Interactive Investor

Scottish Mortgage no longer UK’s largest trust as tech sell-off intensifies

9th May 2022 13:40

by Sam Benstead from interactive investor

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The giant trust is being hammered as investors weigh up the impact of higher interest rates. 

Scottish Mortgage investment trust logo (Getty)

Scottish Mortgage is no longer Britain’s largest investment trust after a brutal crash in the value of technology stocks.

Its share price has dropped 49% from a high of around £15 in November 2021. They now cost £7.90 following a 5% drop in value today.

Its market capitalisation, calculated by multiplying the share price by the number of shares, now sits at £12 billion, according to the London Stock Exchange. This is below the £12.2 billion value of private equity investor 3i Group (LSE:III), which has now become the largest investment trust.

However, the market value of its investments, known as the net asset value (NAV), is still higher than 3i Group's. Scottish Mortgage's investments are worth £14.75 billion compared with £13 billion for 3i Group, according to the latest data from financial data firm Morningstar. 

Expectations for higher interest rates to fight inflation have caused investors to sell bonds, pushing the yield on 10-year US government debt to more than 3%. The yield was as low as 0.53% in the summer of 2020.

Higher returns on offer from safe investments, such as government bonds, leads to lower valuations for companies that promise profits way out into the future, such as those that Scottish Mortgage invests in.

As such, some of its biggest investments have been hammered, including a 72% drop for its largest investment, vaccine maker Moderna (NASDAQ:MRNA), a 40% fall in the value of Amazon (NASDAQ:AMZN) shares, and a 75% crash for Netflix (NASDAQ:NFLX)’s shares.

It has also faced issues with its technology investments in China, as the Communist Party sought to limit the power of leading entrepreneurs. Significant holdings in internet companies Tencent (SEHK:700) and Alibaba (NYSE:BABA) have dragged on fund performance with shares falling more 50% from their highs.

The Scottish Mortgage managers, who work for Edinburgh-based fund group Baillie Gifford, are not shifting from their investment approaching of trying to find the world’s most exciting companies.

Lawrence Burns, a partner at Baillie Gifford and deputy manager at Scottish Mortgage, told investors in a webinar in January that the bump in the road was the worst time to sell, and that volatility is par for the course given the trust invests in an adventurous manner.

Other technology-focused trusts are also under pressure. Today, Polar Capital Technology is down 4% and Allianz Technology Trust has dropped 8%. Allianz Technology and Polar Capital Technology have fallen 40% and 30% from their highs, while the Dow Jones Global Technology index has dropped 22.5%.

Scottish Mortgage is a member of interactive investor’s Super 60 list of recommended funds. Over 10 years, it has made investors 577% compared with 218% for a global stocks index.

James Anderson, who had managed the trust for more than 20 years, retired at the end of April. He leaves it in the hands of newly appointed Burns and Tom Slater, who has been on the trust since 2015.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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