Scottish Mortgage Trust Upgraded to Gold

Falling fees have led to Morningstar analysts to revise their rating for the trust from Silver to Gold

James Gard 4 October, 2021 | 2:58PM
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Gold trophy

Tech-focused investment trust Scottish Mortgage (SMT) has been upgraded to Gold by Morningstar analysts. Analyst Daniel Haydon said that declining costs, alongside the combination of “a best-in-class team with a well-executed process” has driven the upgrade from Silver to Gold.

Scottish Mortgage is one of the most popular and best-performing UK investment trusts in the UK, reaching a market cap of nearly £20 billion. Its managers have a reputation for spotting disruptive, high-growth companies at an early stage. Among its winning investments are Tesla, Amazon, Airbnb and Spotify. According to Morningstar data, the trust has produced an annualised return of 28% in share price terms over 10 years and 34% over five years. In 2020, Scottish Mortgage was the best performing investment trusts under Morningstar coverage, with a gain of more than 100%.

2021 has seen more volatile returns, with a sharp drop in the share price in the spring. As the trust is exposed to China tech names, it has suffered in the recent sell-off, with shares dropping around 2% in the month.

Baillie Gifford, the growth-oriented asset manager that runs Scottish Mortgage, also announced earlier in the year that manager James Anderson is to leave the firm in April 2022. At the time, Morningstar analysts said that the transition is likely to be smooth. “While this is a loss to the team, it is not wholly unexpected and succession plans have been a long time in the making, fitting with the long-term investment approach employed.

“Indeed, planning goes back over 10 years, with the appointment of Tom Slater as deputy. Slater has been a decision-maker on the trust for over a decade now and will take the lead upon Anderson's retirement. Anderson and Slater are now supported by Lawrence Burns, who was appointed as deputy manager in April 2021.”

2020 Downgrade to Silver

Despite the recent stellar performance, Morningstar analysts downgraded the trust to Silver in August 2020 amid an enhanced scrutiny of fund fees. At the time analysts said: "An ongoing charge of 0.36% is offset when the cost of debt is considered, pushing the representative cost up to 0.77%. This is not as attractive as the management fee alone, although it is still attractive given the access the trust offers to unquoted assets."

The trust can invest up to 30% in unlisted companies, a potentially lucrative but higher risk part of the equity market. “As patient and cornerstone investors in a range of unlisted companies, the 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. The closed-ended nature of the trust makes such investment eminently more appropriate than for an open-ended structure,” says Morningstar’s Haydon.

Scottish Mortgage has staked its reputation on picking top growth companies at an early stage. “These companies will often have been new entrants or disruptors into a region or industry, radically changing the landscape and challenging the business model for the traditional incumbents,” Haydon says.

“Portfolio turnover tends to be very low and active share high as the approach pays no heed to benchmark constituents when making investments.” For more on an explanation of active share, see our recent article on what it means for UK funds.

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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James Gard  is content editor for