to the top 811 stocks — about 1.3% of the total pie — the performance of that exclusive group covers the entire $44 trillion worth of net equity wealth created circa 1990-2018.

Far more than just 1.3% of stock names were profitable, of course. Out of 62,000-plus names, the percentage with positive returns in the period was about 39%.

But roughly 61% of names in that period had negative (wealth-destroying) returns, which canceled out about $22 trillion worth of gains. That is why the top 811 stocks represent the net gain of $44 trillion.

Again, the sobering reality here is that most stocks lose money — even over long periods, and even with historic bull runs factored in. But it doesn’t have to be bad news, as we shall soon see.

https://tradesmith.com/best-of-most-sto ... in-anyway/

It has been discussed before: viewtopic.php?f=8&t=28218

So if SM's net gains come from their best 9% companies, at least that's not the 1.3% for world markets as a whole. That does indicate their stock picking did do some good (as their overall return would suggest too).

(Note that the BG magazine article says the 91% made no net contribution between them - like the 98.7% in the Bessembinder study, that includes some which lost money, and others which made just enough to balance that loss)

[Dod101]

I read an astonishing fact in the latest edition of Trust, the quarterly publication from Baillie Gifford for its investment trust investors. https://www.bailliegifford.com/en/uk/in ... -magazine/ In the last two decades (since the start of 2003) the Scottish Mortgage trust has owned 749 shares or bonds, of which 680 (91%) have made no contribution to the trust's overall return. The 12-times return earned in that time by the trust has come from just 69 investments. And 14 of them accounted for half of the trust's growth. Has this been revealed before? I know the trust has previously publicly favoured the idea that good stock market returns hinge on the picking few companies that do spectacularly well. Even so, to see the figures as starkly as this was something of a surprise. I suppose you could conclude that 91% of the trust's investment effort was a waste of time.

I too read that and I honestly did not find it all that astonishing. It is surely well known that great returns come from a very small number of shares. The question of course is how to identify these shares. I think the interesting question is can we identify what sort of share or what class of share, because buying the entire market would capture the best shares but I do not think anyone would suggest that buying a world index is the road to outstanding returns, so there must be some way of reducing the field. Scottish Mortgage has been successful in reducing the field by zeroing in on what? Unquoted, early start ups, tech or what? I think their long term outlook and trying to concentrate on potential disruptors is very broadly the answer. It is certainly not for the individual to buy 60 or 70 shares and hope that that will pick up a 'winner' as some on these boards seems to believe.

I think it needs a fund like Scottish Mortgage whose managers have firm views and the ability to scour more or less the entire universe of potential disruptors and the ability to buy an early stake and hold for the long term. That is why I think that Scottish Mortgage should be seen as for those with the patience and wherewithal to lock some money away for five years or more (with virtually no dividend). It is not a steady growth share like say Fidelity Growth and Income and investors need to understand that.

Good article and a very good magazine.

Dod

[absolutezero]

I read an astonishing fact in the latest edition of Trust, the quarterly publication from Baillie Gifford for its investment trust investors. https://www.bailliegifford.com/en/uk/in ... -magazine/ In the last two decades (since the start of 2003) the Scottish Mortgage trust has owned 749 shares or bonds, of which 680 (91%) have made no contribution to the trust's overall return. The 12-times return earned in that time by the trust has come from just 69 investments. And 14 of them accounted for half of the trust's growth. Has this been revealed before? I know the trust has previously publicly favoured the idea that good stock market returns hinge on the picking few companies that do spectacularly well. Even so, to see the figures as starkly as this was something of a surprise. I suppose you could conclude that 91% of the trust's investment effort was a waste of time.

This is not unusual and is the main reason for holding a global tracker rather than a DIY portfolio.