Scottish Mortgage: US activist Elliott buys stake

Baillie Gifford HQ, Edinburgh

US hedge fund and activist investor Elliott Investment Management has acquired a 5.037% exposure stake in Baillie Gifford’s £14 billion flagship fund, the Scottish Mortgage Investment Trust.

Measured by stock market value, Scottish Mortgage is one of the biggest plc firms run from Scotland, with a market capitalisation of roughly £12 billion.

Elliott revealed it has bought 0.468% of Scottish Mortgage’s shares and a further 4.569% in equity swaps.

Scottish Mortgage stock rose as much as 2% to around £8.80.

Scottish Mortgage shares soared during the pandemic in 2020 and 2021 to over £15 — but then gave back much of their gains in 2022.

Nonetheless, the fund’s shares are up about 34% for the past 12 months and up around 78% for the past five years.

Scottish Mortgage’s biggest recent investments in public and private firms have included big stakes in ASML, Nvidia, Amazon, MercadoLibre, Moderna, SpaceX, Tesla, Ferrari, Spotify, Northvolt, PDD Holdings, Wise, Bytedance, Kering, Tencent and Stripe.

On March 15, Scottish Mortgage announced it would make at least £1 billion available to buy back its shares over the next two years.

The fund said it intends to “take more concerted action to address the discount to net asset value (NAV) at which the company’s shares continue to trade.”

Over the last two years Scottish Mortgage has bought back £353 million of its shares. During this time, the board and managers had been actively considering increasing the level of buybacks to address the perceived problem of the fund’s “discount to NAV.”

On March 15, Scottish Mortgage said that over the last 10 years, its NAV delivered a total return of 359% and a share price increase of 291%.

“We have been in contact, as we often are with shareholders,” Scottish Mortgage chair Justin Dowley told Bloomberg News, declining to comment further.

AJ Bell investment analyst Dan Coatsworth said: “Only days since it abandoned efforts to buy UK electricals retailer Currys, activist Elliott Investment has appeared on the shareholder register of one of the most popular investment trusts among UK investors.

“Its 5.037% position in Scottish Mortgage comes at a time when the trust’s managers have been on a charm offensive to drive more interest in what they are doing.

“While the share price has slowly been moving upwards since last October, it still remains 43% below its peak in late 2021.

“Historically, Scottish Mortgage has often traded on a premium to the value of its underlying assets. Today, the shares trade on an 8% discount, so there is an opportunity for Elliott to make money simply by that discount narrowing.

“The big question is what will make that re-rating happen? Performance is one catalyst and another is to use share buybacks to narrow the gap …

“It (Elliott) has form in the investment trust space, having spent seven years battling Alliance Trust in a fight that led to changes to the board of directors, the sale of its investment management subsidiary, a new multi-manager strategy and a narrowing of its discount to net asset value.”