Scottish Mortgage Interim Financial Report - September 2025
Scottish Mortgage is Baillie Gifford's flagship investment trust (founded 1909, LSE ticker SMT), known for its maximalist growth style — long-term stakes in Tesla, Amazon and ASML plus bold allocations to private companies like SpaceX and ByteDance. It is the UK retail investor's flagship vehicle for global disruptive growth.
In plain words
This is about a British fund called Scottish Mortgage (despite the name, it buys fast-growing tech companies, not mortgages). In the six months to September 2025, its assets rose 22.9%, beating the global stock index by 7.5 points. But it’s a wild ride: it invests in AI startups, electric-vehicle makers, and unlisted companies, so it can soar or crash. Over five years it lagged the index; over ten it far outpaced it. The fund also trades at a 10.5% discount to its asset value, and it’s buying back shares to support the price. For ordinary investors, this is a high-risk, long-term bet, not a steady earner.
Scottish Mortgage's interim report shows that for the six months ended 30 September 2025, the company's net asset value per share total return was 22.9%, outperforming the 15.4% gain of the FTSE All-World Index (in GBP terms); the share price total return was 20.9%. Shareholders' funds reached £13,9
Report Card for the Period
For the six months ended 30 September 2025, the fund's NAV total return (liabilities at fair value) was 22.9%, outperforming the FTSE All-World's (in GBP) 15.4% by 7.5 percentage points; the share price total return was 20.9%, versus -6.1% in the prior-year period.
| Basis | Six months to Sep 2025 | Six months to Sep 2024 |
|---|---|---|
| NAV (liabilities at fair value) | 22.9% | 1.9% |
| NAV (liabilities at book value) | 23.4% | 2.1% |
| Share price | 20.9% | (6.1%) |
| FTSE All-World (GBP) | 15.4% | 3.6% |
| NAV excess vs benchmark | +7.5pp | -1.7pp |
| Metric | 30 Sep 2025 | 31 Mar 2025 |
|---|---|---|
| NAV per share (fair value) | 1,271.3p | 1,037.0p |
| NAV per share (book value) | 1,238.6p | 1,006.0p |
| Share price | 1,137.5p | 943.4p |
| Discount (fair value) | (10.5%) | (9.0%) |
| Active share | 88% | 90% |
| Net gearing | 11% | 13% |
| Shareholder funds | £13,944.2m | £12,082.5m |
During the period, the index rose 14.1% on a price basis and 15.4% on a total-return basis (the difference being dividends). The share price ranged from 815.2p to 1,141.0p, and NAV (fair value) ranged from 935.4p to 1,272.9p; the discount ranged from 7.5% to 15.9%, versus an AIC global sector average discount range of 7.6% to 9.6%.
Who Contributed, Who Detracted
The Chairman described the period's return as "broad-based" and did not disclose position-level attribution; the only named entity is Northvolt, whose impact derives from the base effect of a write-off a year earlier.
| Name | Contribution/Detraction | One-line attribution |
|---|---|---|
| Northvolt (comparable-period factor) | Detracted from the comparable 2024 period's return | The main reason EPS rose 38.4% year on year was that the prior-year period's return was depressed by the write-off of accrued bond income from Northvolt, lowering the comparison base; current-period portfolio income actually declined slightly |
| Portfolio overall (individual holdings not disclosed) | Positive contribution | Broad gains across Asia, the Americas and Europe; the author attributes this to shared characteristics such as efficient scaling, compounding effects and long-term perspective, without naming individual companies |
How Managers View the Market
The Chairman's tone is clearly optimistic: companies are undergoing a "deep technology transition", demand for AI infrastructure is strong, and combined with strong balance sheets and a high-conviction portfolio, the expectation is for substantial returns over the coming years.
- Core logic: AI is reshaping business models, with strong demand for supporting infrastructure, and progress in personalised medicine, electrification and digital content; the companies driving this transition have "emerged from recent volatility with strengthened competitive positions".
- Assessment of portfolio characteristics: what makes money is not industry classification but companies that can scale efficiently, benefit from compounding and deeply cultivate industries undergoing structural change with a long-term perspective, across geographies from Asia to the Americas to Europe.
- Positioning clues: net gearing fell from 13% to 11%; the report does not disclose the long/short ratio or net exposure; the Chairman endorses the portfolio with phrases such as "patience is rewarded in dislocations" and "we have the ability"; readers should note this is management's perspective.
Position Shifts: Adds and Trims
The only explicit capital action during the period was continued buybacks: 75.2m shares repurchased at a cost of £765.4m; new positions, additions, trims and exits at the individual stock level are not explicitly disclosed in this section.
- Buybacks and capital allocation: since the repurchase programme of "at least £1b over two years" was announced in March 2024, cumulative buyback consideration has reached £2.6b. The Board says it will continue to make "pragmatic capital allocation" among buybacks, new investments and debt reduction, and has committed to continuing the buyback.
- Leverage changes: net gearing fell from 13% to 11%; the report does not disclose the absolute amount of debt, and part of the decline in the gearing ratio may reflect the recovery in NAV rather than a reduction in debt.
- Discount management: the period-end discount (fair value) was 10.5%, versus 9.0% at the prior period-end (31 March 2025), with an intra-period range of 7.5% to 15.9%. The Chairman described the buyback effect as "limiting discount volatility, enhancing NAV, stabilising the shareholder register and narrowing the discount relative to before March 2024", and plans to further stimulate demand and narrow the discount through UK and overseas marketing — note that the discount actually widened during the reporting period.
Fund Matters
Shareholder funds rose to £13,944.2m; earnings per share were 1.55p (+38.4%); the interim dividend was maintained at 1.60p; the Board Chair changed; principal risks were unchanged.
- Dividend and income: portfolio income is limited because investee companies generally reinvest earnings in growth; the interim dividend was maintained at 1.60p. The Company is an AIC Dividend Hero, having increased its dividend for 43 consecutive years, and the Board expects to continue this trend with a higher final dividend.
- Governance changes: Justin Dowley stepped down as Chair after the Annual General Meeting in July 2025; Christopher Samuel succeeded him and signed this report.
- Risk status: principal risks (financial, private company investments, strategy, climate and governance, discount, regulatory, custody/depositary, operational, cyber security, gearing, political, emerging risks) are unchanged since 31 March 2025.
- Long-term record:
| Total-return basis | Five years | Ten years |
|---|---|---|
| NAV (fair value) | 30.3% | 472.4% |
| Share price | 17.3% | 400.4% |
| FTSE All-World (GBP) | 85.4% | 263.3% |
The report shows a five-year NAV total return of 30.3%, significantly trailing the index's 85.4%, while the ten-year figure leads substantially (472.4% vs 263.3%); the Chairman acknowledged that the six-month window is too short and that returns are not linear, but did not explain the five-year underperformance.
The Board's "Cognitive Diversity": Echoes from Governance Statement to Investment Methodology
The discussion of board composition at the start of this section is not isolated governance boilerplate; it forms a clear isomorphic relationship with Scottish Mortgage's investment philosophy. The report emphasises that "different professional backgrounds, different cognitive approaches and different life experiences" enrich debate — which is, in effect, a metaphor for the characteristics of its portfolio. The trust holds growth companies spanning Taiwan, Brazil, Sweden, Singapore and Silicon Valley — in essence, it too pursues a combination of "geographic diversity" and "technological pathway diversity". When the Board claims to "better understand the complex and constantly evolving markets in which companies operate", the latter half of the manager's report happens to show how this diversity is put into practice: from CATL's battery manufacturing to Anthropic's AI models, from Brazilian e-commerce MercadoLibre to China's Xiaohongshu — the intellectual diversity at governance level and the cross-market allocation at investment level form an intertextual resonance.
One notable detail: the report's tone when mentioning "gender representation" is cautious, but it is deliberately placed within the framework of the "board refreshment process", indicating that the balance between governance pressure and long-term strategy remains a sensitive issue.
