Scottish Mortgage updates its outlook

One of the largest and most popular investment trusts in the country is the £12bn Scottish Mortgage, which has recently released its interim accounts for the six months to the end of September. Baillie Gifford’s flagship fund is a real bellwether for growth investors and the financial statements can provide a useful insight into how the managers are thinking.

Objective and approach

Scottish Mortgage aims to identify, own and support the world’s most exceptional growth companies. The portfolio includes both listed and unlisted businesses, with the goal being to provide long-term funding for the entrepreneurs who are shaping the future of the global economy.

Managers Tom Slater and Lawrence Burns take a thematic approach to stock selection with one of the key areas being Artificial Intelligence (AI), which they think will have a profound long-term impact on the way firms operate. They are very hands on, with the position in the leading semiconductor designer NVIDIA being reduced in favour of Facebook owner Meta, a major beneficiary of the technology.¹

The underlying portfolio

At the end of October the portfolio consisted of 45 publicly listed stocks (76.5% of the assets) and a further 49 private companies. It is a high conviction approach as the 30 largest holdings make up 80% of the fund, with the ten biggest positions including the likes of MercadoLibre, Amazon, Space Exploration Technologies and NVIDIA.

Scottish Mortgage top 10 holdings

1. MercadoLibre
2. Amazon
3. Space Exploration Technologies
4. NVIDIA
5. Meituan
6. Tesla
7. Meta Platforms
8. Ferrari
9. PDD Holdings
10. ASML

Source: Scottish Mortgage Investment Trust factsheet, 31 October 2024.

The main geographic allocation is the US at 55.2%, followed by Asia 18.9% and Europe 18.2%. This is very different to the FTSE All-World benchmark and reflects the high active share of 88%, which demonstrates the mangers’ determination to try to outperform the index. Net gearing is a punchy 13%.²

Northvolt goes flat

Scottish Mortgage was an early backer of the battery maker Northvolt and in March last year its stake in the unlisted stock was valued at £440.5m, making it the seventh-largest holding. At one stage there were rumours of the company going public, but things have taken a dramatic turn for the worse with the business recently filing for bankruptcy.

At the end of October the privately listed stocks accounted for 23.5% of the assets with the managers optimistic about the outlook. They recently said that they are confident of the prospects for these high-quality growth companies, many of which are self-sustaining and they remain patient, supportive investors.³

What are the managers’ latest views?

Writing in the accounts, Tom Slater said that the world is evolving rapidly and the founders and entrepreneurs leading their portfolio companies are well-positioned to seize the opportunities that this creates.

“Over the long term, earnings growth drives stock prices, and our portfolio consists of holdings growing much faster than the broader market. We believe that potential is not fully reflected in stock prices today, and we are excited about the returns they can deliver for our shareholders.”⁴

Performance

It has been a volatile few years for the fund, but the long-term performance is still excellent. Over the decade to the end of October Scottish Mortgage made a share price total return of 280.4%, which was well ahead of the 210.9% achieved by its benchmark. Please remember past performance is not a reliable indicator of future returns.⁵

The increase in NAV was even more impressive with a 10-year gain of 341.3%. However, investors are yet to feel the full benefit, as the shares have slipped to a discount that the Board has been aggressively trying to address.⁶

Important information -  investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Shares in the Scottish Mortgage Investment Trust are listed on the London Stock Exchange and their price is affected by supply and demand. The trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.