FTSE 100 investment trust Scottish Mortgage (SMT) has admitted that it needs to closely watch its largest holdings to maintain distance from index tracker funds.

It has carved a gold-plated reputation with investors as an elite picker of growth stocks, controlling more than £10bn of assets. It prides itself on identifying exciting growth companies capable of producing superior returns for investors over the medium to long term.

But the rapid rise of some of its most successful investments over the past couple of decades, and their apparent resilience during economic hardship, means some of its biggest stakes increasingly feature in passive tracker funds.

These include Amazon and Google’s parent company Alphabet who combined are more highly capitalised than all quoted British companies, according to Scottish Mortgage’s joint managers James Anderson and Tom Slater.

For example, Scottish Mortgage first invested in online retail platform Amazon in 2005, when its share price traded at between $20 and $50. Those same shares now change hands at more than $2,400, valuing the business at $1.2trn and mean many global or US tracker funds own it.

‘In general our quoted portfolio has become more conventional and gradually, then suddenly, less differentiated from the index than in the past,’ says the trust. Other popular growth companies among its larger holdings include Tesla, Netflix, Ferrari, and Alibaba and Tencent, the Chinese online shopping and social networks.

Scottish Mortgage says it is not hugely worried at present as the world adapts to changes stemming from the coronavirus pandemic but it admits this could become an issue in the future. ‘We must continue to evolve,’ say Anderson and Slater.

One of the ways Scottish Mortgage can continue to diverge from more mainstream funds will be to unearth opportunities among privately-owned companies not listed on stock markets. It has done this successfully in the past, backing the likes of music streaming service provider Spotify, ride hailer Lyft and workplace collaboration platform Slack before they floated in the US.

Scottish Mortgage currently owns stakes in around 40 unlisted businesses, including Chinese payments firm Ant, money transfer business TransferWise, Airbnb and Palantir, the secretive data analytics firm whose founders include Peter Thiel, one of the individuals behind PayPal.

The investment trust wants shareholders to back plans to lift the amount it can invest in private businesses from 25% to 30%. The trust also intends to scour China more closely for investment opportunities in the future.

DISCLAIMER: The author owns shares in Scottish Mortgage

‹ Previous2020-05-21Next ›