Ian Cowie: why I’ve bought Scottish Mortgage

Please don’t laugh but the investment mistakes I regret the most are not Cowie’s Clangers - my name for shares bought before their price plunged by 10% or more. No, the stock market mistakes that really ache in the memory are the ones that got away: shares I looked at but failed to buy before their prices soared. 

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Now events beyond my control have given me a second chance to get on board a brilliant investment trust I really should have bought into a decade ago. But it’s a bittersweet moment because this also involved selling another wonderful investment trust which I had intended to hold forever. 

Step forward Scottish Mortgage Ord (LSE:SMT), the £13.6 billion giant of the Association of Investment Companies (AIC) Global sector, with a fond farewell to Edinburgh Worldwide Ord (LSE:EWI), a fund from the AIC’s Global Smaller Companies sector. 

Both funds hold substantial exposure to perhaps the most exciting business on this planet; billionaire Elon Musk’s extra-terrestrial venture, Space Exploration Technologies or SpaceX.  

This owns Starlink, which has more than 10,000 satellites in low-earth orbit (LEO) and has already brought the internet to parts of the world that might never have otherwise received it. 

To be specific, more than 20% of EWI’s net asset value (NAV) is invested in SpaceX following another upwards revaluation, while SMT has around 19% of its money there.  

This is of urgent importance because an initial public offering (IPO) or stock market flotation of SpaceX this summer is widely anticipated. Musk indicated last week that he aims to raise $75 billion (£57 billion). 

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Both EWI and SMT are run by Baillie Gifford, the “Auld Reekie”-based fund managers known for their growth investing style. Some Baillie Gifford funds can focus on a relatively small number of businesses that might generate big returns. 

Now could be a good time to ‘fess up how SMT proved to be the biggest fund that got away. More than a decade ago, I was lucky enough to have lunch with its long-time manager, James Anderson, who expatiated at length about the joys of Chinese technology stocks. 

At that time, I had never heard about the plight of the Uyghurs, China’s Muslim minority, some million of whom are said to be  confined to forced labour camps. Even so, Chinese technology was too exciting for me and I never “pulled the trigger” or bought the shares. 

That was a serious mistake, as became clear before Anderson left Baillie Gifford in 2022, in what turned out to be the best-timed retirement since Sir Alex Ferguson left Manchester United Football Club in 2013. Suffice to say, both outfits struggled after the departure of their former inspirational leaders. 

Here and now, my hand has been forced by the board of directors at EWI and a key detail in their tender offer to buy back all of its shares, to fend off yet another bid from the activist investor, Saba Capital. Like most EWI shareholders, I voted in favour of the board and against Saba in earlier ballots. 

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But here’s the bit in the latest tender offer that I did not like: “Any shares you ask to sell will be removed from your portfolio from 15 April 2026. The cash from shares successfully sold will be paid in two parts, with an initial distribution comprising approximately 85% of the total value on or around 5 May 2026.  

“Payment of the remaining approximately 15% of the cash will be delayed due to the fact that the assets underlying the value are currently illiquid, however the board anticipates that this will be paid within 12 months.” 

That could prove to be quite a long 12 months to wait if SpaceX floats this June, as now seems most likely. Especially as Musk has complicated matters by folding X - formerly known as Twitter - into the same holding company as SpaceX. 

Bear in mind that some observers feel Musk overpaid for Twitter, as it was, and he seemed reluctant to complete the purchase until American regulators got involved. So, the valuation of X could soon become SpaceX shareholders’ problem, too. 

Given that uncertainty, I would rather retain the ability to bail out by selling SMT, depending on how this summer’s float of SpaceX goes, rather than being locked into the rump of EWI for another year.  

This small shareholder remembers how long it took to wind up Gulf Investment Fund, another investment trust I wanted to own forever, before it attracted the unwanted attention of hedge funds. 

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On a brighter note, both EWI and SMT are already enjoying the uplift of excitement about SpaceX. Over one year EWI shares returned 43%, having lost 32% over five years and made 166% over a decade. 

SMT delivered positive returns of 33% over a year, 11% over five and an eye-stretching 405% over a decade. 

Looking forward, EWI charges 0.85% per annum for a fund that is priced 1.1% below its NAV, while SMT charges only 0.3% and trades at a 4.6% discount.

Here’s wishing SMT proves a worthy successor to EWI or, as they say north of the border: “Lang may yer lum reek, wi ither bodies’ coal.” 

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Scottish Mortgage (SMT) as part of a globally diversified portfolio of investment trusts and other shares.