Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Back in 2000 I was working in a big IT company and I started getting calls and emails about jobs with new start ups, most consisted of just an internet domain name and an idea and I would get minimal salary but a big block of shares in the coming IPO. Some of the callers knew nothing about me apart from having heard me speak at a few tech conferences at the time. Luckily I ignored all of them but it was a feeding frenzy and easy to get caught up in it. I do remember one line in a newspaper saying that how could a company consisting of no more than a website with no earnings be worth more than British Airways? So on these metrics I don't think we are in bubble territory.
Talking of discounts I have a holding in Brunner (BUT) which is a steady dividend hero. The interesting thing about this IT is that it has been a a discount of 10% or more for decades. The trust was set up by the Brunner family in the 1920's when they sold their chemical business and ICI was created. The family still have a large holding and apparently don't want the trust to engage in buybacks to reduce the discount.
According to PMDR. Looks like the whole Barnard family have just invested in SSON
Article in FT today. Summed up as jam tomorrow
Baillie Gifford’s Scottish Mortgage Investment Trust has urged shareholders to remain “disciplined and patient” as it defended its investment approach after a “painful” year in which its shares have dropped by a third.
The trust’s strategy is to identify high-growth companies, such as vaccine-maker Moderna, semiconductor-maker ASML and Elon Musk’s Tesla, which will transform society. These stocks have sold off over the past year as the US Federal Reserve and other central banks aggressively raised interest rates to fight inflation.
Tom Slater, who co-manages the £11.5bn trust with Lawrence Burns, said in its full-year results on Wednesday that the “accelerating pace of change throughout the economy . . . has not translated into our investment results lately, but we need to remain disciplined and patient”.
Slater, Burns and Fiona McBain, chair of the 114-year-old trust, were communicating to shareholders for the first time since a high-profile boardroom bust-up at Scottish Mortgage two months ago.
I see that James Anderson is doing a Woodford and starting out on his own.
"James Anderson returns to fund management at firm chaired by George Osborne
The former Baillie Gifford star will run a fund focused on growth opportunities in private and public markets, starting with a pot of about £500m"
Totally irrelevant from the SMT discussion I know but I saw a chart in the FT a few days ago showing the top 10 companies in the UK in 1953 at the last coronation and Shell was the biggest but followed closely by Woolworths !! Most of the rest are relatively unchanged or have merged etc (BP, BAT, ICI, Diageo etc) M&S were 9th and now not even in the FTSE100 . Says something about how tech companies don't seem to do well here and how our stockmarket is dominated by the same old sectors
I don't take much notice of Motley but I had a look at the SMT metrics today and the discount seems to be widening NAV is around 800 whilst SP is in the low 600s so over 20%. BG needs to make some sort of statement about a plan to turn this around. I don't see any Director's deals going through either. On the basis of the old adage that if you had the cash value of your holding would you invest today I would certainly not but I am loathe to sell my holding with this sort of discount.
Woodford was a star manager when he left Invesco having made some lucky calls and arguably went down hill fast when the governance constraints were removed. Luckily I bailed out at this point. I spent some time in an IT sales unit and noticed that for some reason some sales guys were "lucky" in pulling off deals more often than others. They tended to sail close to the wind and often got in trouble but they did win the business (or got fired).
Just a comment on the Star Manager effect which in SMT's case means Anderson leaving . I can think of several instances where this has had a bad effect (Bolton, Buxton, Nimmo and a few others including Woodford leaving Invesco) despite claims that the strategy will not change it does seem to have a negative affect on any fund and most never return to their previous performance. Personally I have a substantial holding in Fundsmith built up over the years and worry about Terry Smith approaching retirement and what I would replace it with .
This whole situation reminds me of Fidelity Special Sits back in the 90's under the legendary Antony Bolton. It did extremely well and then Bolton retires and they split the fund into two (one was Asian focused I seem to recall) and promoted new managers to run them It never really recovered it's past glory. At age 74 I haven't time for the long view so have run my SMT stake down but I still have about £30k worth and reluctant to sell with a 20% discount.
CTY has been a regular issuer of Equity presumably to stop the shares trading at a premium. Does this have the effect of diluting the dividend or do we assume that all proceeds are immediately invested in the portfolio?
"Bring on low interest rates and low inflation... probably by next decade which is fine with me!"
Remember that the past decade of very low interest rates and low inflation is very much the exception as records going back 300 years show. It wasn't the "normal" so it's unlikely to return.
