Scottish Mortgage 06 November 2018
This is a non-independent marketing communication commissioned by Baillie Gifford. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Scottish Mortgage aims to maximise total return over the long term from a high conviction and actively managed portfolio. It invests globally, looking for strong businesses with above-average returns.
Baillie Gifford & Co Limited.
James K. Anderson;Tom Slater;
Association of Investment Companies (AIC) Sector
12 Mo Yield
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Scottish Mortgage is a global equity portfolio run with a long-term investment time-frame, via a highly-concentrated, growth-orientated stockpicking approach. It is the largest “conventional” UK-listed investment trust with net assets of close to £7bn. The managers aim to invest in the most promising growth companies across the globe – publicly listed or private.
The trust, which is a member of the FTSE 100, has built on its long-term track record of outperformance over the course of 2018, with NAV total returns to 2nd November of more than 11.8%, well ahead of the 1.6% delivered by the FTSE All World index over the period. Over five years, the trust has delivered NAV total returns of 147.7%.
The managers are not afraid to take punchy bets and the major drivers of performance boil down to the strong returns from their highest conviction investments. However, most recent activity at the portfolio level has focused on investing in private, unlisted companies.
For the first time, in the recent interim results, the managers took the opportunity to review the progress to date of such investments – looking at performance both before and after IPO (if applicable). From June 2010 when the managers made their first unquoted investment to the end of September 2018, the entire Scottish Mortgage portfolio generated a total return of 344%, but the total return from the subset of holdings that had started out as unlisted investments over the same period was 419%. For context the FTSE All-World Index's total return over the same period was 163%.
Scottish Mortgage remains one of the stand-out higher-risk options for equity investors, yet is among the cheapest in terms of OCF. The trust is likely to generate higher levels of volatility than the index and peers. The trust is currently on a premium of 1.8%.
A behemoth of the investment trust world, Scottish Mortgage is double the size of the second-largest trust in the global sector. It has been one of the strongest performing trusts over the past five years.
Certainly the shape and style of the portfolio is one of its key differentiators, but so too is the focus on private, unlisted companies which currently represent 15% of the portfolio, but have the potential to be up to 25%. As the trust's recent results illustrate, the returns that Scottish Mortgage has been able to generate from private investments (and subsequently once IPO’d) have been impressive. The trust's management team have been investing in such businesses since 2010, and so their network and reputation, which count so much towards sourcing such opportunities, is second to none in the listed sphere.
As we have observed recently, the trust is subject to higher levels of volatility than other trusts. However, with an OCF of 0.37%, it remains a highly attractive vehicle for those investors who share its long-term investment horizon.
|One of the strongest performing trusts in the sector
||Currently trading on a small premium
|The trust is able to access early stage growth companies, through investing up to 25% of the portfolio in unquoted stocks
||The trust bears more risk due to its growth focus, and concentrated nature
|Very low management fee
||Unlisted investments carry extra risks for shareholders