Structural Information Behind the Performance Figures
The manager's report gives three core performance figures, but the raw data does not present a comparative analysis on the same page. Organised below with an added interpretation of the difference from the benchmark:
| Metric | Reporting period (six months to 30 Sep 2025) | Benchmark/reference for the period | Excess return |
|---|---|---|---|
| NAV per share total return | +22.9% | FTSE All-World: +15.4% | +7.5 ppts |
| Share price total return | +20.9% | Same as above | +5.5 ppts |
| Change in share price premium/discount to NAV | Implied detraction of roughly -2.0 ppts | — | Discount widening/narrowing bears watching |
The share price gain (20.9%) lagged the NAV gain (22.9%), implying the discount may have widened slightly during the period, or at least did not narrow in tandem. This detail forms a subtle contrast with the report's emphasis on "long-termism and indifference to short-term market recognition": even with excellent performance, the repair of market sentiment still takes time. But the shareholder letter's choice to stress "patience" is, in effect, pre-positioning expectation management for possible volatility.
"Renewed Attention" vs "Sustained Growth": The Narrative Strategy of Return Attribution
The report attributes performance to "renewed investor attention" rather than to "abrupt changes in company fundamentals". This wording is careful, and it acknowledges two facts:
1. Many holdings had long been neglected (such as Tesla and CATL), and part of this round's gains comes from valuation recovery;
2. The companies have become "stronger, more efficient and more ambitious" through the "most recent dislocation" — a vindication of the long-term holding logic.
But the report also lists the "strong returns" of AI infrastructure suppliers such as NVIDIA, ASML and TSMC — companies that have not been "out of favour" for long periods, but have continued to benefit from the capital expenditure cycle. The performance in this phase is, in fact, driven by twin engines: "deep value recovery" and "growth trend continuation". Unifying both under the label of "innovation and growth" helps downplay short-term volatility and reinforce the long-term narrative.
The "Capital Recycling" Logic of Portfolio Adjustments
This section reveals a number of new purchases and reductions that are not isolated decisions but display a clear chain of capital reallocation:
| Additions | Reductions (providing the source of funds) | Common logic |
|---|---|---|
| Figma, AppLovin | Amazon, Shopify | Digital design / advertising efficiency gains; capital shifting from asset-heavy e-commerce to enterprise software tools |
| Anthropic | Tempus AI | The AI foundation-model layer replacing the AI application layer, in exchange for longer-horizon model training capability |
| BYD (added), CATL (new) | Meta, Netflix, Spotify, Roblox | Position adjustments along the electrification-led track while retaining core positions in platform companies |
| Xiaohongshu (new) | MercadoLibre, Shopify | Geographic rebalancing between next-generation consumer platforms and e-commerce infrastructure |
This operating style — "trimming profitable growth stocks and adding to earlier-stage/more private companies" — is consistent with the "long-term owners" narrative. It should be noted, however, that those on the reduction list, such as Meta, Netflix and Spotify, are all companies with "proven business models"; trimming does not mean turning bearish — the report specifically stresses "retain meaningful positions". This is more like risk rebalancing: converting a portion of certain gains into new opportunities with higher uncertainty, in order to maintain the portfolio's aggressiveness.
The Strategic Necessity of Private Company Investment
When mentioning Anthropic and Xiaohongshu, the report specifically adds: "Access to private companies is a necessity for investors wanting exposure to the new generation of companies focused on training AI models." This sentence elevates "private companies" from an asset-class preference to a necessary condition for understanding the main line of future technology. Why?
Because most of the leaders in the AI foundation-model space today (OpenAI, Anthropic, xAI) are unlisted, and the "next generation" of AI innovation is concentrated in these illiquid equity stakes. In public markets, one can only buy the "shovel sellers" (such as NVIDIA and TSMC), but can hardly directly own the "gold diggers". Much of Scottish Mortgage's historically high returns came from early investments in private companies (such as SpaceX and ByteDance), so this strategy is a continuation of its DNA. But the risk is that private company valuations lack a fair-value anchor, and liquidity risk can amplify the discount during confidence crises.
A Quantitative Footnote to "Patience"
The report cites the proceeds from reductions in "Amazon, Roblox, Spotify, Meta Platforms, Netflix, Tempus AI, MercadoLibre, Shopify" as funding for new investments. These companies were partially taken to profit after their "operational progress" over the past six months. Notably, they were all "star holdings" of the previous phase, yet Scottish Mortgage chose to reduce their weights while they were performing well. This is, in effect, a concrete practice of the "not chasing short-term trends" creed — shifting toward out-of-favour names precisely as the market begins to acknowledge the current ones. Another layer of interpretation: given the trust's enormous scale (AUM of roughly £3bn+), it must position ahead of the next growth curve and cannot wait at already fully valued levels.
The "Beneath the Headlines" passage summarises the macro backdrop as "inflation easing, interest rates peaking, geopolitical risks present, but the real change is happening in laboratories, data centres and factories". This is, in substance, a declaration that the trust's performance depends on the endogenous technology cycle rather than the macro policy cycle. Therefore, even if central banks maintain high rates, as long as technology companies' revenue growth stems from structural demand (such as AI computing power and electrification), their valuations have a degree of support. This passage further reinforces the investment style of "bottom-up, ignoring the macro".
Additional Analysis: Six Signals from the Portfolio Executive Summary
1. The "Time Dislocation" of Performance: Divergence Between Long-Term Alpha and Medium-Term Beta
The reporting period's return data best illustrates Scottish Mortgage's current cyclical position:
| Period | Share price total return | NAV total return | FTSE All-World Index (GBP) | NAV excess vs index |
|---|---|---|---|---|
| 6 months | 20.9% | 22.9% | 15.4% | +7.5pp |
| 1 year | 36.5% | 33.5% | 17.4% | +16.1pp |
| 3 years | 47.6% | 47.2% | 56.8% | -9.6pp |
| 5 years | 17.3% | 30.3% | 85.4% | -55.1pp |
| 10 years | 400.4% | 472.4% | 263.3% | +209.1pp |
The key new information is not "long-term outperformance" but the structural rupture of "severe five-year underperformance and significant ten-year outperformance". This shows that Scottish Mortgage's returns are highly dependent on explosive growth in a handful of years, rather than a steady accumulation of annual excess returns. The high-valuation shock of 2021 to 2023 has still not been fully digested, but the NAV gain over the latest six months (+22.9%) has reopened the gap with the index, driven mainly by roughly 8.8 percentage points from the top five contributors — this "pulse-like" style needs to be matched with expectation management for long-term holders.
In addition, the six-month share price total return (+20.9%) was below the NAV total return (+22.9%), indicating the discount actually widened over the latest six months; while the one-year share price return (+36.5%) exceeded NAV (+33.5%), implying the discount narrowed markedly over the past 12 months. Discount repair is not a linear process; the actual returns obtained by secondary-market investors still fall short of the growth in net asset value.
2. Repositioning Direction Revealed by Trading Behavior: From "Mature Platforms" to "AI + China Smart Manufacturing + Early-Stage Deep Tech"
The trading list for the reporting period reveals the portfolio's true marginal changes more clearly than the performance table does:
| Type | Specific Positions |
|---|---|
| New Buys | Anthropic, AppLovin, CATL, Figma, RedNote |
| Adds | Sea, BYD, Hermès International, Sana Biotechnology |
| Exits | Kinnevik, Wayfair, Shopify, Cloudflare, Meta Platforms, DoorDash, Spotify Technology SA, Delivery Hero, Netflix, Affirm |
| Reductions | ASML, Amazon.com, Meituan, Roblox, PDD Holdings, MercadoLibre, Tempus AI Inc, Ferrari, Wise Plc |
One easily overlooked fact: during the reporting period, the fund exited or reduced a large number of former core internet platforms, while most new buys were unlisted companies or high-volatility growth stocks. Exiting Meta, Netflix, Amazon, and similar positions means the portfolio has moved further away from "cash-cow platform companies"; buying Anthropic, Figma, RedNote, and CATL, meanwhile, represents a repositioning across four directions: the AI model layer, design collaboration, social commerce, and power batteries.
A notable contradiction: BYD appears both on the "adds" list and among the top five drags, with an absolute return of -18.6% for the period. This suggests the fund manager kept adding to the position as the stock declined — a contrarian accumulation rather than chasing momentum. Similarly, Roblox contributed a positive +2.1pp return with an absolute gain as high as +128.1%, yet it was still reduced, indicating profit-taking rather than trend-following.
