Scottish Mortgage (SMT) managers James Anderson and Tom Slater have confounded critics who predicted they would reduce their support of controversial tech entrepreneur Elon Musk by upping their holding in Tesla, his electric car company.
Annual results for the £7.7 billion global fund - the only equity investment trust big enough to join the FTSE 100 - list Tesla (TSLA.O) as one of 35 ‘significant’ investments made by the pair as they responded to opportunities and sought to deploy a steady inflow of money from investors.
Making good a commitment made by a fellow Baillie Gifford partner in an interview with the Times last October to provide Musk with more capital if he required it, the managers raised SMT’s position in Tesla to 5.3% from 4.6% in the second half of the year, maintaining it as the portfolio’s fifth largest holding.
Accounts show the fair value of the stake increased from £344 million in September to £428 million at the end of March and contributed to the trust’s strong performance in the previous 12 months.
An underlying 14.6% total return on net assets underpinned a 16.5% total return for Scottish Mortgage shareholders, beating the 10.7% gain from the FTSE All-World index. This takes the 10-year total shareholder return to 737%, more than three times the return investors could have got from the stock market benchmark.
The largest contributors to the annual performance were three big stocks Anderson and Slater have held for over five years, fitting in with their focus on long-term results.
Amazon (AMZN.O), SMT’s top holding in Jeff Bezos’ sprawling $900 billion web services giant, grew by 32.4% and accounts for 9.6% of the fund’s assets; followed by gene sequencer manufacturer Illumina (ILMN.O), a 7.5% position, which rose 41.5%; and Kering (KER.PA), the French luxury goods retailer behind Gucci and Yves Saint Laurent, which generated a 41.4% return.
However, it is likely the Tesla position will attract more attention. Although the managers’ commentary was not included in today’s results - but will appear when the annual report is published at the end of this month - both have previously expressed surprise at the hostility Musk generates as he strives to reinvent the car and energy markets with Tesla.
Last year the duo’s long-standing support for Musk was tested when the maverick boss’ increasingly erratic behaviour saw him smear a British diver and draw the ire of US regulators with a tweet that he had the finance to take Tesla private. No offer ever emerged.
Watch our interview with James Anderson last year in which he talks about Elon Musk.
They stuck by their man, however with today’s results also confirming a £50.5 million investment by Scottish Mortgage in SpaceX, Musk’s satellite and rocket company.
High investor demand for Scottish Mortgage’s success saw the trust issue over £400 million of new shares during the year, a remarkable result for a supposedly ‘closed-end’ fund with a fixed pool of capital.
This inflow of money kept the managers busy with a series of top-up and new investments, particularly in unlisted companies where 17% of Scottish Mortgage is allocated in a bid to capture growth in tech firms that are staying private for longer.
In addition to SpaceX the second half of the year saw new unquoted investments in Recursion Pharmaceutical, which uses image recognition and machine learns to discover new drugs; online lending platform Affirm; Sana Biotechnology and ARCH Ventures Fund X.
Many of these billion dollar plus ‘unicorns’ will eventually make it to the stock market, where Anderson and Slater like to hold and build on their positions where possible. To this end they lifted their holding in ride-sharing app Lyft (LYFT.O) following its $24 billion flotation at the end of March when it accounted for 1.1%, or £92.4 million, of Scottish Mortgage, more than double the 0.5% weighting six months earlier.
Lyft has had an uncomfortable ride since listing on the US Nasdaq technology exchange and raising $2.3 billion. From an initial public offer (IPO) price of $72 the shares have tumbled to $54 as investors have started to doubt whether the startup can ever achieve profitability as it seeks scale.
Those fears have been compounded by the equally poor start to trading for bigger rival Uber which floated on the New York Stock Exchange last Friday. Despite slashing its valuation from the $120 billion mooted by investment bankers last year to $82 billion its shares have dropped from $45 to $41.29, up from a low of 39.29 at the start of the week.
Anderson and Slater turned down an opportunity to invest in Uber (UBER.N) four years ago when the company was beginning to be embroiled in the allegations of sexism and bullying that would force co-founder Travis Kalanick to step down as chief executive.
It is now known yet what Anderson and Slater think of Lyft’s disappointing debut but they are likely to take it in their stride, having more than doubled their return on the company in the year before it floated as its valuation increased with funding rounds from investors.
However, their commitment to companies is not set in stone. The duo have dropped Dropbox (DBX.O), the cloud storage company which they backed before it floated in March last year. Since then the shares have risen modestly from $21 to $22.81, valuing the company at over $10 billion.
The managers also reduced former favourites such as clothing retailer Inditex, Chinese internet company Baidu and social media giant Facebook (FB.O).
Although pre-eminently a growth fund, Scottish Mortgage does pay dividends. A final payment for the year of 1.74p per share brings the total to 3.13p, up 2% on the previous year. The revenue return per share backing this was only 1.64p, though up from 1.2p last year, which meant the company had to draw on its capital reserves to make up the difference.