Investment trust insider on Scottish Mortgage – James Carthew: Scottish Mortgage seeks 1.3% of the very best global companies
Scottish Mortgage (SMT) made a presentation to analysts last week. It was extremely well attended, unsurprising perhaps given that, with an £8.6bn market value, the trust has become the flagship for the investment companies sector. The discussion touched on some of the biggest questions facing investors and I think some of these are worth exploring here.
Identifying the winners of tomorrow is hard and SMT’s managers James Anderson and Tom Slater are trying to find these companies at an early stage in their development. One approach that Baillie Gifford has adopted is to seek inspiration from academia, being prepared to fund some studies.
In the past, the managers have cited a research paper by Hendrik Bessembinder and others which concluded that over 90 years, just 4% of US stocks generated the entire gain in the US stock market. In July 2019, the research was expanded to cover the returns of almost 62,000 global stocks between 1900 and 2018 and concluded that just 1.3% of these stocks created all the gains in global markets.
The inference is that picking these stocks is key to long-term success. Baillie Gifford’s research effort is geared towards identifying these companies. You could also draw parallels between the Baillie Gifford approach and that of Nick Train, although he puts more faith in the lasting power of brands rather than technological edge.
The study is interesting in that it suggests that relatively few companies create lasting value for investors but it assumes a buy-and-hold strategy. I think it is important to point out that there are other ways to run money and this is not the only path to riches.
In a year where the implosion of Woodford and the M&G Property fund suspension generated a lot of negative headlines towards illiquid/unquoted investments, SMT lifted its exposure to private companies… read more here