At £12.3bn, the UK's largest investment company Scottish Mortgage Investment Trust may have been on a rollercoaster over the past few years, with the economic downturn and rally in technology stocks.
But following a period of underperformance, the fund has recently drawn the attention of US hedge fund Elliott Advisors, which, it has emerged, took a 5 per cent stake, becoming its largest shareholder.
This happened around the same time as Scottish Mortgage launched a £1bn share buyback, amounting to 9 per cent of the entire fund, although it has become apparent Elliott has been building that stake since 2023.
Elliott, with £65bn of assets under management, has a reputation for being an “activist investor” and many are wondering what this brings for one of the most venerable of investment companies, around since 1909 and managed by Baillie Gifford.
When long-serving fund manager James Anderson retired from Baillie Gifford in March 2021, he was bringing the curtain down on a tenure as manager of the Scottish Mortgage Investment Trust, which saw the vehicle become the largest in the UK and a FTSE 100 company.
Anderson was leaving Baillie Gifford because at 60 he had reached the mandatory retirement age at the company. But hindsight would make the timing look extremely prescient, as the rally in tech stocks – which had been a feature of the market since the onset of the pandemic – came to a shuddering halt around November 2021, just as he was being measured for a new set of metaphorical golf clubs.
Tech stocks rally
In the three years to March 26, which coincides almost exactly to three years since Anderson retired and covers both the tail-end of the tech stock bull market, its down year of 2022 and the more recent artificial intelligence rally in tech stocks, Scottish Mortgage has lost 20 per cent, while the average trust in the AIC Global sector has gained 9 per cent.
The tech rally of the past year has been kinder to Scottish Mortgage, however – its 35 per cent return is markedly ahead the sector average return of 22 per cent.
As an activist investor, Elliott Advisors seeks to improve how companies are managed to drive improved shareholder returns. Its interests range from ownership of AC Milan football club to a recent bid for UK electrical goods retailer Currys.
A person familiar with the situation says Elliott has form for buying into and changing the focus of investment trusts — in 2017, it brought to an end a seven-year activist campaign to change the investment style of the Alliance Trust, with the latter switching from being directly invested to becoming a multi-manager fund, with Elliott then being bought out of its investment by Alliance Trust.
One analyst, who requested to be quoted anonymously in order to protect business relationships, says their long-term scepticism around the investment case for Scottish Mortgage has not been altered by recent events.
