Investor webinar: written overview
Stewart Heggie – Commercial Director
Key Points
- In a recent live webinar, Tom Slater and Lawrence Burns shared their conviction in the investment trust’s investment style and process
- They answered questions put to them by shareholders about the current market environment, interest rates, valuations and the potential of private companies
- They gave examples of companies held in the portfolio that remain operationally strong and are progressing in their respective fields
As with any investment, your capital is at risk.
During a recent webinar, Scottish Mortgage’s managers, Tom Slater and Lawrence Burns, answered live shareholder questions, and shared their thoughts on topics such as how the current environment affects their investment process – the answer is it doesn’t – company valuations and the potential of private companies.
A recording of the webinar is available here.
They also shared their excitement about the growth potential of companies, such as Moderna, NVIDIA, Northvolt and SpaceX.
The managers continue to focus on finding exceptional companies exploiting large opportunities that have endured despite the poor macroeconomic environment.
Slater, when asked why there hasn’t been changes to the portfolio given recent market conditions, described what the managers are trying to achieve and set shareholders’ expectations:
We don’t know what’s going to happen to interest rates, but we aren’t changing what we do because of what’s happening with interest rates... We believe that the value created by a small number of exceptional companies over the long run is the way to make money. That’s irrespective of the economic conditions, irrespective of interest rates.
That means staying true to the core investment style of Scottish Mortgage, and getting out and meeting with founders, management teams, and industry experts to gain a deeper understanding of the businesses and their potential for growth over the long term.
Both investors visited China in May, and Burns visited some European holdings such as HelloFresh, Spotify, Ocado and Delivery Hero. He has also been in New York, meeting Jensen Huang, the founder of chip maker NVIDIA.
He noted that with the benefit of hindsight, he could see that share prices had run ahead of the fundamentals because of what was happening to interest rates over the past two or three years.
However, he said, “In terms of the operational performances of those businesses, by and large, they’ve been pretty robust, and so what you’ve had is some of the valuation premium come out of those stocks.”
Slater acknowledged, “We don’t like inflicting this type of volatility on our shareholders,” but was upbeat about the long-term possibilities. “There’s nothing that’s changed in the majority of those investment cases,” he said. So, “we see very little to change our minds on the long-run competitive advantages and opportunities that those businesses are going after.”
Burns used the example of Moderna to illustrate this point. Its current share price did not match the breadth of the opportunities across its mRNA medicine platform, including respiratory and personalised cancer vaccines.
They used NVIDIA as another example of a company addressing a vast market. In the valuation context, Slater noted, “This isn’t hype about AI. This is real orders, real dollar strength flowing into the business.”
But, because the managers are looking for companies with massive opportunities when the share price goes up, they must be confident that there are still many opportunities for the company to capitalise on.
In situations such as these, he explained, there are two questions to be answered positively for the company to continue to merit its place in the portfolio. First, has the opportunity also grown? And second, has the company’s likelihood of capitalising on that opportunity increased?
For NVIDIA, the managers agree that the answer is yes for both questions. Burns suggested that:
The advantage of owning NVIDIA is that you can be somewhat agnostic about the different use cases for AI... Whatever the use case of AI, it’s highly likely to need to be trained on a video chip. And about a 90 per cent share of generative AI is trained today using NVIDIA chips.
Having recently met with its founder, he also believes that there are opportunities beyond AI, particularly its ability to redesign the architecture of data centres with its accelerated computing. This could be a one-trillion-dollar market, according to Huang.
The discussion also touched on the potential of private companies, including Northvolt, the European battery manufacturer. Burns highlighted the company's unique position in the market as geopolitical tensions increase the need for Europe to have its own battery supply chain. Plus, it has carbon-neutral credentials.
Another exciting private company is SpaceX, a dominant commercial space launch market player. Slater asserted that its ability to serve a trillion-dollar market with its satellite internet service, Starlink, makes it an attractive investment opportunity.
When questioned on the valuation of private companies, Slater cautioned, “It’s important also to recognise the potential for value creation in these companies. The focus should be on the execution and delivery of opportunities by these businesses, rather than solely on their current valuations.”
The impact of interest rates on growth companies was also discussed. Slater acknowledged that higher interest rates can be challenging for companies but emphasised that the value created by a small number of exceptional companies over the long run is the key to making money, regardless of economic conditions or interest rates.
It was reassuring to hear that the managers’ focus continues to be on the potential of the portfolio holdings to deliver significant returns over time rather than short-term market fluctuations.
While equity markets may not currently be in growth equities’ favour, this does not justify investment style drift. There is much to be optimistic about – structural changes across many industries create large pools of opportunity for innovative companies to exploit.
The managers have a strong conviction in the breadth and depth of the long-term opportunities open to exceptional growth companies. This, and the scale of the competitive advantage which they believe companies held within the portfolio have, makes them optimistic about the long term.
If you want to explore more of their answers to the hot topics that shareholders raised, a webinar recording is available here.
