Scottish Mortgage, the flagship £1.9bn investment trust of Edinburgh's Baillie Gifford, endured a torrid half-year as the market-beating run by chief investment officer James Anderson went into reverse.

Scottish Mortgage, the flagship £1.9bn investment trust of Edinburgh's Baillie Gifford, endured a torrid half-year as the market-beating run by chief investment officer James Anderson went into reverse.

Asset value fell by 20.1%, and the share price by 23.5% in the six months to September 30, while the benchmark world index fell by only 9.6% in sterling terms.

The trust said: "The financial crisis that has savaged world markets has been extraordinary. The scale of the impact and its trans- lation to the real economy has surprised us."

Anderson six months ago unveiled a 7.3% advance in asset value, twice the benchmark return, and talked of unearthing "great oppor- tunities" in the global turmoil.

He was unavailable for comment yesterday, but said in a statement: "This has been a very difficult six months: the effects of the financial crisis have overflowed in the economy rapidly and markets have been ruled by much panic and fear. A lot Scottish Mortgage's holdings have suffered severe markdowns notably amongst emerging markets and commodities shares, while having gearing in a falling market has not helped."

Gearing - borrowing to invest more usually in equities - has been maintained at 18.6%.

Anderson said the freezing of banking and credit markets would not last forever and many valuations now appeared "almost absurdly cheap".

He went on: "While I know markets will continue to be volatile and noisy I'm determined to concentrate on the long term and not on day-to-day movements, on com-panies which I think can return growth over a period of many years."

Over five years, the trust's asset value is up 69%, the benchmark up 43%.

It says although earnings will be threatened by falling dividends, Scottish Mortgage has revenue reserves worth more than 20p a share.

The trust concludes: "The more extreme downward reaction of emerging market valuations to world events, compared with the less severe but still substantial falls in developed markets, mirrors historic behaviour in times of stress. The other side of this coin is the expectation that emerging market valuations should enjoy a proportionately greater recovery. The portfolio is well placed to benefit from this normal cyclical behaviour."

l Elsewhere in the fund management sector, UK life insurer Friends Provident said it is abandoning the sale of wealth management unit Lombard, nine months after putting the business on the market, and reported a worse-than-expected drop in nine-month sales.

"We received a number of proposals for Lombard but it is clear to me that we should not only retain but also develop this unique business," Friends Provident chief executive Trevor Matthews said in a statement yesterday.

Friends Provident also confirmed that it plans to hand its 52% stake in UK asset manager F&C to its shareholders, with the distribution expected to complete by mid-2009.