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Scottish Mortgage Investment Trust: high risk, high return


long term strategist

However, Slater argues that while “Chinese companies have suffered from President Xi’s regulatory crackdown,” most of his investments have still generated “exceptional levels of growth over two years.”

And the trust has always warned of its “aim to outperform the FTSE All-World Index (in sterling terms) over a rolling five-year period”, and that “this is only on periods of five years or more that sustainable competitive advantages and managerial excellence within companies truly translate into returns.

Based on this metric alone, Scottish Mortgage still delivers on its mandate, with an astonishing ability to selectively invest early in disruptive winners.

This high-risk, high-reward approach has seen trust benefit early on at companies such as NIO, Tesla, Amazon and Spotify. In a recent example, he has for years owned shares of private Tik Tok owner Bytedance, the company that has been cited by Meta’s Facebook and Alphabet’s YouTube as a key market competitor.

Of course, accessible investing in private companies has always been a major draw for UK retail investors, who own around 75% of Scottish Mortgage shares.

But Jefferies analyst Matthew Hose warned they could now account for 30.4% of his holdings, above the 30% policy limit. And that could limit the trust’s ability to redeem shares in the future.

Additionally, Chelsea Financial Services analyst James Yardley says “rising inflation and rising interest rates are creating an unfavorable environment for the type of high-growth companies backed by the trust.” As a result, Scottish Mortgage has been usurped by 3i Group, the other investment fund in the FTSE 100, as the largest in the UK.

But deputy Lawrence Burns encouraged that “the pressure to sacrifice long-term gains for immediate respite is growing day by day”. If ever our own time horizon were to shorten significantly, we would destroy our greatest advantage…we have no intention of doing so.

And Numis analysts led by Ewan Lovett-Turner remain optimistic, saying the trust has always maintained that “the approach could be volatile and returns will differ significantly from market returns.” Investors may have been aware of this, but that will not prevent the recent period from suffering.

They enthused saying that “buying a manager or approach that has a good long-term track record at a time when it’s out of fashion is normally a profitable approach.”

It should be noted that there has been an average share price increase of around 40% in the year following each substantial decline in Scottish Mortgage’s share price.

And although market timing is notoriously tricky, averaging the cost in pounds in old fashioned Scottish mortgage lending could reap significant rewards.

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