3. Industry Structure: Technology and Industrials Rise While Traditional Defensive Sectors Are Compressed
From the changes in industry distribution, the portfolio's risk appetite is clearly visible:
| Industry | 30 Sep 2025 | 31 Mar 2025 | Change |
|---|---|---|---|
| Consumer Discretionary | 32.1% | 33.5% | -1.4pp |
| Technology | 32.7% | 30.0% | +2.7pp |
| Industrials | 19.5% | 16.9% | +2.6pp |
| Healthcare | 6.5% | 7.9% | -1.4pp |
| Financials | 6.5% | 5.9% | +0.6pp |
| Consumer Staples | 1.0% | 1.9% | -0.9pp |
| Energy | 0.5% | 2.4% | -1.9pp |
| Basic Materials | 0.9% | 1.2% | -0.3pp |
| Net Liquid Assets | 0.3% | 0.3% | 0.0pp |
New perspective: The simultaneous rise in Technology and Industrials suggests that Scottish Mortgage is converging "AI" and "physical-world automation" into the same investment theme. Holdings such as CATL, BYD, Nuro, and PsiQuantum essentially all sit at the intersection of "intelligent computing power + energy + transportation." Meanwhile, Energy dropped from 2.4% to 0.5%, nearly cleared out, indicating that the portfolio is avoiding the traditional energy cycle and instead placing its bets on the electrification and energy storage chain.
4. Regional Allocation: China "Structurally Reduced," but Other Parts of Asia Increased
The geographic distribution changes deserve a separate breakdown:
| Region/Market | 30 Sep 2025 | 31 Mar 2025 | Change |
|---|---|---|---|
| US | 51.4% | 52.2% | -0.8pp |
| Canada | 2.4% | 2.3% | +0.1pp |
| China | 13.2% | 14.5% | -1.3pp |
| Taiwan | 4.6% | 3.5% | +1.1pp |
| Singapore | 3.0% | 2.0% | +1.0pp |
| South Korea | 1.3% | 1.0% | +0.3pp |
| Eurozone | 9.8% | 9.7% | +0.1pp |
| UK | 3.1% | 3.0% | +0.1pp |
| Brazil | 6.3% | 6.5% | -0.2pp |
| Israel | 0.9% | 0.7% | +0.2pp |
Although China remains the second-largest single-country exposure (13.2%), it was net reduced by 1.3 percentage points during the reporting period, while Taiwan, Singapore, and South Korea each received increased allocations. This shows Scottish Mortgage is not "de-Asianizing" but rather shifting within Asia from mainland China to Taiwan/Singapore: the higher weight in TSMC, together with the resumed position in Sea, forms a new Asian growth portfolio. The new purchase of RedNote also suggests they are not willing to completely abandon Chinese consumer internet—only selectively retaining exposure.
5. Private Portfolio: Expansion Accelerates, But Concentration and Valuation Concerns Intensify
The private portfolio section is the most informative segment of this report.
| Item | Six months to 30 Sep 2025 (£’000) | Year ended 31 Mar 2025 (£’000) |
|---|---|---|
| Opening balance | 3,784,787 | 3,748,379 |
| Purchase cost | 195,578 | 131,957 |
| Proceeds from sales | (983) | (12,845) |
| Realised losses | – | (5,875) |
| Transfer-to-listing adjustment | (19,770) | (248,332) |
| Fair value movement | 197,783 | 171,503 |
| Closing balance | 4,157,395 | 3,784,787 |
Key new information:
- Private purchases in the half-year totalled £195.6m, already exceeding the prior full fiscal year’s £132.0m. Annualised on a pro-rata basis, the pace of private capital deployment is nearly three times that of the previous year. This is not simply “maintaining the allocation” but an active acceleration of deployment.
- Sales proceeds during the period were only £0.98m, with virtually no active selling of private equity; exits rely entirely on IPOs or acquisitions.
- Heartflow was transferred from Level 3 to Level 1 upon listing, but the “transfer-to-listing adjustment” was -£19.77m, indicating that its valuation at listing was below its carrying value. Private book-value gains must now withstand the scrutiny of public markets.
The size dispersion within the private portfolio is equally notable:
| Company size | % of total investment assets | Number of positions |
|---|---|---|
| Micro < $300m | 1.0% | 10 |
| Small $300m–$2bn | 4.3% | 15 |
| Medium $2bn–$10bn | 3.5% | 6 |
| Large > $10bn | 18.0% | 9 |
| Total | 26.8% | 40 |
A further 11 limited partnership funds and 1 contingent value right instrument are not included in the table above. This indicates that although Scottish Mortgage’s private positions account for 26.8% of the total overall, 18.0 percentage points of that is concentrated in 9 large unlisted companies. SpaceX alone accounts for 7.6% of total investment assets, ByteDance accounts for 3.8%, and Stripe for 2.5%. The top five private holdings together account for 16.9% of total investment assets, and the top ten for 20.5%. Concentration in the private portion is even higher than in the listed equity portion.
On valuation methodology, the report discloses that 287 revaluations were completed across 83 instruments, with 65% of instruments valued four times or fewer during the year and 35% valued five times or more. This data indicates that private valuations are not updated “once a year” but are refreshed through modelling at a relatively high frequency. The average valuation change for the top ten private companies was +9.2%, and the average at the company level across the full portfolio was +8.0%; however, the movement in carrying fair value relative to the opening balance only increased by about 5.2%. The difference between the two suggests that the simple average increase was pulled up by smaller companies, while valuation growth for high-weighting companies was more moderate.
6. Potential Risks and Subsequent Monitoring Points
| Observation Metric | Issue to Watch |
|---|---|
| Discount | 6-month share price return underperformed NAV by 2pp; the cumulative 10-year gap reached 72pp. Will the discount widen once again? |
| IPO cadence of private companies | Heartflow was valued below its carrying amount at IPO; will more private-to-public transitions bring additional "downward valuation revisions"? |
| Concentration of top-five contributors | Five stocks contributed approximately 8.8pp of returns over six months; should the AI theme pull back, portfolio drawdown would amplify. |
| China exposure | China declined from 14.5% to 13.2%, but remains the second-largest single market; policy risk has not been eliminated. |
| Liquidity buffer | Net Liquid Assets are only 0.3%; the portfolio is essentially fully invested, and with 26.8% in private companies, liquidation capacity is limited under extreme conditions. |
Overall, the Scottish Mortgage presented in this interim report is not a "steady compounding" portfolio, but a highly concentrated, valuation-elastic long-term capital allocation vehicle with a persistent tilt toward private markets and AI. Its long-term return record remains outstanding, but holders must accept significant net asset value volatility, discount erosion, and the uncertainty of private company valuations.
Part 4: Deep Dive into Holdings Structure, Holding Periods, and Portfolio Evolution
I. Steep Concentration: Top Ten Holdings Account for 42% of the Portfolio
As of September 30, 2025, the top ten holdings accounted for 41.9% of total assets, concentrated along three main lines: technology, consumer, and new energy. This concentration is significantly higher than the average for global actively managed funds (typically 20%-30%), reflecting the trust's bet on a small number of "ultra-long-term conviction stocks."
| Rank | Company | Industry | Fair Value (£m) | % of Total Assets |
|---|---|---|---|---|
| 1 | SpaceX | Aerospace | 1,176.8 | 7.6% |
| 2 | MercadoLibre | Latin American E-commerce | 841.4 | 5.4% |
| 3 | TSMC | Semiconductor Manufacturing | 712.2 | 4.6% |
| 4 | Amazon.com | E-commerce/Cloud | 665.7 | 4.3% |
| 5 | Meta Platforms | Social Media | 626.4 | 4.0% |
| 6 | ByteDance | Social Media | 588.0 | 3.8% |
| 7 | NVIDIA | Semiconductor Design | 513.4 | 3.3% |
| 8 | ASML | Semiconductor Equipment | 479.3 | 3.1% |
| 9 | Sea | Southeast Asian Internet | 467.6 | 3.0% |
| 10 | Spotify | Audio Streaming | 434.1 | 2.8% |
| - | Total | - | 6,504.0 | 41.9% |
A notable feature is that the top ten holdings span the primary market (SpaceX, ByteDance), newly listed companies (Sea, Spotify), large mature technology stocks (Amazon, NVIDIA), and Asian advanced manufacturing (TSMC, ASML). This "full life-cycle coverage" portfolio structure allows the trust to simultaneously enjoy the benefits of valuation growth in private companies and earnings delivery from listed companies.
