Reporting for the six months to end September 2014, the Scottish Mortgage Investment Trust said the number of companies redefining the business models in their sector as a result of technological shifts is growing exponentially and is impacting “an ever broadening range of industries and business models.”
SMIT believes that the networking effects often found alongside these technological shifts tend to concentrate the rewards in the hands of fewer and fewer winners, which makes stop selection ever more important.
SMIT added that the combination of these trends means “the potential rewards on offer for patient stock pickers, investing in the disruptive growth businesses of the future, could be very exciting.”
“The sheer range of industries across which this type of change is occurring, means that it is no longer appropriate to see ‘technology’ as a homogenous group,” it said.
This philosophy is reflected in the types of companies to which the trust is currently exposed, such as Baidu, Tencent, Facebook, Google, Amazon, Tesla and Illumina.
According to SMIT, the other feature many of these companies share is that they have not required the same high levels of initial capital investment in order to grow and they are cash generative sooner and, as a result, tend to list later on in their growth phase.
This means, SMIT said: “that the route to participating in their growth phase, when the highest potential returns are on offer, is increasingly through the purchase of unlisted shares.”
The most notable example of this, SMIT said is Alibaba, the dominant Chinese e-commerce business, which it bought into in 2012 and which listed on the New York Stock Exchange in September this year.
“Although the level of the unquoted investments within Scottish Mortgage has fallen as a result of Alibaba’s public listing, investors should continue to expect such investments to form an important, if relatively small portion, of the portfolio,” it said.
For the six months, SMIT reported a 12% fall in earnings per share largely, it said, on the back of a poor performance by Polish miner KGHM.
But, it added, over the same period net asset value per share rose 9% and the share price jumped 12.1%.
