Scottish Mortgage Investment Trust - SMT (Buy)
As requested by @piyushsg, some analysis and coverage on a fund. I decided to pick one of my personal favourite funds which I’m still invested in, and constantly topping up my position.
Scottish Mortgage is a fund, but not as you know it. This isn’t a mutual fund, it isn’t an ETF (exchange-traded fund,) it’s a completely different beast. Investment trusts work like equities (normal stocks like Apple,) are ran by a fund manager, but you are not investing in the pool of capital you are investing into the trust itself.
This has a few nice advantages, firstly no need to worry about liquidity because the share price is based on the trust, rather than what is held inside the fund. When you sell the fund manager doesn’t need to liquidate assets to meet your order. The downside is the price you pay is set on market demand, this is where you hear about people paying a premium for a trust (the cost of buying is more than the value of the assets held.)
Investment trusts do carry some additional risks, as they have a lot more freedom than your run of the mill fund. For instance, they are free to use gearing (leverage), and they can hold extremely illiquid investments as well. It’s important to understand how the trust is run before you invest as they are significantly more varied than an index tracker.
But what is Scottish Mortgage? And why am I such a huge fan of this trust?
Firstly, it has absolutely nothing to do with Scotland, nothing to do with mortgages, it invests in global equities, it’s all about high growth, and its owned by Baillie Gifford. Secondly, it’s one of the old running funds out there. Over 110 years old. Thirdly they are one of the biggest investment trusts in the UK, controlling over £8.2 billion.
All of that aside, I haven’t explained why this is my favourite investment trust. I am a simple man who loves returns.
From Scottish Mortgage Investor Information Website
In the past year Scottish Mortgage has returned 12.7% and in the past three years 59.7%.
The other two lines represent the “fair value” which is important to know if you are paying a premium or not, and the benchmark the FTSE All-World. Both graphs have been normalised to start at 100 to make it easier to see the change.
The point here being, this fund knows how to make money.
So what do they invest in? What does a global growth fund invest in? What is the secret sauce we mere mortals don’t know?
From Genuine Impact
It’s all the high growth companies you adore. The classics like Tesla, Amazon, Alibaba, Tencent, ASML, Netflix, and even Ferrari (not so sure about that last one.)
However, if you look at the complete list, while it is out of date you can see everything they invest in.
They also have a very small selection of fixed interest, but a pretty broad range of unlisted equities too. Airbnb, Stripe, and TransferWise (to the pick on the interesting ones I know most about.)
This mix of unlisted and publically traded gives them a lot of room to find those explosive growth companies and just keep holding onto them.
High returns, focus on growth, beating its benchmark, what more do you need to know? Well, did you know it pays a tasty dividend as well?
Great returns, reliable dividends (mix of fixed income helps them maintain their payouts), and did you know it’s also super low cost? With an ongoing charge of only 0.37%, it’s cheaper than some index funds you can invest in!
#27 out of almost 8,000 funds for return, high-risk strategy to maximise the returns and very competitive fees for an actively managed fund!
I believe Scottish Mortgage should be a cornerstone in any portfolio. If you are looking for global equity exposure, with an aim to outperform the market, this should be the first fund you consider.
You do need to be aware of the added risks, while they have performed extremely well in the past, this is a high-risk portfolio, which uses a little gearing, invests in unlisted equities where the valuation is rarely updated, has funded debt for fixed income payouts, and is focused on high growth bets.
I hope you consider and give Scottish Mortgage Investment Trust a look, this is one of my constant buys where I regularly invest in it.