November 2022
4 minutes

Interim Management Report

Tom Slater – Manager, Scottish Mortgage

Key Points

  • It is important at times of stress to remember: 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
  • We are redoubling our efforts to find new investments that can adapt to difficult economic conditions

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.

All investment strategies have the potential for profit and loss. Your or your clients’ capital may be at risk.

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.



Over ten years, Scottish Mortgage’s net asset value per share with debt at fair value (NAV) has increased by 528% versus a 208% increase in the FTSE All-World index (both in total return terms). Over five years, it has increased by 115% against 53%. Six months of data is always too short a period to infer much that is useful from stock prices. However, since the end of March, our NAV has decreased by 15% compared to a 7% decrease in the index.

Although our focus remains on long-term capital appreciation, we are aware that a small but consistent dividend is of value to many shareholders. The Board is therefore recommending an interim dividend of 1.60p per share, an increase of 5% over last year’s payment of 1.52p. We do not believe that this increase will have any bearing on our investment decisions or unduly constrain future capital appreciation.



Moderna, the mRNA therapeutics company, remains our largest holding. It continues to make progress in its infectious disease portfolio with the bivalent booster for Covid but one practical example. It was particularly encouraging to see pharmaceutical company Merck paying Moderna $250m to jointly develop and commercialise a personalised cancer vaccine to treat melanoma. Our contention has always been that Moderna’s technology would have applications well beyond Covid, and commercial partners are now committing serious capital to such developments.

Despite the economic headwinds, Tesla has been able to sell every car it can manufacture and continues to scale up its production capabilities rapidly. Its execution in a challenging operating environment has been impressive, as has its ability to control costs whilst growing sales. The Model Y SUV is the crucial volume driver over the next few years, with production ramping in Berlin and Texas. Scaling the battery cells supply chain remains the most significant constraint.

We made a further investment into Northvolt during the period and it is now one of our largest positions. This private European battery producer is looking increasingly well-placed to supply the rapidly growing demand for electric vehicles. We also supported capital raisings from two nascent private companies with ambitious plans to reduce the world’s carbon footprint. Swiss company Climeworks is developing a technology for capturing carbon directly from the air, which is likely to be necessary given the finite capacity for re-forestation. Its challenge is to scale up its impact. Upside Foods is seeking to produce animal protein in bioreactors which will allow for meat production without the carbon emissions from rearing and slaughtering animals. It is working with regulators towards product launches.

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.



Powerful forces of change are creating significant opportunities. These include society’s transition away from carbon-fuelled transport and energy generation and the application of information technology to our understanding of the molecular basis of disease. While rising interest rates and increasing friction between the United States and China create a problematic environment to navigate, the long-term advantages of companies are often built in periods of stress and capital shortage.

Scottish Mortgage Annual Past Performance To 30 September each year (net %)

  2018 2019 2020 2021 2022
Scottish Mortgage Investment Trust plc 29.0 -6.4 97.8 44.5 -45.0
FTSE All World 13.4 7.8 5.7 22.7 -3.6


Source: Morningstar, FTSE, share price, total return, sterling.

Past performance is not a guide to future returns.


Risk Factors

The trust invests in overseas securities. Changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up.

The trust has a significant investment in private companies. The trust’s risk could be increased as these assets may be more difficult to sell, so changes in their prices may be greater.

The trust invests in emerging markets where difficulties in dealing, settlement and custody could arise, resulting in a negative impact on the value of your investment.


Legal Notice

London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2019. FTSE Russell is a trading name of certain of the LSE Group companies. “FTSE®" and “Russell®” are trade marks of the relevant LSE Group companies and are used by any other LSE Group company under license. “TMX®” is a trade mark of TSX, Inc. and used by the LSE Group under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

About the author - Tom Slater

Manager, Scottish Mortgage

Tom Slater is manager of Scottish Mortgage. He joined Baillie Gifford in 2000 and became a partner of the firm in 2012. Tom joined the Scottish Mortgage team as deputy manager in 2009, before assuming the role of Manager in 2015. Beyond that, he is the head of the US Equities team and a member of another long-term growth equity strategy. During his time at Baillie Gifford, Tom has also worked in the Developed Asia and UK Equity teams. Tom’s investment interest is focused on high-growth companies both in listed equity markets and as an investor in private companies. He graduated BSc in Computer Science with Mathematics from the University of Edinburgh in 2000.

Important information

This communication was produced and approved at the time stated and may not have been updated subsequently. It represents views held at the time of production and may not reflect current thinking.

This content does not constitute, and is not subject to the protections afforded to, independent research. Baillie Gifford and its staff may have dealt in the investments concerned. The views expressed are not statements of fact and should not be considered as advice or a recommendation to buy, sell or hold a particular investment.

Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). The investment trusts managed by Baillie Gifford & Co Limited are listed on the London Stock Exchange and are not authorised or regulated by the FCA.

A Key Information Document is available by visiting our Documents page.

Any images used in this content are for illustrative purposes only.