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Scottish Mortgage Investment Trust – access to exciting companies

Scottish Mortgage Investment Trust gives investors access to global companies, but it’s not for the faint-hearted.

Lee Dooley Lee Dooley
25 March 2015

The focus of the investment trust is neither Scotland nor mortgages. Scottish Mortgage has a history dating back to 1909, when it was born as the Straits Mortgage and Trust Company. Its original remit was to lend money to rubber planters in South East Asia who were seeking to capitalise on demand for tyres, which was driven by the rising popularity of the motorcar. It is one of the oldest investment trusts and also one of the largest, with total assets under management of around £3 billion. The longstanding manager of the trust is Edinburgh-based Baillie Gifford, with management duties on the portfolio falling to James Anderson and Tom Slater.

Our research analyst Alena Kosava comments: “The trust follows a truly global style of investing, comparing companies to their peers in other countries rather than managing money in regional silos. This approach 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 and Slater look for companies capable of strong growth over the long term, and the target holding period is five years. Though the process is primarily bottom-up, they also attempt 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 its current holdings, which include Amazon, Google and Tesla. “Though some of these companies can be viewed as similar, 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 Tesla is applying new technology to a slow-moving industry with its electric cars,” says Alena.

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, a social networking and gaming giant in the country. The trust holds Alibaba too, which 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 floated last year in one of the biggest IPOs on record.

The managers’ punchy approach to investing means the trust is not for the faint-hearted; however, we highlight it as an option for those investors with a high tolerance for risk who are prepared to hold their nerve.

 

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The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing. Investment trusts are similar to funds in that they provide a means of pooling your money but they are publicly listed companies whose shares are traded on the London Stock Exchange. The price of their shares will fluctuate according to investor demand and changes in the value of their underlying assets. This is not advice to invest.