Scottish Mortgage (SMT ) has set a new share buyback record after purchasing £1bn of its stock since March and contributing to an all-time high outflow from the investment companies sector.

Figures from Deutsche Numis, a corporate broker to the investment trust, show the £12.5bn Baillie Gifford flagship has bought back 8.3% of shareholder capital in the past seven months, hitting the target of ‘at least’ £1bn of share purchases over two years that its board announced on 15 March.

The former top-performing global equity investment trust kicked off the buybacks in March with a record one-day purchase of £311m as it sought to dislodge US activist hedge fund Elliott Associates which had declared a 5% position.

With the shares still trading at a double-digit discount of 12% below net asset value (NAV), the buybacks look set to continue particularly as Elliott is believed to still be a shareholder.

Ewan Lovett-Turner, Deutsche Numis’s head of investment company research, said a period of strong performance was needed to narrow the discount. ‘That said, we believe that buybacks are useful in limiting discount volatility, demonstrating confidence in the valuations and generating NAV accretion, as well as balancing short-term supply and demand, and ensuring a stable shareholder register,’ he said.

Record outflows

Scottish Mortgage’s buybacks lifted net outflows from London-listed investment companies to £3.6bn in the third quarter, according to an estimate by JPMorgan Cazenove analyst Christopher Brown, taking the total to £9.9bn in the first nine months of the year. This sets a new record and is more than double the £4.2bn withdrawn from the £272bn sector last year. 

Other big buyers of their own stock include Fundsmith’s global mid-cap trust Smithson, which spent £111m on share repurchases in the third quarter, and F&C (FCIT ), which bought back £108m.

Scottish Mortgage’s derating has seen it overtaken by rival JPMorgan Global Growth & Income (JGGI ). Shares in the £2.8bn JP Morgan flagship trade at close to ‘par’, or NAV, and beat Scottish Mortgage over three, five and 10 years. Scottish Mortgage’s five-year shareholder returns of 77% are ahead of the FTSE All World index’s 71% return but are well behind JGGI’s 102%, according to Morningstar data. 

At 858p last night, Scottish Mortgage shares have risen 6.5% this year, slightly under the 7.8% average of global equity trusts. They have rallied from a low of 621p in May last year but remain 43% below their £15.28 peak in November 2021 after an extraordinary surge in the internet boom caused by the pandemic.

Fund managers Tom Slater and Lawrence Burns have stuck to their high-conviction approach of finding technologically disruptive winners they believe can outperform stock markets in the long term.

They recently added two new listed companies to the portfolio: Brazilian neobank Nubank and French luxury retailer Hermes, which is AAA-rated by Citywire Elite Companies.

Nubank, listed on the New York Stock Exchange as Nu Holdings in 2021, is a digital bank with several million customers in Brazil, Colombia and Mexico that fits the mould and accounts for 0.6% of Scottish Mortgage.

Hermes, best known for its exquisite leather goods, silk scarves and high-end jewellery, is a less obvious stock for Scottish Mortgage although the managers believe it too offers  ‘exceptional growth’ and have allocated it 0.5% of net assets.

Meanwhile, Swedish battery maker Northvolt, one of 50 private companies making up nearly 24% of the portfolio, saw its valuation slashed from 2.5% of net assets to 0.8% from June to August. This reflected the company’s strategic review, manufacturing safety concerns, competition from Asia and cooling demand for electric cars.