II. Private Market Exposure: A Strategic Leap from 5% to 20%
The chart shows that private company securities as a percentage of total assets rose with volatility from approximately 5% in 2010 to roughly 20% by September 2025. Including securities that were formerly private but are now listed, combined exposure is approximately 25%-30% (dark line in the chart). This means that for every £4 of assets, more than £1 originates from private company investments.
This change has profound implications:
1. IPOs are no longer exit nodes, but way stations in value discovery: Zipline, Databricks, Stripe, and others were continuously accumulated over multiple rounds as private companies, and were still held after listing until their growth curves matured.
2. Private company valuation contributions are increasingly significant: SpaceX (7.6%), ByteDance (3.8%), and Stripe (2.5%) together already account for 13.9%, exceeding any single listed company holding.
3. Risk tolerance is rising: In 2010, private companies accounted for only 5%; this has now expanded fourfold, indicating that in a high public-market valuation environment, the trust is more willing to position early through the primary market.
III. Holding Period Structure: 62.9% of Assets Held for Over Five Years
The holding-period distribution reveals an extreme "patient capital" profile:
| Holding Period | % of Total Assets | Representative Holdings |
|---|---|---|
| Over 5 years | 62.9% | SpaceX, ByteDance, MercadoLibre, NVIDIA, ASML, Spotify |
| 2-5 years | 16.3% | TSMC, Meta, Sea, CATL, Databricks |
| Under 2 years | 20.5% | Cloudflare, Roblox, and the various ARCH funds |
Notably, ten holdings have been held for over ten years, together accounting for approximately 24% of the portfolio, including:
- MercadoLibre (5.4%), Amazon (4.3%), NVIDIA (3.3%), ASML (3.1%), Spotify (2.8%), Netflix (1.4%), Tesla (1.2%), Kering (1.0%), Atlas Copco (0.9%), Epic Games (0.9%)
This group of "decade-long holdings" has spanned multiple market cycles — from the post-2008 financial crisis recovery, to the 2020 pandemic shock, to the 2022 rate hikes that battered growth stocks — cumulatively contributing substantial compounding returns to the portfolio. This also confirms the earlier point that "absolute returns cannot be simply summed, because geometric growth means the compounding effect of long-term holding is far greater than linear accumulation."
IV. Semi-Annual Portfolio Changes: Adding AI Compute and New Energy, Trimming Consumer and Chinese Internet Names
Comparing fair value changes from March 31, 2025 to September 30, 2025 clearly reveals the strategic adjustment direction:
| Company | 2025/3/31 (£m) | 2025/9/30 (£m) | Change | Transaction Label |
|---|---|---|---|---|
| Sea | 273.4 | 467.6 | +71.0% | Significant increase |
| NVIDIA | 312.1 | 513.4 | +64.5% | Price/FX driven |
| TSMC | 475.4 | 712.2 | +49.8% | Price/FX driven |
| Zipline (private) | 187.1 | 270.4 | +44.5% | Valuation markup |
| Kering | 99.2 | 153.0 | +54.1% | Price driven |
| Meituan | 399.3 | 244.1 | -38.9% | Price/FX decline |
| Aurora Innovation | 244.3 | 187.9 | -23.1% | Price decline |
Key Actions:
- New position in CATL (Contemporary Amperex Technology): fair value £241.7 million, 1.6% of total assets; also added to AppLovin (£125.8 million, 0.8%), indicating the portfolio is tilting toward AI-driven advertising monetization and the new energy battery supply chain.
- Significant increase in Sea: Sea's portfolio weight rose from approximately 1.9% to 3.0%, reflecting long-term conviction in rising Southeast Asian e-commerce penetration and improving cash flow from the gaming business.
- Significant reductions: Amazon, Meta, Spotify, PDD, Shopify, DoorDash, Tempus AI, and others were all marked "significant reduction," with the freed-up capital redeployed into new-economy names.
This "selling old, buying new" is not a rejection of the technology sector, but a rebalancing based on the degree of valuation digestion. For example, Meta and Amazon were partially profit-taken after excessive share price gains, while the proceeds were directed into TSMC, NVIDIA, and CATL, which offer more attractive valuations.
V. Traces of Failure: The Inevitable Attrition of Venture Investing
In the holding-period table, a group of companies is marked "–," meaning their value has been written down to zero or essentially eliminated:
- Northvolt (European EV battery company) — once regarded as the hope for European battery self-sufficiency, ultimately went bankrupt;
- Intarcia Therapeutics (biopharmaceuticals) — ran out of funding;
- Uptake (industrial AI) — valuation collapsed;
- Relativity Space (rocket manufacturing), Capsule (digital pharmacy), Blockstream (blockchain infrastructure)
The common thread in these cases: high technological barriers, long commercialization cycles, and dependence on continuous financing. Their failures are precisely the manifestation of the "one in ten survives" rule in private company portfolios. Notably, however, even with these zero-value assets, the portfolio as a whole still maintained positive growth, showing that a few enormous successes — SpaceX, ByteDance, Stripe — fully covered the losses of other projects. This is also a typical feature of venture capital's power-law distribution.
VI. Private Company Investments and ARCH Funds: An Ecosystem-Based Layout
In the "under 2 years" holding period, a large number of ARCH Venture series funds (Fund X, XI, XII, XIII) dominate. These funds are typically ten-year closed-end funds; the shorter holding period simply reflects the trust's later entry as an LP. This "fund of funds" model, built through partnerships with top-tier VCs, gives the trust access to early-stage biotech and deep tech projects without directly bearing the costs of due diligence and post-investment management.
Notably, most projects held through ARCH funds are each below 0.1% of total assets, forming the "option value" segment of the portfolio — these names may deliver returns of tens of times, or may all go to zero, but their cost is extremely low and their impact on the overall portfolio is limited.
VII. The Tactical Significance of Net Liquid Assets
Net liquid assets account for only 0.3% of the portfolio (approximately £47 million), an extremely low level. This indicates the trust remains fully invested in the current valuation environment, with virtually no cash buffer. This is both consistent with Baillie Gifford's long-standing style — believing cash drags on long-term returns — and a reflection of its confidence in the assets it holds. What cannot be ignored, however, is that in the event of a sharp market drawdown, the low cash position would limit the trust's flexibility to add positions at lower prices.
Summary
From this data, a portfolio profile emerges of "high concentration, deep private market exposure, ultra-long holding periods, and tolerance for localized failures." The trust does not simply pursue risk diversification; rather, through in-depth research, it concentrates capital in a small number of companies with "global influence and exponential growth potential," waiting on a decadal horizon for value to materialize. This strategy is remarkably explosive in bull markets, but may also face greater drawdown pressure when market styles shift.
New Investments Focused on Four Major Themes: AI, Biotech, Climate Technology, and Chinese Platforms
The supplementary holdings table reveals the primary destinations of new capital during the period (April to September 2025), showing clear thematic concentration:
- AI infrastructure and applications: New positions in `Anthropic Series F-1 Pref.` (£91.4 million, 0.6% of total assets) and `Figma Inc.` (£57.7 million, 0.4%), alongside additions to `PsiQuantum Series E Pref.` (significant buy, from £3.1 million to £5.3 million) and `Sana Biotechnology` (significant buy, from £7.6 million to £17.4 million). This shows the trust is simultaneously placing bets across the AI model layer, design tool layer, and quantum computing.
- Biotech and healthcare innovation: New positions established in `Enveda Series C/D` (combined £35.8 million), alongside a significant increase in `Sana Biotechnology`; over the same period, `Heartflow` was sharply written down (from £158.4 million to £35.9 million, a decline of 77%). This increase on one side and reduction on the other reveals a preference for "engineered cell therapies" and "drug discovery platforms" rather than pure medical imaging software.
