Scottish Mortgage: Unlisted Firms Offer the Most Potential

James Anderson, manager of Gold-rated Scottish Mortgage Investment Trust, warns it's getting harder to make real returns in publicly listed companies

James Gard 16 May, 2019 | 9:52AM
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Unquoted companies are increasingly offering the best potential for returns to professional investors, says James Anderson, manager of the Gold and five-star rated Scottish Mortgage Investment Trust (SMT).

After Uber’s (UBER) recent drubbing at the hand of public markets, Anderson’s comments will add to the heated debate over the value of IPOs. “Public listing is an artificial boundary – we want to break it down,” he said at a conference in London on Wednesday.

Anderson, who has managed the £7.7bn since 2000, thinks it will become increasingly difficult for investors, professional or otherwise to generate alpha – or beat the market – with listed stocks.

The 110-year old trust published its annual results on today (Thursday), which showed a rise in the NAV of 14.6% in the year to the end of March and a rise in the share price of 16.5%. Over 10 years the trust's share price has gone up 737%. 

Why does Anderson invested in unquoted companies? The companies will inevitably list anyway, but a lot of the growth and development, especially with tech companies, comes about at an earlier stage.

He got permission from the board to start including unquoted investments in the portfolio five years, when he realised how great the opportunity was. The trust can invest up to 25% of its assets in unlisted companies and currently has around 16% of the portfolio in such firms. 

Among unlisted firms he invests in are a number of healthcare firms, including Grail, HeartFlow and Ginkgo Bioworks. In terms of e-commerce, he hold stakes in HelloFresh and Home24, as well UK money transfer startup Transferwise.

Spotify Took its Time

The trust bought a stake in Spotify (SPOT) in 2015 and the streaming service went public in 2018, 12 years after it founded. The firm went for a direct listing when it floated, meaning that it bypassed the banks and didn't raise any more capital. Over the years, Spotify defied pressure from early investors to float.

Anderson adds that investment trusts, with their lower fee structure than private equity firms with their standard “2 and 20” terms, can offer much lower-cost exposure to high-growth companies.

And rather than cashing out at IPO, Anderson believes that this provides good buying opportunities for institutional investors to top up their stakes.

Scottish Mortgage Trust is one of the best performing UK funds in recent years. The share price of the trust has risen by 22% on an annualised basis over five years, according to Morningstar data.

In a statement accompanying the results, the firm said: "Scottish Mortgage is not intended to be all things for all people and is most suited to those who share its patient, long term approach to investment."

Morningstar senior analyst David Holder says: "Management believes that many companies are able to perform better away from the intraday spotlight of quoted markets where investors and management are increasingly focused on quarterly figures to the detriment of longer-term investment and growth."

Holder adds that the "fund managers have gained the reputation as long-term supporters of management and hence have been able to gain access to a range of unlisted opportunities”.

According to Morningstar data to the end of February 2019, the trust's biggest holdings are Amazon (AMZN), Illumina (ILMN), Alibaba (BABA), Tencent (00700) and Tesla (TSLA).


The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Alibaba Group Holding Ltd ADR77.68 USD1.53Rating Inc173.50 USD-0.70Rating
Illumina Inc139.76 USD2.04Rating
Scottish Mortgage Ord803.20 GBX1.44Rating
Spotify Technology SA253.02 USD-0.77Rating
Tencent Holdings Ltd284.60 HKD-0.91Rating
Tesla Inc199.74 USD0.17Rating
Uber Technologies Inc78.75 USD0.50Rating

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James Gard

James Gard  is senior editor for


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