Learning from the Experts 2 – Scottish Mortgage Investment Trust

A previous blog post covered how one could learn from experts such as Harry Nimmo at Standard Life UK Smaller Companies Trust. Another company, but a very different one, I hold is Scottish Mortgage Investment Trust (SMT) and I thought this comment in their recently received Interim Report was worthy of note:

“Outlook: There is a strong structural asymmetry in equity market returns, given the potential for a successful company to grow to many times its size. This means it is of critical importance to be a patient optimist. The greatest investment mistakes come not from those investments which fail, but from the opportunities missed. 

Whilst others are focused on questions around political issues in the United States of America, what global GDP figures will be or whether the Federal Reserve will raise interest rates, those able to

take a long term and global approach can focus on investing in those companies which are placed to benefit from the significant structural shifts which are occurring on the back of technological

progress. A number of these companies have already reached significant scale, but have the potential and capital to grow substantially from here. This is truly exciting.”

Words of wisdom indeed and needless to point out that Scottish Mortgage have a superlative track record and it is now the largest UK listed investment trust. The net asset value total return per share was up 25% at the half year. The high weighting in US and other overseas stocks helped of course because of the fall in the pound. But they also beat their benchmark index as they have done over the last five years also (share price up 183% in that period).

How have they achieved this? By investing in “new economy” shares such as Amazon, Illumina, Inditex, Tencent Holdings, Alibaba, Baidu, Tesla Motors, Facebook, Alphabet (Google) and Ctrip.com to list their top ten holdings.

The fund is managed by James Anderson and Tom Slater of Baillie Gifford. They point out that worries about the UK economy do not bother them as only 5% of the portfolio is invested in UK listed companies, and conclude by saying that “this is a great time to be a long term global growth stock picker”.

And what’s the charge investors pay for such an active fund, bearing in mind the recent comments from the FCA about the merits of active versus passive funds and the high charges on some active funds? The “On-going” charge for Scottish Mortgage as reported by the AIC is 0.45% and there is no performance fee.

Roger Lawson

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