Investor Webinar: Written Overview

As with any investment, your capital is at risk.

At the recent Scottish Mortgage webinar, Claire Shaw, Portfolio Director, was joined by investment managers Tom Slater and Lawrence Burns to answer the questions on shareholders’ minds.

Popular topics included the ongoing share buyback, geopolitical impacts and the performance of key investments, including those in private companies and China. 

Reduced Discount and the Impact of Saba

Slater opened with an update on the share buyback, announced in March 2024 when the Board committed to buying back at least £1bn worth of shares.

As of the webinar date (19 February 2025), £1.6bn worth of shares had been repurchased, and the discount had reduced from 14.5 per cent to 8.5 per cent.

Slater explained there was more to do, “The buyback is an attempt to ensure that over time we can match supply and demand to achieve that aim [of facilitating trading around the fund's asset value].”

The investment trust sector has recently been in the news due to the actions of US activist hedge fund Saba Capital.

Shareholders wondered whether the reduced discount and improved share price performance made Scottish Mortgage “safe” from such activity.

Slater suggested that the real question was whether “we are delivering for our shareholders” because if you are not meeting their expectations, that could make you an activist target.

Despite the more volatile ride of the past five years, he believes the Trust is delivering on identifying the right long-term growth opportunities.

“The key for me always is to go back to fundamentals. What are we seeing at the companies? And we’re seeing attractive growth rates. We are seeing improving margins. We are seeing big opportunities.”

Impact of Geopolitical Changes and US Tech Bubble Concerns

Slater discussed the implications of President Trump’s administration on the portfolio and market.

He suggested that the Republican’s clean sweep of Congress, the House, the Senate and the presidency meant that “you’re open to a wide range of outcomes” that are hard to predict.

However, he emphasised that the most important drivers of returns are long-term structural changes in the economy rather than macroeconomics or politics.

He highlighted the portfolio companies' resilience and adaptability in a fast-moving, changing environment, which he believes puts them “in a strong position to deal with whatever may be thrown at them.”

In addressing Elon Musk's connection with Tesla and SpaceX, Slater explained the rationale for the Tesla reduction.

He confirmed this was due to the recent significant share price appreciation without any fundamental change, which made it harder to see the same scale of upside from here.

However, SpaceX remains the largest holding due to its strategic importance for the US and the potential for deregulation to boost the launch cadence.

Burns highlighted that SpaceX’s current valuation has been driven by December 2024’s $1.5bn tender offer that enabled existing shareholders to sell their shares.

On questions of an IPO, he reminded the audience that the company was strong and did not require capital. Therefore, it does not need to IPO and can “choose what it thinks is the best way to maximise long-term value.”

The webinar also covered concerns about valuations in the US market, particularly the NASDAQ, which is at record highs.

Slater suggested that although ‘The Magnificent Seven’, a group of large US technology companies, has driven much of the market's performance, it would be misleading to lump them together, given the “different trends at play”.

He explained that the managers’ focus is on “thinking about the opportunities,” ie, identifying attractive long-term growth companies rather than worrying about market levels.

"I think one of the big drivers of value creation within the Scottish Mortgage portfolio, if you look over the past 20 years, is that we haven’t worried about a top-down asset allocation."

NVIDIA, AI and Technological Advances

Burns highlighted NVIDIA as the perfect example of trends being “driven by a small number of big winners.” He noted that because of that outlier upside, Scottish Mortgage has taken approximately £1.5bn of profit from an initial £64m investment.

Last year, NVIDIA became the world’s most valuable company, meaning it became more difficult to “get a risk-reward that looked attractive enough for it to be the trust’s largest holding.”

Demand is also expected to lower over the very long run. With NVIDIA's “incredible” competitive position in the AI training stage less assured in the inference stage, the decision was taken to reduce the holding.

In contrast, Burns noted, “Our enthusiasm and conviction about the change that generative AI can bring over the next five to ten years has probably never been higher.”

