Britain may have no Googles but this UK stock lets you buy into the global tech story
Scottish Mortgage investment trust has a knack of backing the big technology winners, writes James Ashton
IT IS often lamented that the FTSE 100 has no Facebook or Google. Britain has not so far created one of the vast platform companies that dominate our digital lives. That is bad news for skills and investment, but also for UK tracker funds. They would have fared better if they followed the S&P 500 index of leading US shares, which has soared by two thirds in value in the past five years thanks to its heavy technology component.
The FTSE 100 has risen by 13pc by comparison.
But there is nothing to stop British investors buying into the best of global technology. They might even do it through Scottish Mortgage investment trust, which has quietly been climbing the ranks of the FTSE 100 itself. A market value of £6.6bn puts the doursounding company in the same league as the blue-chip club’s biggest tech names – Just Eat, Sage and Rightmove. In fact, its assets have limited links to Scotland – although it is run by the Edinburgh-based fund manager Baillie Gifford – and even less to do with mortgages.
The portfolio has 47pc of its assets in North America and the total return from investing in its shares over the five years to September was 223pc, compared with 102pc for the FTSE All-world index. Scottish Mortgage invests for the long term, steered by manager James Anderson, who has been at the helm for 18 years and takes positions with a minimum five-year view.
It is at pains to say it is not just a so-called “Fang” investor – although Facebook, Amazon, Netflix and Google’s parent company Alphabet all feature in its top 15 holdings.
What has been key to its recent success is the scaling up of the proportion of unlisted stocks in its portfolio, reflecting the trend for fastgrowing firms to stay private for longer.
The trust took the bold move in 2012 of investing $50m (£37m) in unlisted convertible preference shares in Alibaba, the Chinese e-commerce firm that at the time was struggling to attract backers. The holding became ordinary shares at the time of the 2014 flotation and Scottish Mortgage’s stake was valued at £409m at the last count.
This success goes some way to explaining why the board was given investor approval in 2016 to put up to 25pc of total assets into unquoted holdings. It participated in a prelisting, private funding round of Spotify, the music streaming service.
Another investment to flag is Grail, a cancer detection start-up spun out of genomics firm Illumina, which Scottish Mortgage backed in its defeat of Roche’s hostile bid several years ago.
Company watchers at Jefferies say the value of these relationships should not be underestimated, with 50pc of unquoted ideas generated from current holdings.
Scottish Mortgage shares typically trade close to net asset value, which increased by 17.5pc in the first half of the financial year to 420p. Annual results are due this month. One outstanding question is whether concerns over privacy will curb the runaway success of some of the large tech stocks that the trust holds.
Facebook was hard hit in March by news of the Cambridge Analytica data leak. Even though the threat of regulation and compensation hangs over the social media giant, its shares have regained most of their value.
And Amazon – Scottish Mortgage’s largest holding, accounting for 7.7pc of assets – touched fresh highs recently after strong trading that demonstrated its advance on several fronts, including cloud computing.
What with two more Chinese stars, Tencent and Baidu, in his portfolio, Anderson and his partner Tom Slater would appear to have all bases covered. At an investor forum in January they stressed that it was not time to sell some of their largest holdings even though shares in those stocks had rocketed.
There are some risks. Spreading investment across just 75 holdings could contribute to increased volatility.
This has not so far been the case, although there have been some production teething problems at its second-largest investment, the electric car maker Tesla.
Scottish Mortgage has a premium portfolio and is a useful way to invest in high-growth, global assets – instead of waiting around for Britain to grow its own Google.
Questor says: buy
Share price at close: 487p