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

The Sunday Telegraph - Money & Business - - Business -

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

Ticker: SMT

Share price at close: 487p

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