Backing Facebook since its public listing in May 2012 has taught Scottish Mortgage Trust (SMT) joint manager Tom Slater a few things.
Aside from the initial public offer (IPO) initially running into problems due to delays on US stock exchange Nasdaq, Slater says sticking with the stock through the debacle and subsequent share price falls highlighted the importance of patience when investing. He and co-manager James Anderson knew the management company well and continued to see the long-term investment case.
‘We were able to be long-term supportive shareholders, which was important for the relationship with them,’ Slater said.
Fortunately for the duo, the share price recovered and is up 99.4% since the IPO. The experience also showed them the importance of backing companies while they are still private and getting to know management teams well at this point.
Slater acknowledges he could have benefited from backing Facebook (FB.O) pre-IPO. ‘We are trying to get better at identifying some of these businesses that are coming through from the private sector to public markets,’ he said.
Running a 'closed-end' fund with a limited number of shares means he is able to this, and the Scottish Mortgage trust currently has 4% of its assets in unlisted companies.
These include Indian e-commerce company Flipkart, Dropbox and SurveyMonkey. He and Anderson also invested in Alibaba (BABA.K) pre-IPO and continue to hold a stake in the e-commerce stock.
The two managers are particularly bullish on disruptive companies that are bringing technologically-enabled change to sectors that have historically evolved relatively slowly. It is a big theme running through the £3.6 billion portfolio, with the rise of these models in healthcare being a newer sub-theme.
For example, genetic analysis specialist Illumina (ILMN.O) is now the trust’s largest position at 8.5%. Other stocks in this area include Myriad Genetics (MYGN.O), Alnylam Pharmaceuticals (ALNY.O) and Intuitive Surgical (ISRG.O), which manufactures robotic surgical systems. Slater expects this to be a growth area.
In the same way electric car maker Tesla (TSLA.O) has changed the automotive industry, he believes peer-to-peer lender Lending Club Corporation (LC.N), which achieved a $7.4 billion valuation with its flotation in December, can break the banks’ historic monopoly on prime consumer lending.
Meanwhile e-commerce is an established theme in the trust and one that Slater reckons has even further to go, particularly in emerging markets.
Of Alibaba, he said: ‘We think e-commerce can grow far faster in China than the West, as they don’t have modern efficient high street retail to compete with.’
Scottish Mortgage shares currently trade on a 1.2% premium above net asset value. Over the past three years the trust has posted a 97% share price return versus a net asset value return of 74.7%. This compares to a 47.6% rise by the FTSE World index.