Scottish Mortgage Inv Trust Half-year Report.

[idpickering]

Scottish Mortgage's long-term capital appreciation has come from financing and patiently supporting the development of growth companies. The trust was founded to provide capital to businesses with big opportunities but restricted access to funding following the market panic of 1907. It is important at times of stress to remember this founding story: corporate potential has little to do with the cycles of greed and fear in stock markets.

Long-term growth investing is crucial for driving society forward. After a long period of global expansion, it's easy to slip into the mindset that investors passively benefit from broader progress and economic growth. We believe causality flows in the other direction: long-term investment enables growth and progress. Technology and new ways of doing things aren't adopted simply because their time has come. They happen because investors give entrepreneurs the financing and time to build their visions into reality.

Without investment in technology, infrastructure and entrepreneurship, it will be tough to dig ourselves out of our current malaise. If so little of aggregate savings are directed into ventures exploring new technologies and approaches, what does it imply for the future? We risk condemning ourselves to the environment of anaemic growth and stagnant wages that has characterised the United Kingdom over the past decade.

Financing the development of long-term growth companies is not what interests most investors. To understand that, you need only observe the commentary of recent months, focused on 'risk off', deleveraging and the flight to safety. The market's focus has narrowed to a handful of economic variables. Stock prices react dramatically to each monthly update. This environment is off-putting, but it is not relevant to our investment decision-making. Instead, we must evaluate the ongoing position of our holdings, unpicking the growth engines of recent years and verifying that they're still functioning. At the same time, we are redoubling our efforts to find new investments that can adapt to difficult economic conditions and position themselves to do well in the future.

https://www.investegate.co.uk/scot.mort ... 00050636G/

Ian.

[Dod101]

Admittedly, Ian has not produced the most interesting part of the Interim Report by Scottish Mortgage published yesterday but I thought that their comments that they are now beginning to doubt the pro business credentials of China and because of that are cutting back on some of their large holdings there would have been picked up by somebody. Its China weighting is now down to 13% from a peak of around 25%.

Dod

[monabri]

Admittedly, Ian has not produced the most interesting part of the Interim Report by Scottish Mortgage published yesterday but I thought that their comments that they are now beginning to doubt the pro business credentials of China and because of that are cutting back on some of their large holdings there would have been picked up by somebody. Its China weighting is now down to 13% from a peak of around 25%.

Dod

25% to 13% weighting....is that simply due to falls in shareprice rather than a disposal of ~half of the original holdings? My holding in Baillie Gifford China Growth ( BGCG) has fallen by a huge amount, not because I was clever and sold a year ago but because I took no action.

Edit...I suppose to answer that question would require an analysis of the number of shares held by BG in each Chinese company from consecutive annual reports.

Edit 2. Some of the other BG funds are also out of favour ( eg their European fund BGEU and their UK Growth fund, BGUK)


https://www.hl.co.uk/shares/shares-sear ... st-plc-ord

https://www.hl.co.uk/shares/shares-sear ... st-ord-25p

[UncleEbenezer]

Admittedly, Ian has not produced the most interesting part of the Interim Report by Scottish Mortgage published yesterday but I thought that their comments that they are now beginning to doubt the pro business credentials of China and because of that are cutting back on some of their large holdings there would have been picked up by somebody. Its China weighting is now down to 13% from a peak of around 25%.

Dod

China's economy now appears to come with something of the same problem as Blighty's. The Politicians.

It also has the same advantage: lots of great people doing great things and building exciting businesses.

[BullDog]

Admittedly, Ian has not produced the most interesting part of the Interim Report by Scottish Mortgage published yesterday but I thought that their comments that they are now beginning to doubt the pro business credentials of China and because of that are cutting back on some of their large holdings there would have been picked up by somebody. Its China weighting is now down to 13% from a peak of around 25%.

Dod

Thanks for highlighting that. I haven't read the report so it's interesting to read that. I am a little underwater with SMT and had been mulling over selling v holding it given the China exposure. I will keep more of an eye on it now I know this before deciding what to do.

[seagles]

This snippet from the report caught my eye.

We have reduced several Chinese holdings, including long-standing investments in Alibaba and Tencent. The regulatory environment in China remains challenging, and we are concerned that ongoing uncertainty will harm the risk-tolerant culture that has driven the long-term success of China's private sector.

Although distribution of assets only show a 0.1% drop in China.

[monabri]

From the SMT half year report....the Geographical analysis indicates the percentage holding " China" has decreased from 15.8% to 15.7% in the 6m period.

(I was hoping to find something like " number of shares in X". Where "X" is a company).

Source. https://www.investegate.co.uk/scot.mort ... 00050636G/

[monabri]

This snippet from the report caught my eye.

We have reduced several Chinese holdings, including long-standing investments in Alibaba and Tencent. The regulatory environment in China remains challenging, and we are concerned that ongoing uncertainty will harm the risk-tolerant culture that has driven the long-term success of China's private sector.

Although distribution of assets only show a 0.1% drop in China.

You beat me to the post. A 0.1% "drop" is noise. I think one would need to revert to previous SMT reports. I'm curious to understand but my holding in SMT is a low percentage and I probably ( well, no probably about it) would be better off spending time on something else.

