Steer clear of actively managed funds! Investors are better served by passive managed or index tracker funds! So ran the trailer last week for a documentary debunking the claims of the fund management industry.
Ironically, the arrival of the e-mail promotion coincided with the release of half-yearly figures from Scottish Mortgage Investment Trust. This has become not only Scotland’s biggest investment management success story but has also become the UK’s largest conventional investment trust, overtaking Alliance.
The latest figures testify to an investment strategy driven by an intelligent commitment to global companies making the best of new ideas and innovative technology. The trust’s presentation at the Baillie Gifford investment conference earlier this year was a masterclass in stock research and selection for the long term.
And that strategy is continuing to deliver great returns. Over the six months to end September, net asset value per share rose by 9 per cent, and the shares by 12 per cent – almost three times the increase in the FTSE All World Index.
Who says active funds don’t perform? Over the last five years, the Scottish Mortgage share price total return has hit 155 per cent against a 63 per cent return on the FTSE All World Index. And the annual charge? Just 0.5 per cent, notably lower than the 0.85 per cent average of the sector.
Little wonder, in stark contrast to baleful stories elsewhere of trust shrinkage and the buying-in of shares to narrow the discount, Scottish Mortgage has issued new shares to meet market demand.
Now critics of “active” investment do have a point. It’s not so much a blanket criticism of all trust or all specialisms. Rather, the critique is directed against the mushrooming of hundreds of quasi-active funds – there are far too many trusts and funds that simply buy and hold the FTSE 100 Index and pass this off as the work of professional fund managers.
The basic approach of managers James Anderson and Tom Slater are readily grasped by private investors: seek out companies that are successfully developing and applying new technology and innovation. That doesn’t mean a portfolio of small Californian companies with baffling acronyms and impenetrable applications. The top share choices show how companies that have become household names jostle along with the more obscure. The trust’s biggest holdings include Amazon and Alibaba.
Scottish Mortgage may have been seen in the past as an investment trust for past-it oldies clinging to a portfolio of has-beens of yesteryear. In reality, it is a forward-looking trust that would well suit a geeky teenager utterly uninterested in “fuddy duddy investment trusts” – they would certainly connect with this one (probably rather more so than their parents).
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