The trust, which sits in the IT Global sector, has had a torrid month along with many other funds in its peer group following a downturn in global markets as the dollar strengthens, volatility increases and investors start to react to geo-political issues and increasing concern about the strength of the eurozone’s recovery.
Performance of indices over 1 month
Source: FE Analytics
Cade, head of research at Numis, says the trust is looking attractive having recently moved to a discount.
“The trust is a very growth-oriented and concentrated portfolio which is always going to be very volatile compared to other global funds,” he said.
“It is certainly a better time to buy when the trust falls and it currently represents a buying opportunity. Your risk in these situations is often that the discount will widen further but I don’t think that in this case it is significant in the near term.”
The trust has traded on a discount for most of the past five years, but this steadily narrowed and has moved to a premium of up to 2 per cent in the past year.
Recently it has moved to a discount of 0.8 per cent.
Performance of trust’s discount/premium over 5yrs
Source: FE Analytics
Cade says the trust is unlikely to widen further due to a commitment from its board to not allow it to move to a large discount.
“The board have been issuing shares recently and made a commitment to buy back shares and have done so recently to keep the trust trading around its NAV. In the short term therefore you would think that any discount is likely to be supported by those buy-backs plus the company’s track record.”“The board believes that the fund should be trading as close to its NAV as possible. In the near term they are likely to do that. The only issue is if there were to be a major market correction and that would probably be difficult for them to control the discount.”
However, he says in the absence of a major market correction the discount is likely to remain tight for a while.
The trust is heavily focused on high growth companies, mostly in the US and China, with a large sector bet on technology.
Its largest holdings include the likes of Baidu, Amazon, Facebook, Google and Tencent but it also holds a number of technology companies that aim to ‘disrupt’ industries such as Tesla Motors, which sells electric cars.
“It is very differentiated in what it is doing and for investors willing to take a long-term view on that approach, it is at an attractive time to buy it. However, it will take some knocks along the way and there may be periods where the net asset value or price goes up sharply,” Cade said.
“The main themes the trust plays – innovation, disruptive technology and the emergence of China – mean you are exposed to some degree to the Chinese economy but you are really playing the belief that its stocks will continue to grow and exceed their valuations and it is therefore less economically focused than some of the global trusts.”
Scottish Mortgage also has a stake in the Chinese e-commerce giant Alibaba, whose initial public offering was the largest in history.
Having bought in at a pre-IPO stage of fundraising in 2012 the trust took a windfall when the shares rocketed on the first day of trading in September.
However, the trust has fallen hard over the past month losing 4.61 per cent, the ninth worst performance in the IT Global sector over this period.
By comparison the average fund in the sector lost 2.4 per cent while its benchmark – the FTSE All World index - lost 5.06 per cent.
Performance of trust, sector and index over 1 month
Source: FE Analytics
Managed by star manager James Anderson (pictured above) since April 2000, the fund has returned 199.34 per cent compared to a sector average of 136.32 per cent.
Performance of trust and sector since Apr 2000
Source: FE Analytics
Anderson was joined by Tom Slater as deputy manager in September 2009. He has also solely run the trust during Anderson’s six-month sabbatical last year.
Cade says it makes sense to buy the dips in trusts with this strategy but warns that while the trust has had a recent stumble, it is still significantly up and ahead of global markets this year.
Even with its recent fall the trust has made 8.13 per cent since the start of the year, almost double the gain in the FTSE All World index and almost four times the IT Global sector average.
Performance of trust, sector and index in 2014
Source: FE Analytics
The trust is the largest in the sector but also has one of the lowest charges. It has an ongoing charges figure [OCF] of 0.5 per cent and has 14 per cent gearing.