Scottish Mortgage Annual Past Performance To 30 September each year (net %)
|
|
2019 |
2020 |
2021 |
2022 |
2023 |
|
The Scottish Mortgage Investment Trust PLC |
-6.4 | 97.8 | 45.5 | -45.0 | -13.9 |
Source: Morningstar, Share price, total return, sterling.
Past performance is not a guide to future returns.
Risk factors
The trust invests in overseas securities. Changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up.
Unlisted investments such as private companies, in which the Trust has a significant investment, can increase risk. These assets may be more difficult to sell, so changes in their prices may be greater.
The trust invests in emerging markets where difficulties in dealing, settlement and custody could arise, resulting in a negative impact on the value of your investment.
About the author - Stewart Heggie
Commercial Director
Stewart Heggie is a commercial director, focused on serving the needs of Scottish Mortgage shareholders. Prior to joining in 2019, he spent 15 years as a discretionary fund manager, before which he helped design the investment platform of a large UK bank. Nowadays, Stewart enjoys a varied role that spans across several areas involved in running a listed investment company. He plays a key role in developing the company’s strategic direction and broadening out its ownership. Beyond that, he works closely with the managers to maintain current portfolio knowledge; regularly meets with potential and existing overseas shareholders; and acts as a key contact for the board of directors.
Regulatory Information
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Europe
Scottish Mortgage Investment Trust PLC (the “Company”) is an alternative investment fund for the purpose of Directive 2011/61/EU (the “AIFM Directive”). Baillie Gifford & Co Limited is the alternative investment fund manager (“AIFM”) of the Company and has been authorised for marketing to Professional Investors in this jurisdiction.
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Belgium
The Company has not been and will not be registered with the Belgian Financial Services and Markets Authority (Autoriteit voor Financiële Diensten en Markten / Autorité des services et marchés financiers) (the FSMA) as a public foreign alternative collective investment scheme under Article 259 of the Belgian Law of 19 April 2014 on alternative collective investment institutions and their managers (the Law of 19 April 2014). The shares in the Company will be marketed in Belgium to professional investors within the meaning the Law of 19 April 2014 only. Any offering material relating to the offering has not been, and will not be, approved by the FSMA pursuant to the Belgian laws and regulations applicable to the public offering of securities. Accordingly, this offering as well as any documents and materials relating to the offering may not be advertised, offered or distributed in any other way, directly or indirectly, to any other person located and/or resident in Belgium other than to professional investors within the meaning the Law of 19 April 2014 and in circumstances which do not constitute an offer to the public pursuant to the Law of 19 April 2014. The shares offered by the Company shall not, whether directly or indirectly, be marketed, offered, sold, transferred or delivered in Belgium to any individual or legal entity other than to professional investors within the meaning the Law of 19 April 2014 or than to investors having a minimum investment of at least EUR 250,000 per investor.
Germany
The Trust has not offered or placed and will not offer or place or sell, directly or indirectly, units/shares to retail investors or semi-professional investors in Germany, i.e. investors which do not qualify as professional investors as defined in sec. 1 (19) no. 32 German Investment Code (Kapitalanlagegesetzbuch – KAGB) and has not distributed and will not distribute or cause to be distributed to such retail or semi-professional investor in Germany, this document or any other offering material relating to the units/shares of the Trust and that such offers, placements, sales and distributions have been and will be made in Germany only to professional investors within the meaning of sec. 1 (19) no. 32 German Investment Code (Kapitalanlagegesetzbuch – KAGB).
Luxembourg
Units/shares/interests of the Trust may only be offered or sold in the Grand Duchy of Luxembourg (Luxembourg) to professional investors within the meaning of Luxembourg act by the act of 12 July 2013 on alternative investment fund managers (the AIFM Act). This document does not constitute an offer, an invitation or a solicitation for any investment or subscription for the units/shares/interests of the Trust by retail investors in Luxembourg. Any person who is in possession of this document is hereby notified that no action has or will be taken that would allow a direct or indirect offering or placement of the units/shares/interests of the Trust to retail investors in Luxembourg.
Switzerland
The Trust has not been approved by the Swiss Financial Market Supervisory Authority (“FINMA”) for offering to non-qualified investors pursuant to Art. 120 para. 1 of the Swiss Federal Act on Collective Investment Schemes of 23 June 2006, as amended (“CISA”). Accordingly, the interests in the Trust may only be offered or advertised, and this document may only be made available, in Switzerland to qualified investors within the meaning of CISA. Investors in the Trust do not benefit from the specific investor protection provided by CISA and the supervision by the FINMA in connection with the approval for offering.
Singapore
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(a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the securities pursuant to an offer made under Section 275 except:
(1) to an institutional investor or to a relevant person or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(c)(ii) of the SFA,
(2) where no consideration is or will be given for the transfer;
(3) where the transfer is by operation of law; or
(4) pursuant to Section 276(7) of the SFA or Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018.
