The global giant that invests in the best growth companies around the world

2 mins. to read
The global giant that invests in the best growth companies around the world

The largest investment trust in the global growth sector is Scottish Mortgage, yet the fact that it has total assets of more than £3.7bn hasn’t stopped it from delivering a market beating return. Over the last decade the share price is up almost 310%, comfortably ahead of the 118% produced by the fund’s FTSE All-Word benchmark.

Scottish Mortgage has an unusual and refreshingly straightforward mandate that seeks to generate long-term returns by investing in the best growth companies for the next 5 to 10 years and beyond.

The fund is managed by James Anderson and Tom Slater of Baillie Gifford, who look for stocks that can deliver asymmetric returns. This means that they concentrate on companies that can generate massive gains of an order of magnitude greater than the 100% maximum possible loss.

It is a strategy that has really paid off. Over the 10 years to the end of November 2014 the 5 most successful holdings each generated returns of between 300% and 500%, while the worst 5 lost between 50% and 90% of their value. There are very few companies with this sort of upside potential, which is why there are just 55 stocks in the portfolio with the top 10 accounting for half of the assets.

About a third of the fund is currently invested in tech companies with the largest positions including Amazon, Baidu, Alibaba, Facebook and Google. This is where the managers are finding the most significant opportunities and reflects the fact that technology is opening up new ways of doing things such as the use of e-commerce on the internet.

The geographic allocation is driven by the stock selection with 38% in the United States, 22% in China and a further similar weighting in the Eurozone. These are long-term positions with the average holding period being around 8 years to give the companies the opportunity to meet their full potential.

Anderson and Slater try to identify businesses that can increase their earnings much faster than the rest of the market over a protracted period of time. They do this by focusing on the scale of the opportunity and the calibre of the people in charge of the companies.

It is a high risk strategy that can deliver massive returns whenever the stock market rises with gains in excess of 30% in 2005, 2007, 2009, 2010, 2012 and 2013. The downside is that there can also be heavy losses with the fund losing 45% in 2008 when the benchmark was only down 18%. This means that it is best suited to patient investors with a long-term outlook who will not be panicked into selling early by extreme volatility.

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