- Climate and sustainability: Continued adding to `Climeworks AG Series F-2 Preferred` (direct air carbon capture) and `Nuro Inc Series E` (autonomous delivery), while maintaining a large position in `Redwood Materials` (battery recycling). Although `Solugen` (sustainable chemicals) appears among the new purchases, it was not flagged, and the holding declined from £46.3 million to £36.7 million — it was not a new position.
- New China market positioning: Made multiple rounds of full-series investments in `RedNote` (Xiaohongshu) (Series A/B-1/C/E), totaling £74.3 million, or 0.4% of total assets — one of the largest new positions during the period. Meanwhile, the `Ant International` holding was trimmed from £125.0 million to £94.0 million, but it remains a top-ten holding.
Extreme Valuation Divergence: Gain-and-Loss Spread Exceeds 170 Percentage Points Within the Same Portfolio
In terms of fair value changes, holdings performance during the period was extremely polarized, far exceeding the volatility commonly seen in secondary markets:
| Name | Fair Value Change (£'000) | Change | Notes |
|---|---|---|---|
| The Production Board (A-2/A-3) | +58.6 | +101% | Bio-agriculture holding company, repeatedly increased |
| Horizon Robotics | +32.8 | +37.6% | Autonomous driving AI chip; possibly driven by IPO expectations |
| Revolut | +21.6 | +27.9% | Neobanking business expansion |
| Redwood Materials (C+D) | +0.2 | +0.2% | Essentially flat |
| Heartflow | -122.5 | -77.3% | Cardiovascular diagnostic software; valuation sharply cut |
| Delivery Hero | -39.5 | -44.6% | Food delivery platform; significant reduction |
| ARCH Ventures Fund X | -21.5 | -80.0% | Venture fund; sharply cut |
| WI Harper Fund VII | -9.3 | -75.2% | Venture fund; sharply cut |
Notably, venture capital fund (FoF) holdings were broadly and heavily reduced: `ARCH Ventures Fund X`, `WI Harper Fund VII`, and `ARCH Ventures Fund IX/XII/XIII` all saw changes exceeding 20% (mostly negative), while directly held unlisted securities (such as `Anthropic`, `Figma`, and `RedNote`) received new capital over the same period. This may indicate the trust is shifting from indirect allocation to direct investment, aiming to lower fees, increase transparency, and control thematic exposure more precisely.
Fully Exited or Written-to-Zero Holdings: Increased Focus
In the table, the following companies carried a value of zero at period end (or had holdings with no fair value), which merit attention:
- Capsule Corp (digital pharmacy) — previously held at £4.0 million, written to zero this period, possibly due to a valuation write-down or exit.
- Blockstream Corporation (financial software) — held last period but zero this period, with no transaction flagged.
- Northvolt AB (battery manufacturing) — held via zero-coupon notes last period, fully removed this period, consistent with the European battery industry's struggles.
- Relativity Space / Uptake Technologies — likewise written to zero, but with no value last period either; likely ongoing loss-making projects.
The exits stand in contrast to the new areas of investment: the trust has clearly abandoned digital health delivery, European batteries, and parts of enterprise software, concentrating capital instead on AI, biotech, and climate tracks with clear technological moats and secondary-market exit paths.
Holding Concentration Rising Rapidly, but the Unlisted Portion Remains Diversified
Although the top ten holdings account for approximately 8% of total assets (about £120 million combined, against a total of roughly £1.5 billion), the largest single holding does not exceed 0.8% of total assets, and the unlisted portion spans more than 20 sub-sectors, providing a very high degree of risk diversification. However, in terms of capital flows, new investments are concentrated in a small number of high-conviction names (such as RedNote, Figma, and Anthropic), meaning that if valuations of these companies fluctuate in the future, the impact on the portfolio will be significantly greater than the historical average. The 20% threshold for "significant additions/reductions" in the footnotes also confirms that management's frequency of active management of these holdings is increasing.
Capital Allocation Logic Revealed by the Financial Data
This section, based on the newly disclosed financial statements, further unpacks the sources of capital returns, balance-sheet leverage, and shareholder return strategy of Scottish Mortgage Investment Trust in the first half of 2025.
The Zeroing-Out of Private Holdings Such as Northvolt
Portfolio note footnote # explicitly lists six holdings with an estimated value of zero as of September 30, 2025: Relativity Space, Uptake Technologies, Capsule Corp., Blockstream, Northvolt, and Intarcia Therapeutics. Among them, multiple Northvolt series (E1 Pref, E2 Pref, A Ord, D1 Pref) and Intarcia's convertible bonds all appear on the zero-value list. This reflects:
| Holding | Security Type | Valuation Status |
|---|---|---|
| Northvolt AB Series E1 Pref. | Unlisted preferred stock | Written down to zero |
| Northvolt AB Series E2 Pref. | Unlisted preferred stock | Written down to zero |
| Northvolt AB Series A Ord. | Unlisted common stock | Written down to zero |
| Northvolt AB Series D1 Pref. | Unlisted preferred stock | Written down to zero |
| Intarcia Therapeutics Conv. Bond | Unlisted convertible bond | Written down to zero |
Although these zero-value holdings now account for only a small share of the portfolio, their trajectory from "substantial investment" to "complete write-off" remains a vivid case study of the asymmetric risk inherent in private equity-style investments. In contrast, the substantial capital gains the fund realized over the same period mean that the appreciation of other positions (especially listed technology stocks) far exceeded these losses.
Subtle Shifts in Asset Allocation
Over six months, the fund reduced its allocation to listed securities from 27.5% to 26.6%, raised unlisted securities from 72.0% to 72.9%, and held net liquid assets at 0.3%. Given that listed technology stocks generally rallied strongly over the same period, this shift indicates the fund was actively trimming certain listed holdings and directing capital into new private positions or returning it to shareholders through buybacks.
Income Statement: A Profit Structure Dominated by Capital Gains
| Item | 2025 H1 (£'000) | 2024 H1 (£'000) | YoY Change |
|---|---|---|---|
| Investment gains/losses | 2,653,905 | 199,331 | +1231% |
| Currency gains/losses | 33,938 | 49,271 | -31% |
| Investment income | 21,956 | 22,996 | -4.5% |
| Investment management fee | (19,866) | (18,282) | +8.7% |
| Other administrative expenses | (2,299) | (6,581) | -65% |
| Finance costs | (26,251) | (28,150) | -6.7% |
| Tax | (1,622) | (4,526) | -64% |
| Net return (total income) | 2,659,761 | 214,059 | +1142% |
Capital gains accounted for 99.3% of net returns, while investment income contributed only about 0.8%. This structure means the fund's long-term returns depend heavily on the value growth of the companies it invests in, rather than dividend income. Management fee growth (8.7%) was lower than net asset growth (approximately 15%), benefiting from a degressive fee design that charges 0.25% on the portion of assets exceeding £4 billion.
Balance Sheet and Leverage Levels
As of September 30, 2025, the fund had total assets (including current assets) of approximately £15.533 billion and net assets of £13.944 billion. The borrowing structure is as follows:
| Item | Amount (£'000) |
|---|---|
| Short-term bank loans | 423,398 |
| Long-term bank loans | 133,705 |
| Loan notes | 980,373 |
| Bonds | 51,071 |
| Total borrowings | 1,588,547 |
| Less: cash and cash equivalents | (68,179) |
| Net debt | 1,520,368 |
| Net assets | 13,944,176 |
| Net debt/Net assets | 10.9% |
Leverage remained stable at around 10%, still within a conservative range. Net asset value per share rose from 1006.0 pence to 1238.6 pence, an increase of 23.1%, surpassing the overall net asset growth of 15.4%, because the company repurchased approximately 75.2 million ordinary shares during the period.
Buyback Strategy: An Amplifier of Capital Efficiency
The statement of changes in equity shows that in the first half of 2025:
- Net return contributed +£2.660 billion;
- Share buybacks into treasury reduced capital reserves by -£765 million;
- Dividends paid -£33 million;
- Net assets ultimately increased by +£1.862 billion.
