Key points
- The Scottish Mortgage Investment Trust has outperformed the market over the past decade
- The trust has been able to ride the growth of the tech sector
- It has some unique advantages to help find new ideas
Scottish Mortgage Investment Trust performance
The Scottish Mortgage Investment Trust (LSE: SMT) has been one of the best performing shares to own on the London market over the past decade.
If I had invested £1,000 in the company back at the beginning of 2012, I would be sitting on a lump sum of around £9,700 today. A similar investment in the FTSE 100 would be worth around £2,000. Both of these figures include reinvested dividends.
The trust has outperformed, thanks to its exposure to high-growth internet stocks. In many ways, the company was in the right place at the right time. Its exposure to corporations like Tesla and Amazon coincided with one of the most incredible rallies in tech stocks ever seen. As money flooded into these enterprises, the value of Scottish Mortgage’s positions surged.
But it has been more than just luck driving the investment company’s success. The portfolio is managed by the team at Baillie Gifford, who are laser-focused on finding the next big opportunity.
While there may be some hiccups along the way, these investment managers are prepared to focus on long-term growth and overlook short-term market trends.
This is a rare quality among UK fund managers. Many managers concentrate on short-term performance at the expense of long-term growth, which means they can miss the best opportunities.
Indeed, the Scottish Mortgage Investment Trust has achieved tremendous success by finding growth opportunities before the rest of the market discovers the potential. It takes a lot of research and conviction to get to this stage.
Private market investing
To complement its public market strategy, the firm also owns a portfolio of private businesses. It is uniquely positioned to capitalise on opportunities in the private market because the company does not have to worry about investor withdrawals. It is what is known as a closed-ended investment trust.
The shares are traded freely on the London Stock Exchange, but this does not influence the underlying capital base. On the other hand, open-ended funds have to buy and sell investments in line with investor deposits and withdrawals. This makes it challenging for them to own private investments, which can be challenging to buy and sell.
The company has also developed a network to help it find these new opportunities in the private market. This is another competitive edge the group has over other growth investment trusts.
Unfortunately, this does not guarantee success. Investing in high-growth companies at an early stage can be incredibly risky. If the Scottish Mortgage Investment Trust makes a few bad bets, it could cost investors millions of pounds. The trust also charges a management fee of 0.3% per annum. This additional cost could erode shareholder returns over the long run.
Despite these risks and the additional cost, I would be happy to add the stock to my portfolio as a growth investment. With its unique structure and track record of finding growth opportunities, I believe the trust has excellent potential.