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Scottish Mortgage - investing in trends that could shape our future

Scottish Mortgage recently released another impressive set of results for the year to 31 March 2019. The managers remain focused on companies set to disrupt the competition through their innovative use of technology.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

  • Technology remains a key theme throughout the trust
  • Investments in unquoted companies increased to 17%
  • Share price total return of 16.5%
  • NAV total return of 14.6% compared with 10.7% for the benchmark

We think James Anderson and Tom Slater are different from most modern-day investors. In a world where more people focus on short-term investment performance, it's refreshing to hear the managers continue to look at longer-term trends and how they might shape a company's success.

We also admire their focus on driving down the cost of investing – the trust's ongoing charge is currently a competitive 0.37%. HL's annual charge also applies if it's held in a Stocks and Shares ISA or SIPP.

The trust released another impressive set of results for the year to 31 March 2019. Longer-term performance is also strong. But remember the trust, like all investments, will go through tougher times too.

We think Scottish Mortgage is a good choice for low-cost, long-term exposure to global markets. It could be used to diversify a broader global investment portfolio.

The managers can invest in emerging markets, and use derivatives and gearing (borrowing to invest), which all add risk. Potential investors should make sure they're comfortable with the risks. The details can be found in the latest annual reports & accounts, along with the charging structure.

Technology is the future

Technology remains a key part of Scottish Mortgage. But not only in the traditional sense of the word.

Some of the world's best-known and most influential companies, such as Amazon, Netflix and Alibaba, make up a big part of the trust. But the changing needs of consumers, the way we interact with each other, and the increasing amount of data available means more and more companies are having to adapt, innovate and use technology differently to become the best at what they do.

In the food industry, companies like Delivery Hero, Grubhub and Meituan all use technology to connect with their customers. So do Airbnb and Lyft, which have helped to transform the accommodation and transportation markets.

And it's not only younger companies that use tech to their advantage. Larger, well-established companies are doing it too. Take luxury goods company Kering. Its Gucci subsidiary has doubled sales in the past two years through the way it uses technology to build connections with its customers.

Few companies get it right though. James Anderson brought this point home when we spoke to him recently. He quoted some research that suggests over the period from 1925 to 2015, just 86 stocks (0.33% of the total number) accounted for over half the wealth creation on the US stock market.

So Anderson and Slater spend their days looking for that select group of unique business they think will survive well into the future and drive stock market returns. And, while the technology sector forms a big part of the trust now, the managers think healthcare and transportation could be the future winners as new data and software emerges.

Compelling opportunities

Anderson and Slater have become more interested in unquoted companies over the years. These are generally younger companies that aren't listed on a stock market. Instead, if they need money to expand and develop, they often approach private investors.

The managers think there are compelling opportunities in the unquoted space. Over the year they sold investments in larger companies, such as chemical producer BASF and Swedish bank Svenska Handelsbanken, and increased unquoted companies from 15 to 17% of the trust.

SpaceX, which makes spacecraft and rockets and was founded by Tesla-owner Elon Musk, was added to the trust. So were Tempus and Recursion. These companies collect vast sets of data, including biological images and clinical and molecular data. They hope to revolutionise how this type of data's used, in order to create new medicines, treatments and therapies.

Anderson and Slater think the pace of scientific and technological change could help develop the great businesses of tomorrow. Some trends could take decades to evolve though and at times patience is needed. While the trust's performance has been spectacular in recent years, this won't always be the case. Investors should be prepared to take a long-term outlook, just as the managers do.

Annual percentage growth
May 14 -
May 15
May 15 -
May 16
May 16 -
May 17
May 17 -
May 18
May 18 -
May 19
Scottish Mortgage Investment Trust 33.4% -2.8% 52.9% 29.3% -0.7%
FTSE All World 16.3% -0.2% 33.3% 9.0% 4.6%

Past performance is not a guide to the future. Source: Lipper IM to 31/05/2019

Find out more about the fund, including charges and how to invest

Key investor information

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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