Scottish Mortgage: City brokers back Baillie Gifford trust
Scottish Mortgage has received the backing of a host of City brokers, boosting the £12bn Baillie Gifford trust’s stock price by 1.5 per cent today.
One of the largest investment trusts in the UK, Scottish Mortgage, released its full-year results two weeks ago, with its underlying assets growing 11.2 per cent over the year, compared to 5.5 per cent for the FTSE All-World.
In its results, outgoing chair Justin Dowley acknowledged that “recent years have been a rollercoaster ride in share price terms,” adding that significant shareholders were split on whether the trust should continue buybacks or make further long-term investments.
Given that the trust has traded at a premium to its underlying assets for sustained periods in the past, Winterflood analysts argued today that the current 11 per cent discount “offers value,” especially with the ongoing share buyback programme.
In March 2024, Scottish Mortgage committed to buying back at least £1bn in shares over two years, but has so far spent £2.1bn on the programme, or 16 per cent of its share capital.
“Furthermore, the shares continue to offer excellent secondary market liquidity” noted the analysts, maintaining its recommendation for the trust.
“We remain confident that Scottish Mortgage is well-placed to outperform over the longer term,” said the analysts.
“We appreciate the managers’ willingness to learn from their mistakes and adapt their approach accordingly, whilst maintaining true to the Baillie Gifford long-term growth philosophy.”
Scottish Mortgage’s low charges
Scottish Mortgage also received the backing of Deutsche Numis last week, which praised the manager’s investment style and its low charges.
The trust has the lowest fees of any trust in the UK, according to data from the Association of Investment Companies, where the average Global trust charges is 0.47 per cent, compared to 0.31 per cent for Scottish Mortgage.
Scottish Mortgage has stakes in several of the largest private companies in the world, such as Spacex, Tiktok owner Bytedance, and Stripe.
The trust has significantly reduced its stake in Nvidia in recent years, while selling down its stake in longtime bet Tesla, which has provided the primary fuel for the share buybacks.
Baillie Gifford’s broader style of “growth investing” delivered strong performance in 2020 and 2021; however, all of its trusts have experienced underperformance and widening discounts since then.
“Whilst performance in recent years, particularly in share price terms, has generally been weak, we would not have expected the stable to outperform in a rising or higher interest rate environment, or in periods where the market has been dominated by a small number of stocks being partly driven by momentum.”