And if you think that was the exception, contrast it with the situation in Mexico, where GDP growth was just over 1% a year, yet stock market returns were about 17% annually. Source: Scottish Mortgage Investment Trust Interim Financial Report 30 September 2018. However, from a long-term point of view, Scottish Mortgage continues to have plenty of potential, to my mind. This could hit Scottish Mortgage Investment Trust’s share price. Why this becomes important for investors is because it means investment trust’s ongoing charges aren’t typically as high as Mutual Funds, OEICs or Unit Trusts. This allows them to identify new opportunities but also to monitor whether the investment thesis that drew them to a company still applies. They have a number of advantages and disadvantages when compared to other types of funds such as Exchange Traded Funds (ETFs) or Mutual Funds (often called Open Ended Investment Companies [OEICs] or Unit Trusts in the UK) . Also, by not being accountable to shareholder scrutiny of quarterly accounts the management of the company can focus on long-term growth. Consequently, a recession in the US or China could significantly reduce the returns of the fund. Over 60% of the portfolio has been held for more than five years, and many stocks have been held for more than a decade, such as Amazon, Tencent, Baidu, Kering and Alphabet. Warning! But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks! Another important characteristic of investment trusts is that they can borrow money. The fund has pretty much the same mandate as it did in the beginning. The managers aim to achieve a greater return than the FTSE All-World Index (in sterling terms) over a five year rolling period. The fund's weakness is that during "bad" years it can crash more heavily than other funds. 2 UK shares I’d buy for 2021 in an ISA to retire in comfort, Has the new bull market begun? There’s no doubt that there are some risks associated with Scottish Mortgage Investment Trust. For example, as trade tensions rose toward the end of 2018 Alibaba, Tencent and Baidu suffered sharp falls in their stock prices. Reasons for over and undervalue tend to follow the funds performance, but there are many reasons why a fund could be over or undervalued. Why take the risk with your hard earned money? Companies and investment trusts are also obliged to provide detailed reports that have been independently audited. Not only does this company enjoy a dominant market-leading position…. The Motley Fool Ltd. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. As an example, if you have £100 invested and it goes up by 10% you’ll have £110. That’s not to say they don’t have any charges. If you go with the market you are guaranteed to get the market’s returns. James Anderson and Tom Slater can draw on the expertise of the Long Term Global Growth team, which has considerable resources. Anderson also founded a group called the Long Term Global Growth Strategy Team in 2003, which suggests the two managers have a wealth of resources to call up on. Scottish Mortgage Investment Trust review Before I look at the investment case for SMT, it’s worth recapping what this trust actually does, because its name is a little confusing. It’s also worth thinking about the fact that GDP growth doesn’t necessarily equate to stock market growth. We can see the result of gearing, and the high risk nature of Scottish Mortgage Investment Trust's investments if we plot the fund daily returns versus those of its benchmark which is the FTSE All World Index in sterling. These investors could skip the fees and invest in index tracker themselves if they really understood the situation. This is about 19% for the fund which is higher than MSCI World (14%), the FTSE All World index (13%), or either of its main competitors Lindsell Train (12%) or Fundsmith Global Equity (12%). If you want to invest in an investment trust you need to buy shares in the company. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee. This is risky because unlisted companies tend to be smaller and more difficult to sell than companies listed on a stock exchange. The fund's strength is that during "good" years when equity markets are rallying it tends to outperform. MyWalletHero, Fool and The Motley Fool are all trading names of The Motley Fool Ltd. Yet, long term, I do think the prospects for the tech sector remain attractive. This is important when it comes to investors adding or withdrawing their money. Please refer to FOS and FSCS for up-to-date information, including eligibility criteria. Trade may be affected by the US America First policy and any trade war between the US and China, and this poses a political risk to performance. Here’s your chance to discover exactly what has got our Motley Fool UK analyst team all revved up about this ‘pure-play’ online business (yes, despite the COVID pandemic!). Certainly sounds convincing, but before you rush off and stick all your savings in this trust there are few things worth thinking about. Choosing to invest in rubber to take advantage of the long lasting economic trend being brought about by the ultimate disruptor, the motor car, set the foundations for the kind of investments Scottish Mortgage Investment Trust makes today in companies like Amazon, Alibaba and of course Tesla. Tech companies are benefiting. An investment trust is listed and traded on the London Stock Exchange. Exchange rate charges may adversely affect the value of shares in sterling terms, and you could lose money in sterling even if the stock rises in the currency of origin. Scottish Mortgage Investment Trust take a long term high conviction futuristic approach to investing. Unlisted companies have less transparency and require more research. Value funds would restrict their purchases to companies that look cheap. The problem is, past performance is not a reliable indicator of the future. Many of the technology companies owned by the fund depend on trade between the US and China. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. For example, Moore's Law states that the number of transistors in an integrated circuit doubles every two years. Certainly, if used carefully, this leverage (sometimes called gearing) can be a straight forward way to increase the return on an investment. As a result the number of shares the trust is divided into is limited. These are sometimes called FANG funds after the large and successful US technology stocks Facebook Apple Netflix and Google. Of course there are a couple of groups of investors out there that this fund probably wouldn’t be appropriate for. We may also publish information about consumer credit, loan, mortgage, insurance, savings and investment products and services, including those of our affiliate partners. © 1998 – 2020 The Motley Fool. This enables investment trusts to choose more opportune times to buy and sell shares, which in turn, means all things being equal, that they should be able to achieve better returns than their contemporaries. The Financial Ombudsman Service and Financial Services Compensation Scheme may consider certain investment related claims. Scottish Mortgage Investment Trust invested had 35 unlisted investments in 2018, which means unlisted investments accounted for 17% of the fund's total assets. The first is concentration, geographic, company and sector concentrations all have their issues. Investment Trusts don’t do this. Compared to its global equity fund competitors this is very cheap. These shareholders are simply investors who buy shares in the investment trust. There are also some relatively disappointing results, for example Home24 (online furniture sales), HelloFresh (meal kits) and Unity Biotechnology (develops medicines that potentially halt, slow or reverse age-associated diseases).
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