[EthicsGradient]

Interactive Investor picked up on this and commented:

Scottish Mortgage reduces China holdings following crackdowns

Scottish Mortgage has moved to reduce exposure to China amid concerns over regulatory risk following intervention into markets and the economy from China’s communist government.

In its half-yearly results, released this morning, Fiona McBain, chair of Scottish Mortgage, disclosed: “We have reduced several Chinese holdings, including long-standing investments in Alibaba Group Holding Ltd and Tencent Holdings Ltd. The regulatory environment in China remains challenging, and we are concerned that ongoing uncertainty will harm the risk-tolerant culture that has driven the long-term success of China's private sector.”
...
When Scottish Mortgage reported its annual results in May (covering the year to end of March), lead fund manager Tom Slater said the decline in exposure to China, from 24% a year earlier to 16%, was a reflection of share price falls rather than holdings being sold down.

Over the past 18 months, China’s government has introduced stringent regulation into a number of sectors, notably technology, education and property. In regards to technology, regulatory reforms have clipped the wings of the sector’s growing influence.

https://www.ii.co.uk/analysis-commentar ... s-ii525970

So, yes, the reduction in value over 18 months is mainly due to falls in price, but they are explicitly saying they're now selling some because of crackdowns.

[monabri]

With reference to Page 22 of the SMT annual report 2022.

available here (although some may prefer to go to BG's website) https://www.trustnet.com/factsheets/T/b ... rust-plc/#



So, I would agree with the previous post by EthicsGradient and add that maybe BG should have moved faster (then I could level that self same criticism at myself!)

[Dod101]

Admittedly, Ian has not produced the most interesting part of the Interim Report by Scottish Mortgage published yesterday but I thought that their comments that they are now beginning to doubt the pro business credentials of China and because of that are cutting back on some of their large holdings there would have been picked up by somebody. Its China weighting is now down to 13% from a peak of around 25%.

Dod

25% to 13% weighting....is that simply due to falls in shareprice rather than a disposal of ~half of the original holdings? My holding in Baillie Gifford China Growth ( BGCG) has fallen by a huge amount, not because I was clever and sold a year ago but because I took no action.

Edit...I suppose to answer that question would require an analysis of the number of shares held by BG in each Chinese company from consecutive annual reports.

Edit 2. Some of the other BG funds are also out of favour ( eg their European fund BGEU and their UK Growth fund, BGUK)


https://www.hl.co.uk/shares/shares-sear ... st-plc-ord

https://www.hl.co.uk/shares/shares-sear ... st-ord-25p

#

The report says that they have cut their investments in Alibaba and Tencent in particular but it sounds as though they have rather gone off China. Glad I sold my BG China Growth last year but should have sold even earlier!

Dod

[Dod101]

Admittedly, Ian has not produced the most interesting part of the Interim Report by Scottish Mortgage published yesterday but I thought that their comments that they are now beginning to doubt the pro business credentials of China and because of that are cutting back on some of their large holdings there would have been picked up by somebody. Its China weighting is now down to 13% from a peak of around 25%.

Dod

Thanks for highlighting that. I haven't read the report so it's interesting to read that. I am a little underwater with SMT and had been mulling over selling v holding it given the China exposure. I will keep more of an eye on it now I know this before deciding what to do.

What I did was took a lot of money out during its meteoric rise and have kept the rest since it has now cost me very much less than nothing, if you see what I mean. It will come back but it is like the rest of my growth shares currently. I have held SMT for 15/20 years and it is volatile but during that huge growth spell, I felt is was stupid not to take some profits as that was my only reason for holding it. I am now content just to leave it alone now. It will recover in a year or two I have no doubt.

Dod

[melonfool]

Admittedly, Ian has not produced the most interesting part of the Interim Report by Scottish Mortgage published yesterday but I thought that their comments that they are now beginning to doubt the pro business credentials of China and because of that are cutting back on some of their large holdings there would have been picked up by somebody. Its China weighting is now down to 13% from a peak of around 25%.

Dod

Thanks for highlighting that. I haven't read the report so it's interesting to read that. I am a little underwater with SMT and had been mulling over selling v holding it given the China exposure. I will keep more of an eye on it now I know this before deciding what to do.

What I did was took a lot of money out during its meteoric rise and have kept the rest since it has now cost me very much less than nothing, if you see what I mean. It will come back but it is like the rest of my growth shares currently. I have held SMT for 15/20 years and it is volatile but during that huge growth spell, I felt is was stupid not to take some profits as that was my only reason for holding it. I am now content just to leave it alone now. It will recover in a year or two I have no doubt.

Dod

I considered taking the profit mid 2020. But what would I have done with it - invest it in.......something else.

Anyway, I bought SMT early Feb 2020 I think it was. March 2020, like the rest of the world, I watched in horror as shares tumbled across the world.....and SMT doubled. It was......odd. I was working for a global bank at the time so we had the financial news live streamed into the offices every day and there was a daily podcast broadcast, plus the traders had CNN etc blaring out all day. All very anxiety inducing, it was a relief when we were sent to work from home and I didn't have that on in my face all day!

But in 2020 I had other things to think about and did nothing. Most things recovered, more or less. SMT is now at a 30% increase, so I 'lost' the huge increase.

I'm interested in the report showing sectors. I am keen on the tech exposure, but not the 'consumer discretionary', I'm not sure that's a growth area now, nor for the next 3-4 years, frankly. I might sell now and find a tech fund to invest in.

Mel