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Trust Insider: how Scot Mortgage quietly became the UK's biggest trust
by James Carthew on Apr 01, 2014 at 00:01
The largest fund in the global growth sector and the largest investment company (if you exclude 3i, which I wouldn’t, but it does try to insist it isn't a fund) is now Scottish Mortgage (SM), in market capitalisation terms at least.
Quite when it surpassed Alliance Trust (SM’s market cap is £2.6 billion versus Alliance Trust’s £2.5 billion) I am not sure, but it would have been fairly recently.
Scottish Mortgage got to this elevated position by dint of very good performance – over the past 12 months its asset value is up 24.2% versus an average of 9.2% for its global growth peers. The trust was also able to eliminate its discount; it is now trading close to asset value and issuing shares.
Scottish Mortgage is a remarkable success story in the global growth sector. Its long-term performance is superior to any of its peers with the single exception of Law Debenture (which has a significant UK bias in its portfolio and has therefore benefited recently from sterling strength).
It has not been smooth sailing however. The fund was caught out quite badly when the credit crunch hit: the share price fell by more than 60% from its peak. It held its nerve however, and the recovery was almost as dramatic as the fall.
The fund, managed at Baillie Gifford by James Anderson and Tom Slater, aims to outperform the FTSE All-World Index (in sterling terms) over a five-year period. Anderson has been managing the fund since 2000. He was Baillie Gifford’s chief investment officer but stood down from that role in 2011 to concentrate on fund management.
Last year he surprised many by taking a sabbatical over the second half of 2013. Unlike many managers who go off on sabbatical and decide not to return to fund management, however, Anderson was back at his desk in January.
For such a big fund, SM’s portfolio is quite punchy. At the end of February 2014, almost half the fund (47.9%) was invested in just 10 stocks. Below this though there are a further 60 holdings.
Holdings get to be large in the portfolio by outperforming. Anderson lets his winners run rather than trimming them but large holdings can sometimes catch you out.
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