Fund of the Fortnight: Scottish Mortgage Investment Trust
The latest: Scottish Mortgage Investment Trust
With a history dating back to 1909, Scottish Mortgage is one of the oldest investment trusts and also one of the largest, with total assets under management of around £3bn. The longstanding manager of the trust is Edinburgh-based Baillie Gifford, with lead management duties on the portfolio falling to James Anderson since 2000.
Anderson has worked at Baillie Gifford since 1983 and has been a partner of the group since 1987. He originally headed up their European team, but now runs their long term global growth team. Deputy on the fund is Tom Slater – Slater actually ran the fund for 6 months in 2013 whilst Anderson took a sabbatical.
The trust follows a truly global style of investing – comparing companies to their peers in other countries, rather than managing money in regional silos. Baillie Gifford was one of the early converts to this approach which arguably makes more sense than dividing up the world by regions – BP and Shell have far more in common with Exxon than they do with other UK listed companies.
Anderson looks for companies capable of strong growth over the long term – the target holding period is five years. He will often pay premium valuations for such companies and though this can be risky, he believes that the potentially unlimited gains from the winners will more than outweigh the losses from unsuccessful selections. Although the process is primarily bottom-up, Anderson also attempts to identify long term trends in the global economy and companies poised to capitalise on them.
A key theme in the portfolio at present is the disruption of established industries by technology. This can be seen in the current top 10 holdings, which include Amazon, Google, Salesforce.com and Apple. Though often viewed as similar companies, Baillie Gifford places them in different sub-themes to reflect their different growth drivers; Amazon is obviously a retailer, whilst Google benefits from changes in advertising habits and Salesforce is a beneficiary of the move to cloud computing.
The top 10 also illustrates another key theme, the ascent of China as an economic power. One of the largest positions is Baidu, which dominates internet search in China and is often described as the Chinese Google. Another major holding is Tencent, social networking and gaming in the country. The trust also holds Alibaba, one of a small number of unquoted positions in the portfolio. Alibaba is the largest player in both online auction and online retail in China and serves as a reminder that Ebay and Amazon’s dominance isn’t global. Alibaba is set to float this year in what is likely to be the largest IPO of 2014.
Over time, Anderson’s approach has been remarkably successful. The trust has grown by 176.7% in share price terms since he took over in April 2000, compared to a rise of just 58.2% in the MSCI AC World global equities benchmark over the same time period. Performance can be highly volatile and it can suffer in falling markets – the trust lost investors 44.8% in 2008. However, it has more than made up for it since, and such is its success the trust currently trades at a slight premium to its net asset value.
The trust’s aggressive approach means it doesn’t suit more faint-hearted investors.
However, for those prepared to hold their nerve it has produced outstanding returns and could well continue to do so.
Tom White is a senior analyst at Bestinvest