Scottish Mortgage (SMT ) fund managers have slashed their longstanding holding in gene sequencer Illumina citing its poor execution and weak share price.

The investment trust’s long-term holding of more than five years has been reduced to 2.2% of the £13bn portfolio, down from 6.4% 15 months ago and 4.2% last September, annual results today showed. 

The San Diego-based technology company, which is battling activist investor Carl Icahn over its acquisition of cancer test developer Grail, was Scottish Mortgage’s second-worst performer in the year to 31 March after its shares dropped 28%.

Writing in their latest annual report managers Tom Slater and Lawrence Burns said: ‘We have substantially reduced our holding in Illumina, the sequencing machine company. We still believe gene-sequencing is a fundamental building block for advances in healthcare, but the company’s execution has been disappointing, which has been reflected in a weak share price.’

The managers and the trust’s outgoing chair Fiona McBain acknowledged it was a disappointing 12-month period for their shareholders too with Scottish Mortgage’s net asset value sliding 18% and its share price slumping 33.5% in the bear market exacerbated by the war in Ukraine.

The scale of its underperformance was underlined by its benchmark index, the FTSE All-World, shedding just 0.9% in sterling terms.

At 619p today, Scottish Mortgage shares have lost more than half their value since their £15.28 peak in November 2021, after which the pandemic rally in internet and technology stocks rapidly unwound as interest rates and inflation rose.

In share price terms the Baillie Gifford flagship has now underperformed the FTSE benchmark over five years, providing a total return of 57.1% at 31 March compared to 62% from the index, although the underlying asset growth of 96.3% was superior. 

McBain highlighted the impressive 10-year return with 431.5% growth in net asset value, against the FTSE All-World’s 181%, as a better measure of the trust’s ambition to back the best growth companies in the world.

The full-year results showed that although big declines in Tesla, Illumina, Ginkgo Bioworks, Stripe and Amazon had hurt the portfolio, there had been successes for the high-conviction technology investor. Shares in Pinduoduo, the Chinese online retailer, had doubled and there had were good gains in MercadoLibre, the Latin American e-commerce site, and SpaceX, Elon Musk’s privately owned rocket company which was written up nearly 39% in value.

Overall, though, the trust’s 29% investments to unquoted companies weighed on returns as they were written down by an average of 27.8% by the independent valuers used by Baillie Gifford’s valuation committee.

Slater insisted he and Burns would not deviate from their approach, saying the poor share price performance of many of their companies belied the substantial operational progress they were making and adding, ‘if patient ownership of growth companies was easy, there would be far more competition.’

While Slater said investors had flocked to assets that were already proven and profitable in the downturn, ‘we are sceptical that our shareholders will benefit if we too resort to following the crowd. Buying predictability may provide temporary comfort, but it is by embracing discomfort that we can entertain the possibility of outsized returns from exceptional companies.’

He continued. ‘There is no going back to a world of static and unchain industries. The retreat to perceived safety can only be temporary, as safety is ephemeral amidst such upheaval.’

Scottish Mortgage shares derated during the year with their price sliding to 19.6% below NAV, prompting the board to spend £283m on buying back 36.5m shares, or 2.5% of share capital,  to narrow the discount. This has failed so far with the discount currently at 22%, reducing the trust’s market value to £8.7bn.

While the trust’s capital has shrunk, there was better news on the dividend which has been increased by 14.2% to 4.1p per share. Investments such as Ant Group, Kering and ASML and hiked payouts and there had been a big increase on interest earned on cash, the company said. The growth fund is not held for its income, however, yielding just 0.6%.