Scottish Mortgage Delivers Double Digits in Turbulent Times
Let’s cut straight to the chase: Scottish Mortgage Investment Trust (SMT) just posted an 11.2% net asset value (NAV) total return for the year ending March 2025. That’s comfortably ahead of both the FTSE All-World Index (5.5%) and its global sector peers. More impressively, this marks the trust’s 42nd consecutive annual dividend hike – a feat that cements its status as an AIC Dividend Hero.
But here’s the kicker: these numbers only tell half the story. Let’s unpack what’s really happening under the bonnet.
Performance: The Long Game Pays Off
Yes, the one-year figures are respectable. But as Chair Justin Dowley rightly notes, Scottish Mortgage plays the “decades, not quarters” game. Consider this:
- 10-year NAV return: 320% vs 182% for the FTSE All-World
- £1.9 billion spent on buybacks (15.2% of share capital)
- Ongoing charges remain ultra-competitive at 0.31%
The trust’s willingness to stomach volatility – its shares swung from a 4.5% premium to a 9% discount during the year – reflects its growth-focused DNA. As Dowley puts it: “Investing in companies at the forefront of structural change means share price peaks and troughs are inevitable.”
The Dividend Tightrope Walk
That 3.3% dividend increase to 4.38p per share is no small feat given:
- A 40% drop in revenue earnings per share (thanks to the Northvolt write-off)
- Just 0.31% portfolio yield (growth companies reinvest earnings)
This balancing act – maintaining dividend hero status while prioritising growth – speaks volumes about management’s capital allocation discipline. The message? Income isn’t the priority here, but reliability matters.
Portfolio Surgery: Selling Winners, Betting on AI’s Next Act
Manager Tom Slater’s team made bold moves:
- Trimmed NVIDIA significantly despite its AI leadership (“at $70k chips and 60% margins, the risk/reward looked balanced”)
- Added TSMC as the “picks and shovels” play for AI infrastructure
- Doubled down on Meta and Spotify as AI adoption plays
The private portfolio saw fireworks too:
- SpaceX now has 5M+ Starlink subscribers
- Joby Aviation nearing FAA certification for flying taxis
- Zipline drones delivering Walmart orders in 30 minutes
China Chessboard: Cautious Re-engagement
After years of regulatory winter, SMT sees green shoots:
- New position in BYD (now a $100B revenue EV giant)
- PDD’s Temu going global with localised logistics
- 14% portfolio exposure – down from peak, but still conviction-led
As Slater notes: “China remains home to an enormous, educated, and entrepreneurial population.” But tariff risks loom large.
Risks: The Elephant in the Rocket Ship
Not all glittered:
- Northvolt bankruptcy – a £900M+ write-off
- Moderna slump on vaccine fatigue
- Geopolitical tensions triggering April 2025’s “dramatic drop” post-year-end
These stumbles validate SMT’s “asymmetric returns” philosophy – most bets fail, but the winners more than compensate.
Looking Ahead: Resilience as Strategy
The investment case boils down to three pillars:
- Operational leverage: Portfolio companies grew margins despite macro chaos
- Balance sheet optionality: 13% gearing at average 3.1% interest cost
- Multi-decade themes: AI, space, biotech, and yes, luxury handbags
As incoming Chair Christopher Samuel takes the reins, the question isn’t “can Scottish Mortgage repeat past success?” It’s “does the market still have patience for 10-year compounders?”
For investors who can stomach the ride, the trust remains a unique vehicle for accessing global growth outliers. Just pack your seatbelt – and maybe a sick bag.
