SAINTS: Manager Insights

As with any investment, your capital is at risk. Past performance is not a guide to future returns.

Hello, and welcome to this annual update on SAINTS, the Scottish American Investment company.

I’m James Dow, the head of the Global Income Growth team at Baillie Gifford, and the lead manager of SAINTS.

Performance

How should we summarise SAINTS' performance in 2024? If I had to choose a single word, I would say "mixed".

On the positive side, our equity portfolio delivered strong earnings growth, allowing the Company to raise its dividend to shareholders to 14.88p. That was growth for the full year of 5.5 per cent, well ahead of UK inflation of 2.5 per cent.

Alongside this, the net asset value or NAV of the company grew to a new record high, exceeding £5.80 for the first time. SAINTS objective is to deliver real dividend growth by increasing capital and growing income, and that objective was achieved in 2024.

We are proud of the fact that since 1938, which was the last time SAINTS reduced its dividend, and also since 2003, when Baillie Gifford were appointed as the current managers, SAINTS has delivered dividend growth which has beaten UK inflation by an average of 3 per cent per year. An income that grows ahead of inflation is valuable. Better still, if that income is resilient through thick and thin. During the last few years, despite the challenges of a global pandemic, followed by strong increases in consumer prices, SAINTS dividend has managed to keep pace with inflation.  And in 2024 it was pleasing to see the dividend once again exceeding inflation by 3 per cent, in line with the Company’s long-term track record.

However, 2024 was not all smooth sailing. Although the NAV grew, it lagged behind the exceptional growth achieved by global equity markets, by some margin. This is uncomfortable, but perhaps in some ways to be expected. The emphasis we place on steady long-term growth in earnings and dividends means portfolio returns are likely to lag behind during periods of market euphoria.

In addition, a widening of the discount, a trend which affected the broader investment trust sector, meant the share price of SAINTS did not keep pace with the growth in NAV.

The lag in net asset value growth was due to two main factors.

The first one is SAINTS’ relatively low exposure to the US stock market, compared to the benchmark weight in global equities. This is a deliberate choice. We invest in companies with strong earnings and dividend growth prospects wherever they are located in the world.  US companies typically have lower dividend payout ratios and higher valuations, resulting in less income per pound invested. By taking a more balanced geographic approach to the portfolio, compared with the global benchmark, also helps reduce regulatory and currency risks for SAINTS shareholders.

The other factor in play last year is the type of business that we invest in. We focus very much on resilient long-term compounders, high quality companies like Procter & Gamble, Atlas Copco and Novo Nordisk. But the best-performing stocks last year were the more cyclical ones, such as banks, and so called "Big Tech" companies, such as the carmaker Tesla. These are not a good fit for our clients, who expect dependable income growth and want to sleep well at night.

Other asset classes

While approximately 90 per cent of SAINTS is invested in equities, we invest the other 10 per cent of the portfolio in other income-generating assets.  Our property portfolio had a good year, with a total return of about 8 per cent despite the challenging backdrop of rising interest rates. Recent acquisitions by the property manager have raised the proportion of leases linked to inflation, and these like all our investments can be read about in more detail in this year’s Annual Report. It is also worth saying that our infrastructure investments too continued to deliver solid income growth.

Transactions

We made several changes to the equity portfolio last year. We divested from a handful of companies, including GlaxoSmithKline, Sonic Healthcare and Dolby Laboratories. All had been solid investments for SAINTS, but in the years ahead we foresee structural headwinds and lacklustre growth. We used the proceeds of those sales to invest in more exciting new businesses, which we expect to underpin dividend growth in the years ahead.

The first was Epiroc, a Swedish powerhouse in mining and construction equipment. It is at the forefront of innovation and growth drivers such as the automation and electrification of mining. It is well-managed by people who think long-term, and they are committed to progressive dividend growth.

We also added CME Group to the portfolio. CME is the dominant exchange for the trade of derivatives in the US, it’s the go-to for trading everything from interest rate futures to corn contracts. As the financial world gets more and more complex, and risky, and increasing numbers of people are seeking to hedge these risks, this is likely to translate into growing profits and dividends for SAINTS shareholders.

