Scottish Mortgage retains top spot; shares up 13%

Baillie Gifford

Scottish Mortgage Investment Trust once again retained its title as the most-popular investment trust among Interactive Investor customers in May, despite the fund’s high-flying share price falling back to earth amid the brutal sell-off in tech stocks.

The £15 billion trust — the flagship fund of Edinburgh investment giant Baillie Gifford — has occupied the top spot since June 2019.

Scottish Mortgage’s share price almost tripled during 2020 and 2021 from around £5.80 to over £15, but fell to as low as £6.93 in May this year amid the sell-off.

However, the trust’s share price has risen about 13% to £7.96 over the past week, recovering some of its lost ground.

The global fund’s 10 biggest holdings at May 31 were Moderna, ASML, Illumina, Tesla, Tencent, Meituan, Nvidia, Amazon, Alibaba and Kering.

“There are two new entries in our top 10 table, with some investors on the lookout for bargains,” said Interactive Investor, which is owned by Abrdn.

“While there is plenty of caution in the air, some investors are viewing attack as the best form of defence by attempting to take advantage of stock market volatility.

“This is reflected in the presence of three out-of-form trusts in our top 10 table, which is based on the number of buys during the month of May among customers of Interactive Investor.

and have all seen their share prices come under pressure over the past six months, on the back of rising inflation and increases in interest rates.

“Both have had the effect of devaluing the lofty valuations and lowering the share prices of growth companies, including technology firms.

“While there may be further short-term pain, many investors buying today will be doing so looking at the longer-term picture in the hope that ‘buying low’ today will pay off on a three-to-five-year view.

“Scottish Mortgage, which has seen its share price almost halve since its record high last November, is trading on a discount of 5.8%.

“In an interview with interactive investor’s Funds Fan podcast last month, deputy fund manager Lawrence Burns urged investors to think long term.

“Burns also explained how Scottish Mortgage has responded to the growth sell-off, and also explained that the valuations for the unlisted companies held are ‘kept fresh’ when there are falls in public equity markets.

“In May, the global trust once again retained its title as the most-popular investment trust among Interactive Investor customers.

“It has consistently occupied the top spot since June 2019.”

For the year to March 31, 2022, Scottish Mortgage reported that its net asset value (NAV) fell 13.1%% while its share price declined 9.5% for the year, against a rise of 12.8% of its benchmark, the FTSE All-World Index.

For the year to March 31, the trust’s NAV underperformed its AIC global sector average by 10.8 percentage points, and its share price underperformed the AIC global sector average by 7 percentage points.

However, taken over five years, Scottish Mortgage’s net asset value surged 198.4% and its share price soared 187.5% — against the benchmark that returned 68.1%.

Over five years, Scottish Mortgage led the NAV and share price of the AIC global sector average by 74.6% and 67.4% respectively.

Some of Baillie Gifford’s other funds have not retained their popularity with Interactive Investors customers.

Kyle Caldwell, Collectives Specialist, Interactive Investor, said: “There’s a real divide at the moment – with some investors taking risk off the table and others attempting to ‘buy low.’

“This time last year, the prospect of a market rotation playing out following the rollout of the Covid-19 vaccines in November 2020 started to run out of steam, with investors switching back to high growth shares, including technology companies, which have been the place to be for much of the past decade.

“However, this time around the rally for value shares may have legs because the big driver that has increased demand for such companies has been the tightening of monetary policy by central bankers.

“This backdrop is more favourable for value shares, as their valuations are more reflective of their current earnings.

“In contrast, growth shares, particularly tech companies, carry expensive valuations that are based on expectations of high profits in the future.

“Such valuations are devalued by increases in interest rates and high inflation, which has prompted falls in share prices for such companies over the past six months or so.

“In response, the top 10 most-popular funds and investment trusts among customers of Interactive Investor have changed markedly over the past year.

“Last May seven of the 20 were growth funds managed by Baillie Gifford, but now only two remain: Scottish Mortgage and Baillie Gifford American.

“The duo have both suffered steep losses so far in 2022, so investors buying now will be hoping a turnaround in fortunes is on the cards.”

About the Author

Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.