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Scottish Mortgage Investment Trust: Performance At Low Cost

By Louis H-P on July 13, 2020

Reading Time: 3 minutes

The Scottish mortgage investment trust (SMT) is famous for the outstanding returns it has delivered to investors. Holdings in big tech have meant it has been in the right place at the right time. Yet there other reasons why this trust is highlighted as attractive for investors. 

Key Takeaways

What is SMT

Discover it's investment strategy

Find out about its attractive cost -comparable to an ETF

What is Scottish mortgage investment trust?

The Scottish mortgage investment trust is a closed ended fund, which invests in global equities selected for their ability to grow. This relatively simple strategy has belied excellent performance: it is up 57% since the 1st January 2020!

Scottish mortgage performance has been outstanding!

The trust has a relatively simple investment style. Choosing to invest in companies which it feels have a disruptive theme or megatrends. Such a thematic investing approach, allows it to take a long-term view with its holdings. As a result, it ignores short-term negativity because of the long-term potential it has identified in companies.

Concentrated positions can help performance.

Although many fund managers will talk about the strength of their conviction, it is rare to see many managers actually do so. Few portfolio managers will have more than 5% in a single stock, whilst SMT has a few.

Two of those, Amazon and Tesla stock have been huge contributors to performance over the last year. Tesla is among the most volatile stocks, which suggests its downside risk is higher than other stocks.

Good performance does not need to be expensive

Scottish Mortgage Investment Trust has low feesIts rare to get something nice for a good price. Its even rarer to get a top performing fund for the cost of an ETF! Although there are many types of ETFs, with the more specialised being more expensive, on the whole they cost around the 0.5% to 0.6% mark. Traditional mutual funds are around the 1% to 1.5% mark. Too many investors pay far too much for poor performance.

SMT is cheaper than many ETFs.

The Scottish mortgage investment trust’s ongoing charges are only 0.37%! This is mightily impressive when compared to ETFs, especially as in 2017, SMT reduced its charges when it entered the FTSE 100. It is rare in the finance world to see someone looking after their shareholders, and highlights the strong management there is behind SMT.

To the future…

Often when a fund performs as well as SMT, they get too big and it becomes hard to sustain the performance. In SMT’s case there are reasons to believe this performance may continue. With its focus on large companies and the increased liquidity in listed shares this brings, SMT can keep building concentrated positions in them.

Having the ability and desire to invest in world equities means it is not constrained by a poorly performing geographical market. Many of today’s world class companies are found listed in the USA and Asia. SMT’S top five positions are all US and Asia listed.

…& beyond

SMT’s ability to invest in unlisted companies may appear controversial after the Neil Woodford saga, but the close ended structure of SMT is the right vehicle to do this in. Furthermore, there has been a suggestion for some time, that the next generation companies are listing later. This leaves investing through private (non publicly listed) funding rounds as the only way to gain access.

The age of the two managers of SMT is worth watching. Although Tom Slater has plenty of years ahead of him, James Anderson may choose to take a back seat at some point. His length of service may mean he is the key decision maker in SMT. Although in the short-term this may not be an issue, it is worth considering.


Although diversification should be one of the first risk management guidelines investors follow, there are benefits of concentrated positions. The importance is to balance it out. Having one fund which has highly concentrated positions (as much as 10% as in SMT’s case) works if the rest of your stock portfolio is adequately diversified.

SMT’s concentration in Amazon and Tesla (approximately 10% each at the time of writing) has benefited investors due to the heady heights these two stocks have reached in the recent market rally.

With SMT’s investment strategy of buy and hold after performing deep fundamental analysis having proved itself, investors should focus on how the fund develops in future. Changes in investment style, managers appearing distracted by private projects are two of the checks among others that investors should keep an eye on, to ensure they are not caught out by change in performance.

Editor’s note: The writer of this article is a holder of the Scottish mortgage investment trust. 

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Louis H-P

Louis is a portfolio manager and a trader who brings a wealth of experience in private banking to The Lazy Trader. A fundamentalist and a trouble-shooter, Louis makes a firm contribution to the trading team.

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About author

Louis H-P

Louis is a portfolio manager and a trader who brings a wealth of experience in private banking to The Lazy Trader. A fundamentalist and a trouble-shooter, Louis makes a firm contribution to the trading team.

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