Is Scottish Mortgage a Poisoned Chalice?

Investor Views: James Anderson's decision to leave the trust next year has been well managed by Baillie Gifford but the incredible gains surely can't last forever

Holly Black 19 March, 2021 | 11:15AM
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If I were a fund manager and I were choosing when to leave, it would definitely be after I’d delivered a 125% return in a global pandemic year. It surely doesn’t get much better than that. So who can blame James Anderson for announcing plans to move on after 21 impressive years as the manager of Scottish Mortgage Investment Trust?

Investors will doubtless be disappointed; the manager has become synonymous with the success of the trust and its phenomenal track record in spotting disruptive stocks and the stars of the future.

When a fund manager leaves to join another company or set up his own, investors are faced with the decision of whether or not to follow him. Anderson's departure presents a different question. And Scottish Mortgage is rather a unique proposition; there aren’t many obvious alternative funds with a comparable mandate or track record to move to instead.

This is though, a fantastic example of how succession planning should be done in fund management. No shock announcements or abrupt decisions - Tom Slater (who will take over running the trust) has been immersed in its strategy since 2015 and investors have more than a year to get used to the idea before Anderson actually departs.

While everything is being handled in a very sensible way, I can’t help but feel that Slater is being handed something of a poisoned chalice. Investors have become very used to enjoying phenomenal returns from this fund – it hasn’t finished a discrete calendar year in negative territory since 2011, according to Morningstar data. That can’t continue forever. It’s just a simple fact that market exuberance and the current tech euphoria will, at some point, come to an end. And if that happens in the first few years of Slater’s tenure as lead manager, he’s going to be blamed for it. It wouldn't be the first time we've seen this happen (think Barnett taking over Woodford's Invesco funds)

The investment trust structure is a benefit in this situation – even if investors flee, the manager does not have to deal with outflows, because there are fixed number of shares in issue. Instead, the share price goes down, and that’s not the end of the world. But I can’t help thinking that, for Slater, the ideal scenario would be that Anderson has a mediocre final year in office, so expectations aren't sky high.

Is Investing Child's Play?

How do you make investing interesting to a child? It’s not an easy problem for a parent or grandparent to tackle, but evidence does tell us that the earlier a person can get into good savings habit, the more likely they are to continue this through adulthood.

My colleagues Dan Kemp and Christine Benz have some great – and opposing – ideas on the subject, and any young people in their families are lucky to have these investment gurus as mentors. For me, the concept of investing was something that definitely didn’t come up in my childhood, but I was encouraged to save.

I was very lucky that one of my grandparents put some money into a savings account when I was born, which was handed to me at age 18. From memory, the initial investment of around £100 had grown to almost £1,000, which seemed like some kind of witchcraft to me at the time – I now understand that this was nothing more than compound interest at work.

My parents also opened a buildings society savings account for me, and my Dad used to match what I saved into it. While giving up £10 or £20 of my birthday money seemed fairly tragic, aged just 7 or 8 even I could see that not taking advantage of this offer would be looking a gift horse in the mouth. Again, I was able to take control of this account at age 18.

And despite never being given any formal lessons in money management, something sensible must have been instilled in me somehow because I can confirm I did not splurge all of the money down the pub. Instead I put it towards driving lessons and university costs.

Parents have so many pressures on them when it comes to how they raise their children, and saving for their kids and teaching them the value of money is just another item on that endless list. To anyone worrying, I can only say from my own experience, that you don’t have to be an investment expert and conduct weekly lessons on the stock market and economics to get a good outcome.

 

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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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Holly Black  is Senior Editor, Morningstar.co.uk