INVESTMENT EXTRA: Scottish Mortgage delivers out of this world return

Back in 1909, Louis Bleriot piloted the first flight across the Channel, making history – and winning a £1,000 prize from this newspaper. That same year, the Straits Mortgage and Trust was set up to finance the Malaysian rubber industry.

Today that investment trust, now known as Scottish Mortgage, is the world’s biggest and one of the most successful.

Its remarkable performance amid the pandemic share turbulence has set people asking: How did this retro-sounding trust, part of the Baillie Gifford group, become an £11.5billion FTSE 100 member and the way to take a wager on every type of 21st-century technology?

Since March, the trust’s shares have soared from 470p to 770p, propelled by the conviction that the Covid-19 pandemic will accelerate the dominance of Facebook, Google’s owner Alphabet, and Amazon – which is the second biggest holding in the portfolio. 

The largest of the trust’s holdings is a stake in Tesla, Elon Musk’s electric car company. Musk’s other business – the unquoted Space Exploration Technologies (SpaceX) in which Scottish Mortgage also owns shares – has just successfully launched a manned space flight.

On the basis that we would all like to get around faster closer to home, Scottish Mortgage is also backing Joby Aviation and Lilium, which are developing flying cars. 

China is another major focus for the trust which has stakes in the tech giants Alibaba and Tencent – which are stock-market listed, as well as unquoted conglomerates like Ant Financial, and Byte Dance, owner of Tik Tok, the video app for lockdown dance routine fans.

James Anderson and Tom Slater, Scottish Mortgage’s managers, believe the shift to digital in almost everything, from transport to textile manufacturing, is inevitable. But their stock selection is based on the qualities of the humans that lead these businesses.

Slater explains: ‘We like to provide long-term support to companies with ambition and adaptability, led by founders whose wealth is invested in the business, rather than those managed by executives whose remuneration is based on short-term objectives.’

Anderson and Slater insist that companies have ‘a degree of resourcefulness and resilience’. As a consequence, the duo declined to react to Covid-19 consternation.

Slater was surprised to see other managers, without medical training, taking decisions based on what they perceived as the pandemic’s likely course, when even epidemiologists were at odds.

It is ‘total nonsense’, he argues, to contend that making money depends on taking the maximum risk. 

The philosophy is that only a few companies with talent and leadership will ever rise to the top, and that those which take account of all stakeholders’ interests – employees, customers and society at large as well as investors – have greater potential to succeed.

Complacent executives would get short shrift from Anderson and Slater, and they are themselves careful not to get comfortable.

At next Thursday’s annual meeting they will seek consent to raise the limit on the trust’s unlisted holdings, currently at 20 per cent, from 25 per cent to 30 per cent. 

That might ring alarm bells, given the role unlisted holdings – which can be harder to value and to trade – played in the downfall of Neil Woodford.

Scottish Mortgage says its unlisted holdings are subject to regular independent valuation and the winners among them should make a successful leap onto the stock market. 

This gives private individuals – the bulk of the trust’s investors – a chance to share in rewards usually reserved for private equity bosses. 

The management charge is a modest 0.36 per cent, one factor which encouraged me to become a long-term holder in the fund.

Darius McDermott of Fund Calibre, however, says that Anderson and Slater are the people to follow if you want to bet on disruption.

Anyone who in lockdown has come to realise that the future surely belongs to Amazon and the rest, but is less sure about flying cars, can get exposure to US tech through funds like Natixis Loomis Sayles US Equity Leaders and Morgan Stanley US Growth.

But flying cars are in the spirit of that earlier innovative age, when the trust was founded more than a century ago.