A chart showing Scottish Mortgage Investment Trust (LSE: SMT) shares between early 2020 and mid-2023 resembles a Himalayan mountain. There’s the tech-fuelled rise during the pandemic. Then the steep drop starting in late 2021 when rising inflation and interest rates came to the fore.
However, since bottoming out at 628p in May 2023, the stock has been on the up again. Now at 1,040p, it has real momentum, gaining 19.1% in just the past three months, far outpacing the FTSE 100‘s 5% rise.
This means a £20k investment made at the start of November would now be worth around £23,850 (including a small dividend paid in December). That’s a cracking return in such a short space of time.
Skin in the game
Despite the name, Scottish Mortgage has little to do with Bonnie Scotland or home loans. Its strategy is to invest in and hold the world’s most exciting and disruptive growth companies, wherever they are found, in both private and public markets.
Many of these businesses are founder-led (over 80% of the portfolio). As the trust points out: “Founder leadership isn’t a cure-all or a must-have, but it often indicates a company aligned with our long-term goals.”
According to a study by Bain & Company, founder-led S&P 500 companies between 1990 to 2014 delivered total shareholder returns more than three times higher than their non-founder-led counterparts.
Why? One reason the trust says is that professional managers find it hard “to match that sense of priority and to make transformative decisions that push the whole organisation to change. Not least because their incentives are often a performance bonus tied to earnings.”
Scottish Mortgage’s long-term investing philosophy has been influenced by Amazon founder Jeff Bezos. In his quest to build the most customer-centric company on earth, he famously made counterintuitive decisions.
For example, he allowed negative customer reviews on Amazon’s platform. That was a pioneering move that would have got a traditional retail CEO fired. Negative reviews might harm sales, some investors wrote to Amazon.
When I read that letter, I thought, we don’t make money when we sell things. We make money when we help customers make purchase decisions.
Jeff Bezos
6 Scottish Mortgage holdings run by founders
| Company | Founder-CEO | What it Does |
|---|---|---|
| SpaceX | Elon Musk | Space rockets and satellites |
| Meta Platforms | Mark Zuckerberg | Social media |
| Nvidia | Jensen Huang | Semiconductors and AI computing |
| Shopify | Tobias Lütke | E-commerce platform for businesses |
| Spotify | Daniel Ek | Music streaming platform |
| MercadoLibre | Marcos Galperin | E-commerce and financial services in Latin America |
Trump’s tariffs
As far as I can tell, no FTSE 100 company beyond Pershing Square Holdings (run by Bill Ackman) is led by its founders today. Naturally then, the trust’s hunting ground for ideas is across the pond or in China.
Looking ahead, the threat of a global trade war triggered by Donald Trump’s tariffs is real. This could cause a spike in inflation, jeopardising the downwards trajectory of interest rates. The risk in this scenario is that it could make growth stocks less attractive to investors, impacting the value of Scottish Mortgage’s portfolio and creating heightened volatility.
Having said that, I don’t expect a repeat of 2022’s near-50% plunge any time soon. The portfolio looks robust, with more emphasis placed on firms generating positive earnings. Three of its most recent purchases — Meta, Taiwan Semiconductor Manufacturing (TSMC), and Nu Holdings — are all solidly profitable.
Meanwhile, there has been more disciplined profit-taking from stocks that have had amazing runs (Nvidia, for example).
I think the trust is worth considering for long-term investors.
