February 2023
8 minutes

Trust in Progress: January forum write up

The Scottish Mortgage Team

Key Points

  • 2022 was extraordinary for the progress made on everything from healthcare to the energy transition
  • Scottish Mortgage holdings, including Moderna, Northvolt and SpaceX, are pushing the boundaries of what is possible
  • Our Chinese exposure has shifted towards more emphasis on companies more aligned with government priorities

2022 was extraordinary, from a ‘polycrisis’ of interacting crises to paradigm shifts in healthcare and other industries. Scottish Mortgage manager Tom Slater, and deputy manager, Lawrence Burns updated professional investors at two events in London and Edinburgh in January 2023.

As with any investment, capital is at risk.



Slater opened in a reflective mood. He noted that 2022 was a “humbling year” for the investment trust.

On top of the inevitable volatility caused by rising interest rates and inflation, he admitted they had made some wrong assumptions about the world, which they were trying to learn from. He referred to not recognising the consequences of deteriorating Sino-US relationships and assuming the changes brought forward by Covid would be permanent.

Acknowledging the challenges of the current investment environment, Slater asked the audience to step away from the noise of the financial markets.

Instead, he wanted them to consider the extraordinary amount of human progress that had been made in a single year, often by companies in the Scottish Mortgage portfolio.


Operational performance

US biotech Moderna applied the same mRNA technology in its Covid vaccine to a personalised mRNA cancer vaccine that, in trials, showed a 44 per cent increase in survival rates. Slater suggested that “leaps forward of that magnitude are not very common” and that “the applications for [Moderna’s] platform technology are starting to multiply”.

He highlighted other holdings and areas of interest that made significant progress over the year. These included:

  • the electricity battery champion, Northvolt, which delivered its first lithium-ion battery cells to customers that are pushing the transition to electric vehicles
  • a breakthrough in nuclear fusion as, for the first time, scientists generated more power from the reaction than needed to create it
  • SpaceX doubled the number of space rocket launches in one year to 60. Space will be vital because it offers multiple consumer applications, from eliminating mobile dead space – currently, 20 per cent of the world’s land mass – to various agricultural uses.


Other holdings that stood out for Slater in the “year of tremendous progress” included Tesla, Nuro, Joby Aviation, Upside Foods and Beyond Meat. He suggested that the companies driving the changes are now cheaper relative than they were before the pandemic, with some at lows not seen since the financial crisis. Slater reminded investors that’s not to say that they can’t get cheaper, only that the fall in assets did not represent the long-term potential: “When you take the sum of progress made along with the reset in valuations, this gives an encouraging outlook for the future.”

Burns agreed. He suggested that the companies in the portfolio are there for their potential to change how we live our lives and because they are disrupting industries as they do. He said, “If they can achieve their radical visions, they will be immensely valuable regardless of the macro environment.”

He picked out MercadoLibre, the Latin American online marketplace, whose management he first met 12 years ago. Despite all the political, economic and currency turmoil in the area, “because it is driving change, its shares have risen 20-fold”.

Burns was pleased that many of Scottish Mortgage’s holdings appeared to be adapting to the environment. He pointed out that it had become a more benign environment for some, such as food delivery companies.

Previously, if the food delivery companies were to gain market share in a crowded market, it meant heavy discounts. Now, with capital evaporating quickly, he said, those that remained would be able to raise prices and improve their profitability.

Scottish Mortgage must not shorten its focus, said Burns, on the growth opportunity for the individual companies over the next five to ten years just because the current situation is uncomfortable.


Allocation – China and private companies

In the past two years, the trust’s China exposure has roughly halved to 13-14 per cent. Alibaba, which had been held for 10 years, was sold last year.

Slater is mindful that the as the government is concerned about the scale of cloud computing companies, those with more of a ‘social licence’ to operate may have better long-term prospects. Therefore, he said, the managers have become more circumspect in the overall weighting, emphasising the companies we believe are more aligned with government priorities.

Burns highlighted Pinduoduo, the investment trust’s best performing public holding in 2022. He said it had fared better because its business model was better aligned with the ‘common good’ with its presence in lower-tier cities. This was a good reminder, he said, of the importance of looking at individual companies and not just seeing things through a geopolitical lens.

Slater advised that Scottish Mortgage invested £280m in private companies in 2022. He said there were no plans to increase the cap of 30 per cent of total assets.

Despite public markets declining substantially, private companies have yet to adjust their valuation expectations accordingly, making them less attractive in the current environment.

However, he assured investors that Scottish Mortgage regularly re-evaluated its private company holdings and had carried out 479 re-evaluations in 2022.


The long-term outlook

The managers remain optimistic. While things from the macro and geopolitical perspective remain uncertain, Slater says, “the underlying drumbeat of technological progress has not shifted; it’s getting stronger.”

That’s good news for Scottish Mortgage and its pursuit of exceptional growth companies. In the current environment, its long-term horizon gives it a better chance, the managers believe, of identifying companies making technological progress that have the potential to deliver strong long-term returns to Scottish Mortgage’s shareholders.

Scottish Mortgage Annual Past Performance To 31 December each year (net %)

  2019 2020 2021 2022 2023
The Scottish Mortgage Investment Trust PLC 24.8 110.5 10.5 -45.7 12.5


Source: Morningstar, share price, total return, sterling.

Past performance is not a guide to future returns.

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.

The trust has a significant investment in private companies. The trust’s risk could be increased as 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 - The Scottish Mortgage Team

The Scottish Mortgage team are dedicated to servicing existing and prospective shareholders of the trust.

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This communication was produced and approved at the time stated and may not have been updated subsequently. It represents views held at the time of production and may not reflect current thinking.

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Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). The investment trusts managed by Baillie Gifford & Co Limited are listed on the London Stock Exchange and are not authorised or regulated by the FCA.

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