INVESTORS have been "transfixed by some of the horror stories emerging in southern Europe" and have tended to ignore the "remarkable health" of much of the global corporate sector, heavyweight investment trust Scottish Mortgage believes.

The £2.4 billion international investment trust, which is run by James Anderson and Tom Slater of Edinburgh fund manager Baillie Gifford, published results yesterday showing it had trailed its benchmark FTSE All-World Index in the year to March 31.

Its net asset value per share fell by 5.8% to 768.7p, while the benchmark dropped by 2.9%. However, its net asset value had been down 20.5% at the halfway stage of the financial year, and rebounded strongly as stock markets recovered in its second half.

Scottish Mortgage, which is one of the UK's largest investment trusts and remains enthusiastic about opportunities to invest in companies exposed to the fast-growing Chinese economy, has enjoyed a net asset value total return of 39% over the past five years, including capital and income. This is ahead of a total return on its benchmark of 26%.

And Scottish Mortgage chairman John Scott declares in his statement on the results that the "managers acted with great skill in a very testing investment climate" in the year to March 31.

Scottish Mortgage, which has about 35,000 private shareholders and invests in an international portfolio of equities, is recommending an 8.3% rise in its total dividend for the year to March, to 13p, with a final payout of 6.8p.

It noted this was "well ahead" of the current 3.6% rate of UK inflation on the all-items retail prices index measure. It added that it would also be the 30th consecutive above-inflation increase in the total dividend.

Mr Scott says: "The past year has been characterised by low confidence in markets and a tendency for most commentators to focus on negative factors. In particular, anxiety about the future of the eurozone and worries about what appears to be a double-dip recession in several European countries, including the UK, have been recurrent."

He adds: "To a large extent, good news has been ignored, with investors transfixed by some of the horror stories emerging in southern Europe. Included in the good news is the remarkable health of much of the corporate sector, the good progress made by many developed economies, notably, but not exclusively, Germany, and the continued growth of advancing economies especially China, albeit sometimes at a slightly slower pace than hitherto. But it is the riots on the streets of Athens and the unemployment queues in Spain which have tended to capture the headlines."

He meanwhile notes that the managers are "prepared to swim against the tide in their investment approach", which is focused on the long-term growth prospects of individual companies, and that they "still see considerable investment opportunities".

He adds: "Excitement about the impact of new technologies in many different sectors and continued enthusiasm for opportunities presented by the rapid growth of the Chinese economy come through strongly."

Scottish Mortgage's biggest holding at March 31 was a £197 million stake in Chinese online search engine Baidu, equating to 8.29% of total assets. A £187m stake in US online retailer Amazon was the second-largest at March 31

Looking ahead, Mr Scott notes good profitability and balance sheet strength in much of the corporate sector, but cautions that the macroeconomic challenges are "considerable", citing in particular a belief that enduring solutions have yet to be found to the eurozone debt crisis.

He says: "Some European economies are faltering but others, notably Germany, are doing very well and it is this remarkable divergence of fortunes which is causing strains of titanic proportions within the eurozone. Even ardent supporters of the euro project now belatedly accept that certain countries should not have been admitted to the single currency so early in the piece and their continuing membership seems to be justified on the basis that it acts as a financial straitjacket which, while painful in the short term, will do the patient good in the end; and that, in any event, the release keys were discarded."

Mr Scott adds: "Much has been achieved in the past year in terms of averting a disorderly default for Greece, but in both that country and elsewhere in southern Europe there remains an uneasy feeling that all that has been bought is more time; enduring solutions are proving elusive."