Scottish Mortgage faces future without talisman James Anderson
The resignation of James Anderson as co-manager of Baillie Gifford-run Scottish Mortgage Investment Trust (SMT) is not a sign that growth shares have passed their peak.
Some cynics believe news of his forthcoming departure calls the top for the type of stocks that have made Scottish Mortgage so successful over the past decade, namely ones that offer significant potential for long-term growth, and that he is getting out while the going is good.
More likely, Anderson has simply reached the point in his life where he can ease off a bit. He’s been with Baillie Gifford for 38 years and Winterflood analyst Simon Elliott says most partners at the company seem ‘happy to wander off into the sunset when they hit the age of 60 or so’. He will leave in April 2022.
The investment trust has delivered a 1,318% net asset value return in the near-21 years that Anderson has been manager, says Elliott. However, the trust’s share price has fallen by nearly 20% since mid-February 2021 as investors have switched attention to value stocks which offer the prospect for growth today.
Scottish Mortgage has tended to favour more highly-rated stocks where growth could be delivered long into the future. Rising global interest rates, as expected in the coming years, decrease the theoretical value of longer-term cash flows for stocks in sectors such as technology which are prevalent in Scottish Mortgage’s portfolio.
Even though its investment style may be out of favour today, it has a proven investment process which could still yield strong returns over the long term.
Co-manager Tom Slater is stepping up to become lead manager when Anderson retires and Baillie Gifford partner Lawrence Burns will become deputy portfolio manager with immediate effect. Burns is already well versed in what Scottish Mortgage seeks in an investment and Slater has been making big portfolio decisions since he became co-manager in 2015, which should provide comfort to shareholders.
Scottish Mortgage is unfairly seen as just a play on Amazon and Tesla as they’ve been big holdings in recent years. The trust’s success is much wider reaching with many other stocks playing a key role in generating value. The pipeline of future stars also looks promising thanks to Scottish Mortgage’s ability to invest in private companies.
The investment trust has a stake in payments group Stripe which has just been valued at a record $95 billion after raising $600 million from investors including Baillie Gifford, almost tripling its valuation since a fundraise in April 2020.
Another notable portfolio holding is gaming company Epic Games, which owns the popular Fortnite online game. Epic could be worth around $28 billion based on the latest round of funding. That represents a 62% uplift on its last funding round seven months ago.