The buyback cost of £765,440 thousand corresponds to 75,230,448 shares, an average buyback price of approximately £10.17 per share. With period-end net asset value per share of £12.386, the buyback discount was approximately 18%, significantly enhancing the interests of remaining shareholders. Compared with £880,114 thousand of buybacks in the same period of 2024, when more shares were repurchased (approximately 88 million shares), management has consistently executed buybacks when the share price trades at a discount to NAV — an important element of capital allocation.
Cash Flow: A Combination of Trimming, Buybacks, and Deleveraging
| Cash Flow Item | 2025 H1 (£'000) | 2024 H1 (£'000) |
|---|---|---|
| Net cash outflow from operating activities | (27,210) | (35,116) |
| Net cash inflow from investing activities | 891,547 | 947,581 |
| Net cash outflow from financing activities | (804,014) | (953,802) |
| Net increase/(decrease) in cash | 60,323 | (41,337) |
Net cash inflow from investing activities was £892 million, mainly from £1.560 billion of securities disposals, while acquisitions over the same period totaled only £669 million. This means the fund was a net seller rather than a net buyer — capital flowed to shareholder returns (buybacks plus dividends) rather than portfolio expansion. In 2025, bank loan repayments and drawdowns under financing activities were both £418 million, reflecting rollovers that did not materially increase leverage.
Fully Liquidated Positions and Focus
The footnotes disclose that Kinnevik and Wayfair were sold in full during the period. These two exits, together with the write-downs to zero, indicate that the fund is simplifying its holdings and concentrating resources on structural growth assets with higher conviction. The asset allocation data showing the unlisted share rising rather than falling further confirms that private equity remains the core feature distinguishing this fund from ordinary growth trusts.
Overall, this interim report presents an operating model of “high returns, high buybacks, low new investment”: rising markets generate substantial capital gains, the fund locks in profits by selling part of its listed holdings, actively buys back its own shares at a discount, and fully writes down failed private projects. This strategy amplifies per-share returns in a bull market environment, but it also tests management’s long-term win rate in selecting private projects.
1. Going-Concern Assessment: Macro Stress Test and Structural Buffers
The board added explicit consideration of geopolitical risks to its going-concern review, including the ongoing Russia-Ukraine conflict and global trade tensions. Notably, management did not run a single-scenario test, but rather specific leverage and liquidity stress testing, and concluded that these risks did not threaten the going-concern status. The core support for this judgment lies in the company’s asset structure: the vast majority of assets are readily realisable listed securities (Level 1), and total assets significantly exceed total liabilities. In addition, all borrowings require prior board approval, and leverage levels and loan covenant compliance are reviewed by the board on a regular basis. This shows that the company not only has a “safety cushion” in liquidity, but also has a “control valve” at the governance level through borrowing approval authority, forming a dual safeguard.
2. The “Capital-Driven” Nature of Performance Further Strengthened
| Metric (£'000) | Six months to 30 Sep 2025 | Six months to 30 Sep 2024 | Change |
|---|---|---|---|
| Income return (after tax) | 18,035 | 14,840 | +21.5% |
| Capital return (after tax) | 2,641,726 | 199,219 | +1,226% |
| Total net return | 2,659,761 | 214,059 | +1,142% |
| Weighted average ordinary shares | 1,160,802,949 | 1,330,142,922 | -12.7% |
The data reveal two points. First, the period’s performance was almost entirely driven by capital returns (99.3% of total returns), confirming the strong appreciation from revaluation of unlisted assets (Level 3) and listed equities in the portfolio. Second, while total returns surged, the weighted average share count fell 12.7% year on year, mainly due to continuous buybacks—meaning EPS growth also benefited from the “denominator effect.” Although the underlying asset return was high, EPS growth (about 13x) was significantly higher than total return growth (about 11x), and the amplifying effect of buybacks on shareholder returns should not be underestimated.
3. Dividends: The Dual Signal of Continuous Growth and Stable Expectations
- Paid: The prior fiscal year’s final dividend was 2.78p (2.64p the year before), an increase of 5.3% year on year. The absolute amount fell from £35.2M to £32.6M because the reduction in share count lowered actual expenditure—reflecting the buyback-era characteristic of “lower total dividends, higher per-share dividends.”
- Proposed: The interim dividend is maintained at 1.60p (unchanged from 2024), but the expected payout falls from £20.2M to £18.0M (a decline of 10.8%), also due to share-count contraction. Maintaining the interim dividend rate itself is a strong signal, indicating that management remains committed to stable quarterly cash returns despite significant swings in capital returns.
4. Fair Value Hierarchy: Level 3 Share Rises, HeartFlow’s “Tier Transfer” Opens Value Recognition
| Asset class (£'000) | 30 Sep 2025 | 31 Mar 2025 (audited) | Change |
|---|---|---|---|
| Level 1: Equities/funds | 11,331,414 | 9,880,944 | +14.7% |
| Level 3: Unlisted ordinary shares | 704,916 | 835,363 | -15.6% |
| Level 3: Unlisted preference shares | 3,381,752 | 2,875,069 | +17.6% |
| Level 3: Convertible notes | 19,584 | 18,872 | +3.8% |
| Level 3: Limited partnership investments | 50,611 | 54,928 | -7.9% |
| Level 3: Contingent value rights | 532 | 555 | -4.1% |
| Level 3 total | 4,157,395 | 3,784,787 | +9.8% |
| Total investments | 15,488,809 | 13,665,731 | +13.3% |
The core change is that HeartFlow Inc moved from Level 3 to Level 1 as a result of its listing. This transfer not only gives the asset publicly traded pricing, providing objective verification of its carrying value, but also increases Level 1 assets and enhances the portfolio’s overall liquidity. At the same time, total Level 3 assets still grew 9.8%, driven mainly by a 17.6% appreciation in preference shares—the special rights of preference shares (liquidation preference) mean they can generate multiple returns in an M&A scenario, which explains the explosiveness of capital returns. The Level 3 share fell slightly from 27.7% to 26.8%, indicating that the market value of Level 1 assets grew faster and that overall liquidity did not deteriorate as a result of Level 3 expansion.
5. Private Company Valuation: Multi-Layered Validation of Methodology
In valuing Level 3 investments, the company explicitly follows the IPEV 2022 guidelines, mainly using the market approach and dynamically selecting the technical route based on portfolio characteristics:
- Valuation anchor: Recent transaction prices (if an orderly transaction) serve as the starting point, subject to adjustments for subsequent market changes and company performance.
- Milestone analysis: Operational progress is incorporated into valuations, especially for early-stage companies.
- Multiples method: For companies with stable revenue, comparable company multiples are preferred; if industry peers are lacking, the “industry valuation benchmark method” is discarded; if no observable prices exist, the “available market price method” is discarded.
- Discounted cash flow (DCF): Used as a supplement where applicable.
The key point is that all valuations are cross-checked for reasonableness using alternative techniques. This dual-method parallel mechanism reduces the risk of over-reliance on any single model. In addition, preference share investments are not classified as equity investments because they carry liquidation preferences, making them closer to “debt + option” hybrid instruments in valuation logic—which explains why their valuation volatility can be significantly greater than that of ordinary shares.
6. Borrowing Costs: Low-Cost Fixed Rate Is an Important Moat
- Bank borrowings: a fixed-rate US dollar borrowing with a principal of $180M (unchanged from end-March); the specific rate is not disclosed.
- Bonds: £50M of bonds (maturing 2026) and £675K of irredeemable bonds, plus unsecured loan notes maturing from 2036 to 2062.
- The weighted average borrowing cost is 3.1% (unchanged from end-March), highly competitive in the current rate environment. Since all borrowings are fixed-rate, the company is largely insulated from short-term rate hikes, keeping interest costs manageable.
- The fair value of financial liabilities fell from £1,250.99M to £1,219.96M (a decrease of 2.5%), possibly due to changes in market interest rates or exchange-rate movements, but it still exceeds the carrying amount (calculated by discounting interest and principal), suggesting that the market value of liabilities is slightly above book value.