Some of the proceeds from trimmed holdings have gone into companies that the managers believe will benefit from AI, such as Meta in advertising and Shopify with its ecommerce tools.

Burns highlighted the portfolio's three layers of AI exposure:

Hardware: where we have already seen a lot of value creation

Infrastructure: companies that are helping other companies to use and access AI

Application: companies that are using AI as part of their commercial products

He noted that with Scottish Mortgage’s range of digital and software companies, the Trust is well-placed to take full advantage as AI becomes more ubiquitous.

“I think there’s probably an argument that there will be a greater degree of value creation on the application side,” he said.

Another question on AI was the impact that DeepSeek will have on portfolio holdings and AI trends more generally. Slater commented that despite short-term volatility, the introduction of another big player is a positive thing: "it’s part of what’s driving the incredibly rapid progress in the capabilities of these AI systems" 

He added that the lower price point that DeepSeek is offering "just means much wider deployment of these systems and that you will get intelligence built into more and more of the products and service that we use."

Portfolio Exposure to Chinese Companies

Questions were raised about the Trust’s exposure to Chinese companies and the lessons learned from the fall in share prices in 2021 and 2022.

Burns explained that Chinese exposure has been reduced to reflect regulatory and geopolitical risks. However, our enthusiasm remains because it is the world’s second-largest consumer market, where “companies have shown a huge ability to innovate.”

He believes there are signs of a growing recognition within the government that Chinese companies are more critical to delivering prosperity than was anticipated five years ago.

The Trust concentrates its exposure on a few companies offering significant upside potential. Key holdings include Meituan, PDD and ByteDance, which the managers beleive can withstand a challenging, changing environment.

Private Company Investments

The managers emphasised the importance of investing in private companies, not least for the long-term return potential. Successful private investments include SpaceX, Wise and Spotify.

These investments also provide a broader perspective on the changing world and create a more differentiated knowledge base for decision-making.

Burns adds that investing in private companies makes for “a more close and engaging relationship” than you typically might have in the pressurised environment of public markets.

In response to a question on the level of IPOs, Slater reminded the audience that the most successful private companies have access to vast pools of capital, as a recent capital raise by Databricks confirmed. They do not need to go public.

He suggested that shareholders take a long-term view rather than trying to predict when companies will IPO, knowing that “it will be the underlying operational performance of the business that matters.”

Slater used Revolut as an example of a recent private company investment. He explained that digital banking services such as Revolut have significant growth potential, especially in regions with large populations whose first banking experience is likely to be digital.

Future Focused

Burns reiterated that only a few businesses “have the exceptional characteristics” to deliver outlier returns and are resilient across different conditions.

Therefore, the managers have spent time reflecting on what leads to resilience in an uncertain and volatile world.

However, it is not about managing volatility; as Slater asserted, “[this] is what drives the long-term returns.” Therefore, shareholders need to accept that it will be a volatile ride, but we think it is worth it in the long run.

In closing, the managers shared some aspects of their research that they were excited about.

Burns highlighted the possibility of AI reducing the cost of delivering financial services to the point where it was “a private banker in your pocket” who knows your profile and acts as an agent on your behalf.

Slater spoke to autonomous system development. He highlighted Zipline, a US drone company whose autonomous system has launched commercially in the US. He believes it will be “transformational,” reducing delivery costs and improving efficiency.

As reflected in our Aurora and Joby Aviation holdings, the managers have anticipated autonomous systems becoming a reality for some time. So, he is excited that we are now at the stage where we are seeing real-world physical examples.

To sum up the managers' optimism for these exciting long-term growth trends playing out, Slater concluded: "what matters to us is owning the world’s best long-term growth companies, being upfront with people that it will be a volatile ride, but in the long term, we think it’s worth it. 

Risk Factors

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, which includes China, where difficulties with market volatility, political and economic instability including the risk of market shutdown, trading, liquidity, settlement, corporate governance, regulation, legislation and taxation could arise, resulting in a negative impact on the value of your investment.

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.