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Scottish Mortgage makes 419% return on private companies

Scottish Mortgage Investment Trust has disclosed performance figures for its unquoted investments
November 8, 2018

Scottish Mortgage Investment Trust's (SMT) investments in unquoted companies have boosted its return over the six months to 30 September. It is the first time the trust has given details on how its unquoted companies have performed and its managers, James Anderson and Tom Slater of Baillie Gifford, say they are doing this because they now have a “sensible data set” to draw from.

The trust's unquoted investments made a return of 419 per cent between June 2010, when the trust bought its first unlisted company, and 30 September 2018. This compares to a net asset value (NAV) total return of 344 per cent for all of Scottish Mortgage's investments over the same period, and a total return of 163 per cent for the trust’s benchmark, FTSE All-World Index.

Private companies made an absolute contribution to the trust’s portfolio of 17 per cent over this period, or 30 per cent if returns from holdings that have subsequently listed are included.

An example of a holding that the trust bought as an unlisted company and has done well is Chinese tech firm Alibaba (US:BABA). Scottish Mortgage bought it in 2012 and Alibaba listed in September 2014, at which point the return made by the trust on it was over 270 per cent. Scottish Mortgage retained its holding in Alibaba and by 30 September 2018 had made a return on it of more than 1,000 per cent.

However, Scottish Mortgage's managers stressed that the performance of the unlisted portfolio should be judged over the long term, as it is still relatively early days. 

“If anything, the results from investing in [private] companies so far for Scottish Mortgage have been unduly good,” they added. “Just as with the publicly listed holdings, some will not work and a number may fail outright. Only a handful will really drive the returns.”

For example, returns on two recently listed German companies, HelloFresh (HFGX:GER), which delivers meal kits, and online furniture retailer Home24 (H24X:GER) have so far been disappointing. But the trust has only disposed of unquoted holdings as the result of takeovers. These include travel fare aggregator Skyscanner, which was taken over by Chinese travel service company Ctrip.com (US:CTRP) in 2016. Skyscanner generated returns of 40 per cent over the year that Scottish Mortgage held it.

As at the end of September, Scottish Mortgage had 80 holdings, 37 of which were unlisted and accounted for 15 per cent of its assets. The trust can have up to 25 per cent of its assets in unlisted companies.

Over the half-year to 30 September, Scottish Mortgage Investment Trust’s share price increased 22.4 per cent and its NAV rose 19 per cent, ahead of FTSE All-World Index's 11.3 per cent return. This is despite the trust's share price being negatively affected by last month’s sell-off in high-growth tech stocks, which represent a large part of its assets. Its share price fell 23 per cent from a high of 568p on 3 September to an intra-day low of 435p on 11 October, although as of 7 November its share price had recovered to 479.8p, according to Winterflood Securities.

A continued market rotation away from growth stocks to value stocks could mean increased volatility for the trust.

“Scottish Mortgage has delivered some excellent returns over the last 10 years, however at times this has come with significant share price volatility,” said Iain Scouller, managing director of investment funds research at broker Stifel. “Given how volatile the share price can be [it is] important that investors have their 'eyes wide open' when investing in Scottish Mortgage.”

Jason Hollands, managing director at Tilney Group, added: “We like Scottish Mortgage as a long-term investment and it provides investors with an unconstrained approach to global equity investing, with a clear style bias towards growth stocks. But the [trust’s] style has been very much in favour in recent years, as growth stocks have outperformed value for the last eight years, and this is unlikely to remain the case indefinitely.”

 

Scottish Mortgage Investment Trust (SMT)
PRICE479.8pNET GEARING8%
AIC SECTOR GlobalNAV474.3p
FUND TYPEInvestment trustPREMIUM TO NAV1.2%
MARKET CAP£6.98bnYIELD0.6%
No OF HOLDINGS80*ONGOING CHARGE0.37%
SET UP DATE01/01/1909MORE DETAILSwww.bailliegifford.com
MANAGER START DATEJames Anderson: 01/04/2000, Tom Slater: 01/08/2009  
Source: Winterflood Securities as at 07/11/18, *Baillie Gifford as at 30/09/18

 

Performance
Fund/benchmark1 year share price  return (%)3 year cumulative share price return (%)5 year cumulative share price return  (%)
Scottish Mortgage Investment Trust682148
Global investment trusts average25287
FTSE World Index25074
Source: Winterflood as at 7 November 2018 

 

Top ten holdings as at 30/09/18 (%)  
Amazon10.5
Illumina8.7
Tencent5.7
Alibaba 5.7
Tesla 4.6
Baidu3.5
Kering3.3
Netflix3.2
Ferrari 3
ASML 2.8

Source: Baillie Gifford

 

Geographic break down as at 30/09/18 (%) 

North America51.5
UK2.7
Eurozone16.9
Developed Europe (ex Euro)4.6
China22.3
India0.9
Net liquid assets0.6
Other0.5
Source: Baillie Gifford