After nearly four decades at Baillie Gifford and over two decades managing the Scottish Mortgage Investment Trust, James Anderson is set to retire on 30 April 2022.
When he was appointed in April 2000, Scottish Mortgage had a market cap of £1.7bn and was trading on a discount of 13 per cent to its net asset value (NAV).
In the 21 years since, it has delivered stellar performance for investors with a 1,478.93 per cent total return compared to 422.15 per cent from the average peer. Today the market cap is £16.8bn and it has traded on a premium its NAV for much of the last seven years.
Ewan Lovett-Turner, head of investment companies research at Numis Securities, said: “James Anderson was the architect of the investment approach used by Scottish Mortgage and the Long-Term Global Growth team, using a high-conviction, unconstrained approach seeking exceptional growth companies around the world.
“James has been part of instilling an ethos and approach to investing at Baillie Gifford that means the next generation of managers are also looking to make investments that can benefit from long-term, transformational growth.”
Given the length of Anderson’s tenure, Lovett-Turner said investors shouldn’t be surprised he is stepping down to retire and he doesn’t believe that his departure will have any meaningful impact to the approach or portfolio.
Tom Slater, the fund’s co-manager since 2015, is set to take over as lead manager after Anderson’s departure.
“Tom Slater is already an integral part of the management team and should be familiar to all investors and therefore there is no doubt that James leaves the trust in a safe pair of hands,” Lovett-Turner said.
Performance of Scottish Mortgage under Anderson
Source: FE Analytics
Looking back at Anderson’s tenure, the trust has seen some considerable changes over the years.
In 2004, almost half of the portfolio was in UK stocks such as Vodafone, RBS and GlaxoSmithKline. The concentrated approach that the trust is known for today was also less prevalent and the top-10 at the time accounted for less than 25 per cent of the portfolio.
It has also seen immense short-term volatility. During the global financial crisis of 2009, the trust’s NAV fell by around 60 per cent. During this time, emerging markets was a strong theme, where it had top-10 positions in Petrobras, Atlas Copco and China Mobile.
Amazon and Google were also in the top 10 during this time. Anderson was one of the few managers who backed Amazon very early on and eventually reaped the rewards.
Throughout the following decade, the fund’s positions in Amazon, Google and Apple were large drivers of returns, supported by its positions in Chinese tech giants Tencent, Baidu and Alibaba.
Indeed, Alibaba was Scottish Mortgage’s first private investment in 2012 and the beginning of a new mandate that now allows for 30 per cent of the portfolio to be invested into private companies.
“The managers were early to identify that companies were staying private for longer and that many of the most attractive growth opportunities were being found in private companies,” Lovett-Turner said.
“Currently 17 per cent of the portfolio is invested in unlisted companies, although over time many holdings have listed and over 30 per cent of the portfolio was unlisted at the time of initial investment.”
Scottish Mortgage now has 48 private holdings in the portfolio, which include names like Ant Group, ByteDance, TransferWise and SpaceX.
Simon Elliott, a research analyst at Winterflood Securities, said: “By investing in companies, both public and private, with exceptional growth prospects, they are attempting to capture asymmetric returns that they argue are responsible for driving stock market returns.
“There will be some who argue that this success reflects the benefits of its growth-orientated investment approach or suggest that Scottish Mortgage is simply a tech proxy fund. We would dispute both these points. Its managers are clearly focused on growth but its outperformance over other growth funds suggests that there is much more to its achievements.
“Similarly, while there are a number of businesses in the portfolio that have a strong technology element, the absence of a number of high-profile technology businesses such as Apple and Facebook is notable.”
Elliott added that Anderson’s use of gearing – or borrowing to enhance returns – has been one element of the trust’s success but it is its investment in private companies that has been “particularly important”.
The private element is one of the key differentiators of Scottish Mortgage from its competitors. Its ability to back later stage funding rounds of private companies will be a driver of long-term returns, in Elliott’s view.
Another key element of the outperformance of the trust is the willingness of the managers to run their winners and take long-term views, he said.
Looking forward, Numis’s Lovett-Turner will be watching to see if the managers at Scottish Mortgage can continue to identify meaningful long-term trends that will create the next significant growth opportunities.
“The portfolio has already started building exposure to the energy transition theme which is expected to be one of the future drivers of growth,” he said.
“It makes sense to bring another manager onto the team and Lawrence Burns appears a sensible choice.
“His style is consistent with Baillie Gifford’s approach of focusing on transformative growth companies and he currently manages International, ex US, mandates which is complementary to Tom, who is head of the US equity Team.”
Similarly, Winterflood’s Elliott said: “While there has undoubtedly been an evolution of the approach under James Anderson’s 21-year tenure, in our opinion, it is very clear what the management team is trying to do.
“By investing in companies, both public and private, with exceptional growth prospects, they are attempting to capture asymmetric returns that they argue are responsible for driving stock market returns.
“In identifying these companies, they have built a powerful network that increasingly relies on voices outside of the mainstream financial sector, including academics and specialists.”