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Should Scottish Mortgage investors turn to religion?

31 March 2023

Trustnet asks whether a Baillie Gifford stablemate is a better option.

By Jonathan Jones,

Editor, Trustnet

I think it’s fair to say that those involved with behemoth investment trust Scottish Mortgage have had better months. From a public boardroom bust-up, to defending comparisons with disgraced former fund manager Neil Woodford, it has been an eventful few weeks for formerly the UK’s largest investment company.

But eschewing the swirling headlines and noise around the portfolio, the area where investors are likely to have more focus on is performance. And it is here where the trust has bigger issues.

After a stonking period post-Covid, the trust’s growth style has come under pressure from high interest rates and inflation, with investors eschewing the promise of future earnings from tech companies and the like for reasonable returns today from more defensive names.

In fact, as the below chart shows, the trust has dropped back significantly since – so much so, that a FTSE All World tracker would have made more than double the returns of the trust over three years.

This should come as little surprise, as its holdings in unlisted companies and strong investment style always had the potential to fall dramatically if the winds changed.

Total return of fund vs sector and benchmark


Source: FE Analytics

Its discount hit a near 20-year high this week and remains some 18.3% below its net asset value. So what can investors do? For the sake of transparency, I should note that I have never owned the investment trust, which may make me bitter for the returns I’ve missed out.

Others will have owned it for years and have been rewarded handsomely – even with the recent disastrous performance, it remains the top IT Global trust over 10 years.

One option is to hold the faith, and this may be a good strategy for those with a very long-term time horizon.

This week analysts at Winterflood said “in a long-term view both its listed and private portfolio continue to include some of the most exciting global growth stories”, which are probably the reason people bought it in the first place.

However, there is an intriguing option just over the hall from the Scottish Mortgage team, in the shape of Monks.

Managed by Spencer Adair and his team, the trust is similar but has less in unlisted holdings and has been quicker to adapt to the changing investment tide.

Winterflood analysts said: “Monks offers a balanced and diversified approach to global growth, with FAANG exposure complemented by cyclical and structural growth drivers. Therefore, it remains our favoured choice for this year, as outlined in our 2023 recommendations.”

While I have never put my money with Baillie Gifford – something that has been a chagrin for much of my investing career – if I were, I would strongly consider the Scottish Mortgage sister, at least until the issues at the bigger trust are sorted.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.