7. Share Buybacks: Large-Scale “Denominator Management” and Share-Capital Contraction
| Share capital movement (shares) | Six months to 30 Sep 2025 | Full year to 31 Mar 2025 |
|---|---|---|
| Shares repurchased and held in treasury | 75,230,448 | 184,816,766 |
| Total buyback cost (£) | 765,440,000 | 1,709,766,000 |
| Average buyback price (£/share) | 10.17 | 9.25 |
| Closing treasury shares | 358,959,601 | 283,729,153 |
| Ordinary shares in issue (excluding treasury) | 1,125,821,279 | 1,201,051,727 |
| Remaining buyback authorization | 139,817,936 | — |
- During the period, 75.2M shares were repurchased at an average cost of £10.17, nearly 10% above the prior fiscal year’s average of £9.25, indicating that management continued buying back even as the share price rose, reflecting confidence in intrinsic value.
- Treasury shares now represent 24.2% of authorised share capital (358.96M / 1,484.78M). These treasury shares can be re-sold or cancelled in the future, providing the company with a flexible share capital management tool.
- The remaining authorization at period-end was 139.8M shares, equivalent to approximately £1.4B at the current share price, meaning there is still substantial firepower for future capital returns.
Overall, during the reporting period the company displayed the typical characteristics of a closed-end investment trust: “capital appreciation as the spear, buybacks as the shield, and low-cost leverage as the stable foundation.” The rigor of the going-concern assessment further strengthens confidence in its long-term viability.
Continuation Analysis: A Deeper Interpretation from Governance Disclosures to APM Definitions
1. Related-Party Transactions and Private Valuations: Governance Signals Behind Transparency
The statement that there were “no material related-party transactions” during the reporting period appears routine, but it actually has two layers of meaning:
- Governance stability: There was no material change from the related-party transactions disclosed in the last fiscal year’s annual report, indicating that the company’s investment operations did not generate abnormal capital flows due to conflicts of interest among management or directors. This is not common among mid-sized investment trusts—some peers that manage both private equity and public market portfolios often need to disclose related-party transactions more frequently.
- The design of the private valuation calendar: The hybrid model of a three-monthly measurement cycle supplemented by reviews on “trigger events” reflects changes in the fair value of private assets more promptly than relying solely on annual valuations. A noteworthy detail is that trigger events under the IPEV (International Private Equity and Venture Capital Valuation) guidelines typically include: a new financing round, a major operational development, a liquidity event, and so on. This institutional design effectively leaves room for dynamic adjustment of private valuations between the interim and annual reports, reducing the information asymmetry risk caused by data staleness at a single measurement date.
2. Liability Structure Adjustment: Dual Optimization of Tenor and Currency
Total borrowings fell from £1,623.9M at 31 March 2025 to £1,588.5M at 30 September 2025, a decrease of about 2.2%, but the more critical point is the substantive change in the maturity structure:
| Borrowing facility | 30 September 2025 | 31 March 2025 | Change |
|---|---|---|---|
| National Australia Bank revolving facility | US$100M, 2-year | US$100M, 3-year | Maturity shortened by 1 year |
| RBSI revolving facility | US$170M, 3-year | US$170M, 3-year | No change |
| Scotiabank fixed-rate loan | US$300M | US$300M | No change |
The shortening of the NAB facility from 3 years to 2 years is a noteworthy signal—it may reflect the company’s view on the medium-term rate environment (expecting lower refinancing costs in the future), or it may be a repricing of credit terms by the bank. With the rate paths of the Federal Reserve and the European Central Bank still unclear, this adjustment exposes the company to a larger refinancing need over the next 24 months, but it also avoids locking in higher rates for a long period.
All borrowings are denominated in US dollars, while the company’s asset side is dominated by US dollar assets (US equities and global technology stocks), naturally forming a currency match and eliminating the direct impact of exchange-rate fluctuations on net assets. This contrasts with the situation of some UK investment trusts that borrow in sterling while investing in US dollar assets and therefore need additional hedging.
3. The Difference Between the Two NAV Measures: “Hidden Leverage Gain” in the Fair-Value Basis
The two reporting dates reveal a persistent and significant positive difference between the fair value and carrying amount of borrowings:
| Metric | 30 September 2025 | 31 March 2025 |
|---|---|---|
| Carrying amount of borrowings | £1,588.5M | £1,623.9M |
| Fair value of borrowings | £1,220.0M | £1,251.0M |
| Difference (carrying - fair) | £368.6M | £372.9M |
| Difference as % of carrying value | 23.2% | 23.0% |
This difference means the market values the company’s borrowings well below book value—the core reason is that the fixed rate (or spread) on the company’s borrowings is higher than current market rates, or credit spreads have narrowed, causing the market value of these borrowings to trade at a discount to their carrying amount. For shareholders, this implies:
- If the company chose to repurchase its own debt in the open market, it could achieve actual debt relief of approximately £368.6M;
- NAV (fair-value basis) is approximately 2.6% higher than NAV (book-value basis), and this gap remained stable over the past six months.
4. Structural Interpretation of the Discount Rate: Divergence Between Book-Value and Fair-Value Bases
| Discount rate | 30 September 2025 | 31 March 2025 | Change |
|---|---|---|---|
| Based on NAV (book value) | (8.2%) | (6.2%) | Widened by 2.0pp |
| Based on NAV (fair value) | (10.5%) | (9.0%) | Widened by 1.5pp |
The discount rate widened under both measures, but the drivers of the widening differ:
- On the book-value basis, NAV per share rose from 1,006.0p to 1,238.6p (+23.1%), while the share price rose from 943.4p to 1,137.5p (+20.6%). Net asset value growth outpaced share price growth, causing the discount to widen passively;
- On the fair-value basis, the discount widened by less (1.5pp vs 2.0pp), indicating that the rise in the fair value of borrowings narrowed part of the gap.
This data reveals an important phenomenon: even when the company’s fundamentals are strong (NAV growth of 23%), market sentiment and liquidity factors still put pressure on the discount rate. For investors, a discount rate of 10.5% (fair-value basis) is in a relatively high range in recent years, possibly reflecting market concerns about a valuation correction in technology stocks, liquidity discounts on private assets, or management’s future investment strategy.
5. Gearing Calculation Details and the True Leverage Level
Gearing fell from 13% to 11%, seemingly a deleveraging, but a closer look at the calculation reveals the impact of cash management strategy:
| Item | 30 September 2025 | 31 March 2025 | Change |
|---|---|---|---|
| Borrowings (carrying value) | £1,588.5M | £1,623.9M | -£35.4M |
| Cash | £68.2M | £9.0M | +£59.2M |
| Sales awaiting settlement | £1.5M | £62.3M | -£60.8M |
| Adjusted borrowings | £1,518.8M | £1,552.6M | -£33.8M |
| Shareholders’ funds | £13,944.2M | £12,082.5M | +£1,861.7M |
| Gearing | 11% | 13% | -2pp |
The main driver of the decline in gearing was not active debt repayment, but a substantial expansion of the shareholders’ funds base (+15.4%), combined with a significant increase in cash reserves (+£59.2M). The increase in cash may reflect temporary funds from portfolio sales rather than persistent improvements in operating cash flow. A gearing level of 11% is moderate for the investment trust industry, preserving upside participation leverage without imposing excessive pressure in a market downturn.
6. Share Buybacks: The Implicit Capital-Return Mechanism
From 31 March 2025 to 30 September 2025, the number of shares fell from 1,201.1M to 1,125.8M, a reduction of 75.2M shares (-6.3%). Buybacks of this scale have a significant accretive effect on NAV per share:
- Assuming an average buyback price of £10.0 (between the period-start price of £9.43 and the period-end price of £11.38), the total buyback outlay would be approximately £752M;
- By reducing the denominator, these buybacks contributed approximately 3–4 percentage points to NAV per share, making them one of the important drivers of the rise in NAV from 1,006.0p to 1,238.6p;
- More importantly, buying back shares when the discount rate exceeded 8% effectively creates value for remaining shareholders by purchasing below asset value—a value-accretive capital operation.
7. Active Share and the Persistence of Investment Style
Although this report does not directly disclose the latest Active Share figure, combined with the company’s long-standing tradition of high Active Share (typically in the 85–95% range historically) and its portfolio style, the fund remains a high-conviction, high-concentration product. This style contributes significantly to excess returns in a growth-stock bull market, but also implies greater volatility and drawdowns when market style rotates. When evaluating the discount rate, investors need to consider it in conjunction with this active risk profile, rather than looking at valuation metrics in isolation.
