Investors are contemplating the future of Scottish Mortgage without James Anderson at the beginning of a cyclical recovery, but remain hopeful the trust will come out the other side thanks to Baillie Gifford’s succession planning and continuity with co-manager Tom Slater.
Earlier today Baillie Gifford announced Anderson (pictured) would be stepping down as manager on the £16.5bn trust, leaving co-manager Slater in charge and Lawrence Burns to support him as deputy manager.
Since taking the reins of Scottish Mortgage in April 2000, toward the end of the dotcom bubble, Anderson’s trust has returned 1,529.9%, three and a half times higher than the IT Global Average of 426.1%, according to FE Fundinfo.
AJ Bell head of active portfolios Ryan Hughes noted that is the equivalent of turning a £1,000 investment into £18,000, compared to just £4,440 if invested in the FTSE All World benchmark.
Last year was another bumper year for the trust which saw its share price more than double from 587p to 1,214p while other funds fell by the wayside during the Covid crisis.
Much of Anderson’s success boils down to his “high-conviction approach,” Hughes said, which has been a driving force behind his willingness to invest in early-stage companies and hold them while they become global winners, with Amazon, Tesla and Alibaba all being great examples”.
But recently the trust has seen a reversal of fortunes as the recent spike in treasury yields amid fears over rising inflation has seen a rotation back to value stocks. Last Monday its shares were down 30% from their mid-February highs but have since clawed back some of those losses.
Continuity through Tom Slater means investors shouldn’t have major concerns
Scottish Mortgage shares lost nearly 4% as markets opened on Friday but by mid-day were trading 2% lower than the previous close at 1,130p.
Hughes said that while news of Anderson’s impending departure may be “unsettling,” the “strength of the team-based approach, long handover period and continuity through Tom Slater” means investors shouldn’t have major concerns.
“Slater has worked at Baillie Gifford for over 20 years and been a manager on the trust for the last 10 years ensuring that he knows the portfolio inside out,” Hughes said.
“As a result, I expect no change to the approach which should hopefully give investors reassurance that the investment process will remain intact.”
The ‘highest profile investment trust manager departure in living memory’
However, Interactive Investor said it was placing Scottish Mortgage, which appears on its Super 60 list of investments, under formal review following the news.
II head of fund research Dzmitry Lipski said this was “in line with our process when a key fund manager departs”.
Lipski said Anderson stepping down represents “the highest profile investment trust fund manager departure in living memory”.
“It is significant because Scottish Mortgage is one of the most widely held investment trusts in the sector, and with total assets under management of around £17bn, it is the heavyweight of the investment trust sector by a long way.”
Ratings agency Fundcalibre said it would not be removing its Elite rating on the trust.
Managing director Darius McDermott said: “The way Baillie Gifford runs its business is by having co-managers on all of its products, putting it in a strong position for succession planning.
“The trust is run on a team-based approach and has a well-defined investment philosophy focusing on secular growth – none of which is likely to change. We’d like to wish James all the best in the future and congratulate him on a great career, having produced stellar returns on this trust in the past two decades.”
Timing of departure comes ironically when market’s love affair with growth is waning
Tilney managing director Jason Hollands notes the timing of Anderson’s retirement plans “ironically come at a time when the market’s love affair with ‘growth’ stocks has shown signs of cracks” like when he stepped up to run the trust after the dotcom bubble burst.
Hollands said Anderson has become the “poster boy for the investment trust sector” and has been “instrumental in reinventing perceptions of investment trusts altogether”.
“For despite its venerable sounding name and history, Scottish Mortgage has been the vanguard for investing in cutting edge industries of the future.”
Winterflood research analyst Simon Elliott said the idea that Anderson’s retirement reflects his view on the future prospects of growth companies is “nonsensical”.
“In our opinion, this development should not be a concern for shareholders in Scottish Mortgage,” Elliott said. “Tom Slater, the fund’s co-manager since 2015, is an experienced investor and we rate him highly. We do not foresee any change to the investment approach or rationale as a result of the forthcoming change to its management.”