Big article in FT today about SMT with an important point about the vulnerability of ITs with too much unlisted stuff in them when it reaches the limit
Quote:
Another issue relates to investments in about 50 illiquid, unquoted securities. A strategy pioneered by Anderson over a decade ago, it is credited with giving ordinary investors low-cost access to private companies such as TikTok owner ByteDance, Swedish battery maker Northvolt and Elon Musk’s SpaceX.
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
I have trimmed some of my SMT holding and bought it down to about £30k. so only about 3.5% of my portfolio (at one time it was 15%) I almost sold the lot as I have seen this sort of board room fiasco before and especially when the star manager leaves too. Basically it unnerves the market. and can take years to recover, if ever. The sudden loss of the Chairwoman and then claiming at it was part of succession planning sounds untruthful. I think there are some serious questions to be asked about BG now and the answer should be more than "trust us and invest for the long term" as that can be an excuse to hide bad governance and performance.
Message from the Board.
Contrary to recent press speculation, the Board can confirm that, at present, Professor A Bhidé remains a director of the Company and has not resigned or been removed.
Fiona McBain, Chair, Scottish Mortgage Investment Trust PLC, commented:
"As Chair of Scottish Mortgage, I have complete confidence that Scottish Mortgage's Board provides robust governance and oversight. Current topics such as short-term volatility and the Company's exposure to private companies have been debated at length and will continue to be scrutinised by the Board. The Board is convinced that the managers are taking the right long-term investment approach and building a portfolio of exceptional growth companies that can deliver for shareholders over five years or more."
Baillie Gifford’s flagship Scottish Mortgage Investment Trust removed one of its non-executive directors at a board meeting on Thursday, following what he said was a disagreement over the appointment of new board members at the £13.4bn FTSE-listed company.
The breakdown in relations on the board of one of the UK’s best-known investment vehicles comes after a year in which the trust’s share price has dropped by more than 30 per cent as the rise of growth stocks that had propelled its performance over the past decade was curbed by higher interest rates.
It also follows a change in management at Scottish Mortgage after James Anderson, who led a pioneering shift at Baillie Gifford more than a decade ago into venture capital investments, retired last year after almost four decades at the Edinburgh-based private partnership. He was replaced at Scottish Mortgage by his co-manager Tom Slater, and Lawrence Burns.
Amar Bhidé, a director of Scottish Mortgage since 2020, told the Financial Times that he had clashed with chair Fiona McBain over the process to appoint two new board members, and his assessment of the risks posed by the trust’s investments in unquoted companies, valued at £3.8bn as of the end of January.
Bhidé, a business academic and author, aged 67, who has no other directorships, said he felt that he could not go quietly. “I’ve been very concerned about the share price performance and the discount, and trying to get people to understand that there is a structural reason for this.”
Bhidé said he had tried to raise concerns about the portfolio’s exposure to illiquid investments, at a time when a sell-off in public tech markets heralds a reckoning in the private sphere. Scottish Mortgage’s early bets on companies such as Tesla, Amazon and ecommerce giant Alibaba were partly responsible for its rise to prominence.
Comparing the trust’s resources and low fee structure to those of venture capital firms and other specialists, he said: “In my opinion they do not have the capabilities and governance clout to be able to monitor the illiquid investments on which there is little audited information in the public sphere. The fact that you’ve pulled it off for the last 10 years has been due to an utterly aberrant period in financial history. Don’t delude yourself that you can keep playing this game.”
The FT says that quite a lot of startups here use SVB UK. I think we need a statement from BG asap. I wouldn't put any money in at the present until there is more clarity. There could also be wider implications as the BoE has stepped in.
Terry Smith regards buybacks as a indication that the board of the company can't think of anything useful to do with spare cash in terms of investment or acquisitions. It's also used as a means of boosting share prices to help with executive bonuses. I have a holding in Diageo and a couple of other companies that have been doing buybacks for ages (as well as acquisitions) and the share price has barely changed. I would much rather have the dividend and let me decide what to do. As for ITs why does the discount/premium matter? Some trusts even have a policy of not trying to control it.
This comment is not specific to SMT but a general one about share buybacks. If you look at a lot of companies doing buybacks it doesn't generally seem to do much for the share price. I have a few big companies in my portfolio who have been doing buybacks for a year or so and the share price has barely moved. I know that it reduces the number of shares so that dividends should increase but I see little evidence of that either. In the case of an IT it has to be from distributable funds, so funds that could be invested in something rather than supporting a share price. So why do they do it? Discuss
Interesting piece here about NAV discounts
https://citywire.com/investment-trust-insider/news/david-stevenson-time-for-deeply-unloved-trusts-to-bite-the-bullet/a2409254?re=106272&refea=179236