Our third addition was Paychex, an American company that makes life easier for small business owners. Their core business is payroll processing, but they're expanding into areas like health insurance and recruitment tools. It's a classic example of a company with a strong base that's finding new ways to keep compounding its earnings and dividends.

Looking ahead

So what is the bottom line for SAINTS shareholders? Well, 2024 presented a mixed bag in terms of the relative performance of SAINTS shares, while income and NAV growth was robust. 

As we look forward, we remain very optimistic about SAINTS prospects, for three reasons:

1. First, we have seen continued solid dividend growth from SAINTS portfolio holdings over the past few years, which to us is strong evidence that the underlying portfolio is healthy. We continue to find interesting new ideas around the world, giving shareholders access to high quality businesses with good prospects for capital and income growth.
2. Second, the portfolio remains well-diversified. While some parts of the global stock market, particularly the US, are looking quite frothy, with high expectations baked in, SAINTS remains broadly diversified globally, across a selection of growing companies with resilient business models and reasonable valuations.
3. Finally, it’s our firm belief that an income backed by natural dividend growth, the SAINTS approach, is a compelling way to deliver a resilient, progressive income that beats inflation over the long-term. This approach has been tested over many decades, and, particularly at a time where the world is looking increasingly volatile, we hope this gives a lot of reassurance to shareholders.  SAINTS shares are currently trading at a significant discount to NAV, and for me this only adds to their attraction as a potential source of long-term income and capital growth.

As 2025 gets fully underway, we remain committed to SAINTS' objective: a growing and resilient income that beats inflation, while growing capital, and extending SAINTS long-term track record for years into the future.

Annual past performance of The Scottish American Investment Company P.L.C to 31 December each year

Source: Morningstar, FTSE. Total return in sterling.

Dividend performance to 31 December each year

Source: Baillie Gifford & Co.

Past performance is not a guide to future returns.

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Important information and risk factors

This film was produced and approved in February 2025 and has not been updated subsequently. It represents views held at the time and may not reflect current thinking.

This communication 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.

The investment trusts managed by Baillie Gifford & Co Limited are listed UK companies and are not authorised or regulated by the Financial Conduct Authority. The value of their shares, and any income from them, can fall as well as rise and investors may not get back the amount invested.

Baillie Gifford & Co and Baillie Gifford & Co Limited is authorised and regulated by the Financial Conduct Authority (FCA). 

All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.

The specific risks associated with The Scottish American Investment Company P.L.C include: 

• 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 invests in emerging markets, which includes China, where difficulties with market volatility, political and economic instability including the risk of market shutdown, trading, liquidity, settlement, corporate governance, regulation, legislation and taxation could arise, resulting in a negative impact on the value of your investment.
• The Trust can borrow money to make further investments (sometimes known as “gearing” or “leverage”). The risk is that when this money is repaid by the Trust, the value of the investments may not be enough to cover the borrowing and interest costs, and the Trust will make a loss. If the Trust's investments fall in value, any invested borrowings will increase the amount of this loss.
• Market values for securities which have become difficult to trade may not be readily available and there can be no assurance that any value assigned to such securities will accurately reflect the price the Trust might receive upon their sale.
• The Trust can make use of derivatives which may impact on its performance.
• The Trust has some direct property investments, which may be difficult to sell. Valuations of property are only estimates based on the valuer's opinion. These estimates may not be achieved when the property is sold.
• Corporate bonds are generally perceived to carry a greater possibility of capital loss than investment in, for example, higher rated UK government bonds. Bonds issued by companies and governments may be adversely affected by changes in interest rates and expectations of inflation.
• Share prices may either be below (at a discount) or above (at a premium) the net asset value (NAV). The Company may issue new shares when the price is at a premium which may reduce the share price. Shares bought at a premium may have a greater risk of loss than those bought at a discount.
• The Trust can buy back its own shares. The risks from borrowing, referred to above, are increased when a trust buys back its own shares.

Further details of the risks associated with investing in the Trust, including a Key Information Document and how charges are applied, can be found in the Trust specific pages at www.bailliegifford.com, or by calling Baillie Gifford on 0800 917 2112.