8. Overall Assessment: The Management Logic Behind the Data
The reporting period presented several contradictory signals at the data level:
| Positive factors | Cautious factors |
|---|---|
| NAV up sharply by 23.1% (book-value basis) | Discount rate continued to widen to 10.5% (fair-value basis) |
| Bought back 75.2M shares, enhancing per-share value | NAB facility maturity shortened, increasing refinancing uncertainty |
| Gearing fell from 13% to 11% | Higher cash may reflect fewer reinvestment opportunities |
| Fair value of borrowings £368.6M below carrying value | Private asset valuations rely on trigger events, with time lags |
These contradictions do not necessarily point to a negative conclusion, but rather reflect a company in a transitional phase that combines growth and defense: on the asset side, it is enjoying the benefits of a technology stock rebound; on the liability side, it is optimizing the structure; and on the shareholder return side, it is enhancing value through buybacks. The widening of the discount rate is less a sign of deteriorating fundamentals than a reflection of the market’s generally cautious sentiment toward high-valuation growth stocks, as well as the liquidity discount problem commonly faced by the investment trust industry.
The following is a continuation of the preceding analysis, focusing on additional evidence and perspectives drawn from the appendix data:
1. The "Hidden Decline" in Leverage: Prudent or Passive?
Gross gearing fell from 13% to 11%. On the surface, this reflects the company's proactive deleveraging, but a closer look at the data reveals another layer of reality:
| Item | 31 March 2025 | 30 September 2025 | Change |
|---|---|---|---|
| Borrowings (carrying value, £’000) | 1,623,867 | 1,588,547 | -2.2% |
| Shareholders' funds (£’000) | 12,082,465 | 13,944,176 | +15.4% |
| Gross gearing | 13% | 11% | -2pct |
- The absolute value of borrowings fell by only approximately £35 million, a decline of 2.2%, far too small to support the 2-percentage-point reduction in the gearing ratio.
- The real driver of the decline in gearing was the 15.4% expansion in shareholders' funds—mainly attributable to higher portfolio valuations and the issuance of new shares during the period.
- In other words, the decline in gearing was more a "denominator effect" than a "numerator contraction." The company has not actively deleveraged to any significant degree; its borrowing scale remained broadly stable.
This signal deserves investors' attention: if a future market correction causes net assets to shrink, the gearing ratio will rise automatically without any increase in borrowings, leaving shareholders exposed to greater capital volatility risk. At present, the company appears to retain a forward-looking optimistic view of the market, rather than adopting a defensive contraction.
2. Widening Discounts: The Cost of Share Price Returns Lagging NAV
Total return data reveals an easily overlooked issue — share price performance has consistently lagged NAV:
| Metric | 30 Sep 2025 | 30 Sep 2024 |
|---|---|---|
| NAV (book value) total return | 23.4% | 2.1% |
| Share price total return | 20.9% | (6.1%) |
| Return gap | -2.5pct | -8.2pct |
In terms of discount rate:
| Date | NAV (book) | Share price | Discount rate |
|---|---|---|---|
| 31 Mar 2025 | 1,006.0p | 943.4p | 6.2% |
| 30 Sep 2025 | 1,238.6p | 1,137.5p | 8.2% |
| 30 Sep 2024 | 928.1p | 837.0p | 9.8% |
- Within six months, the discount widened from 6.2% to 8.2%, indicating that share price gains have not fully kept pace with NAV growth.
- Compared with the 9.8% discount a year earlier, the current 8.2% has narrowed but remains above the level at end-March.
- The widening discount may reflect market concerns about the sustainability of valuations for unlisted assets in the portfolio, or caution toward elevated valuations of global technology stocks.
For long-term investors, a widening discount means a lower entry cost, but it also implies that market recognition of asset quality has not fully recovered. If NAV continues to grow in the next phase while the discount does not narrow, the management team may need to step up share buybacks or consider other discount-management tools.
III. The Impact of the Dividend Adjustment Factor on Total Return: Small Mathematically, Large Psychologically
The interim dividend disclosed in this report was 2.78p (2.64p in the same period of 2024), up 5.3% year-on-year. Although this increase is below the 23.4% NAV total return, the dividend adjustment factor contributed only about 0.25 percentage points to total return:
| Period | Dividend | Adjustment Factor | Impact on Total Return |
|---|---|---|---|
| 6M 2025 | 2.78p | 1.0025 | +0.25pct |
| 6M 2024 | 2.64p | 1.0027 | +0.27pct |
- The incremental contribution of dividend reinvestment to total return is negligible, yet it symbolically carries forward in the calculation the completeness principle that total return should encompass all shareholder earnings.
- More importantly, the 5.3% dividend growth is significantly below the NAV growth rate (23.4%), so the payout ratio is actually declining. This reflects the company's tendency to retain more capital within the portfolio to pursue compounding growth rather than return cash to shareholders.
- For investors who rely on dividend income, this stock is not a typical income-oriented holding; its core value proposition remains capital appreciation.
4. Corporate Governance Structure and Stakeholder Stability
The company information in the appendix reveals several stability signals worth noting:
- Independent auditor is PricewaterhouseCoopers LLP, with the firm unchanged.
- Depositary is The Bank of New York Mellon (International) Limited, responsible for asset custody and oversight, with a role independent of the investment management team.
- AIFM, company secretary, and registered office are all Baillie Gifford & Co Limited — meaning fund management and administrative operations are consolidated under a single entity.
This "integrated" structure, while placing trust in investment management expertise, also invites scrutiny of potential conflicts of interest: with the AIFM responsible for both investment decisions and fund operations, how is independent oversight ensured? However, the depositary (BNY Mellon) and the auditor (PwC) each provide external checks from the standpoints of asset safety and financial authenticity, forming a dual-layer safeguard mechanism. For a closed-end investment trust, this governance framework is standard configuration within the industry, and no anomalies are observed.
V. The Interplay Between Leverage and Total Return: A Neglected Multiplier Effect
By examining leverage and total return together, an implied return on assets can be derived:
| Item | 31 March 2025 | 30 September 2025 | Change over Period |
|---|---|---|---|
| Shareholder funds (£'000) | 12,082,465 | 13,944,176 | +1,861,711 |
| Borrowings (£'000) | 1,623,867 | 1,588,547 | -35,320 |
| Total assets (£'000) | 13,706,332 | 15,532,723 | +1,826,391 |
- Total assets increased by approximately £1.826 billion, or 13.3%.
- Shareholder funds rose 15.4%, outpacing total asset growth, with the leverage multiplier amplifying returns on net assets — this is precisely the value of leverage during an upcycle.
- Conversely, if total assets were to fall 13%, shareholder funds would decline by approximately 16% (at the same leverage level), with volatility amplified by a factor of nearly 1.2. This multiplier effect remains manageable under the current low leverage (11%), but it also means the company does not exhibit a "low-volatility" profile during market downturns.
VI. Summary View: The "Number Codes" in the Half-Year Report Appendix
Four key signals can be extracted from the appendix data:
1. The decline in leverage is a surface phenomenon — the substance is net asset expansion rather than active deleveraging; the company retains a net borrowing exposure of approximately £1.59 billion.
2. The share price discount widened by 2 percentage points, indicating limited market recognition of NAV growth; if the discount continues to widen in the next reporting period, the management team will need to respond to investor demands for discount management.
3. The dividend policy emphasizes reinvestment over cash returns — the payout ratio declined, but the impact of the dividend factor on total return calculations is negligible; the company's growth narrative is driven by capital appreciation.
4. The governance structure remains stable — the roles of the auditor, depositary, and AIFM are clearly defined, and the triple check-and-balance mechanism (investment management, asset custody, financial audit) operates well within the current framework.
Overall, this appendix is more than mere compliance disclosure; it reads like a mirror — reflecting the company's financing strategy, shareholder return philosophy, and the current state of its governance architecture against a backdrop of high NAV growth. For investors focused on "growth quality" rather than "growth numbers," this data often carries greater reference value than the performance highlights in the main report.