In the financial labyrinth, every investor aims to unearth a minotaur – the metaphorical beast representing an investment vehicle that delivers robust returns and consistently does so. However, such investment opportunities are as rare as a philosopher’s stone. The Scottish Mortgage Investment Trust is a century-old investment vehicle listed on the London Stock Exchange and managed by one of the best and most esteemed fund houses globally – Baillie Gifford.
In recent years, SMT invested in companies such as Netflix, Uber, and Tesla. Until 2019, SMT was the second-largest shareholder in Tesla and was rewarded handsomely for its belief in the revolutionary technology and business model of Tesla. What is also increasingly apparent is that these new and upcoming companies have a reduced appetite to list on major global stock markets due to the increased regulatory and compliance pressures.
An intriguing facet that sets the SMT apart is its approximately 30% exposure to unlisted equities, commonly known as private equity. This offers investors a way to diversify their portfolios and gain exposure to companies before they hit the public market—a rare opportunity often only available to institutional investors. These companies have the potential to provide the golden ticket to capitalize on high-growth startups before they hit the public market.
Some sceptics will say that the lack of transparency from private equity holdings provides too much risk and that the current global interest rate environment will result in liquidity issues for these private equity holdings. In the past 18 months, Scottish Mortgage has performed 871 revaluations of their private equity holdings, with more than 75% of these companies being revalued five times or more.
The trust’s ongoing management charge is a lean 0.34%, which is highly competitive in the industry and remarkably low for its services.The SMT offers a compelling blend of a diversified high-growth portfolio. Its exposure to private equity allows investors a rare opportunity to diversify in ways not commonly available. With the current 16.80% discount to NAV and considering ongoing global economic conditions, there’s a solid argument to be made that now is an opportune time to invest in the SMT.