Speaking at a breakfast roundtable event on Wednesday, the manager of the £1.5bn Jupiter Absolute Return fund joked that the lead Scottish Mortgage Investment Trust manager was his “nemesis” or “alter ego” because he is often buying what Clunie is shorting.
Clunie is currently shorting 15 of the £7.2bn trust’s long positions, including longstanding favourites Amazon, Tesla and Netflix. He also has a “small” short position out on the Scottish Mortgage trust itself.
Clunie’s preference for “ugly” value stocks has resulted in the fund taking long positions in UK and Japanese companies and shorting “US-glamour” stocks or “loss-making companies with rapid sales growth”.
This differs from Anderson’s approach to stock picking, he said, which favours “lean firms that have grown fast and will continue to grow and will dominate the world”. “But I think, where’s the balance of evidence here?”
Case against Tesla ‘overwhelming’
In particular he struggles with Anderson’s sizeable stake in electric car maker Tesla.
Baillie Gifford is the largest institutional shareholder in Elon Musk’s car company, owning some 13 million shares in the business. It is the fifth largest holding in Scottish Mortgage, representing 5.9% of the portfolio as at the end of January.
Anderson has previously justified his large stake in Tesla by arguing the potential asymmetric payoff is worth the risk. “The upside from here, if Tesla succeeds, is much larger than the capital we have invested – just as it has been since we started owning the stock when it was $30-40.”
But Clunie thinks the evidence for the investment case against Elon Musk’s car company is “overwhelming,” noting that the firm’s problems of ramped up competition, regulatory pushback and production and staff issues have been well documented.
“My view is that he should be smart enough to take that position down,” said Clunie.
He is also shorting another Baillie Gifford-owned electric car company, Nio, which recently released a “catastrophic” statement.
Clunie said his bottom-up approach looks “logical and sensible” over the medium-term but is “really painful right now” in the midst of a US growth-led bull market.
Clunie’s fund has failed to beat other rivals in the IA Targeted Absolute Return sector over the short-term during what has been a difficult period for the sector generally.
|Jupiter Absolute Return||-2.8||-0.9||-1.8||-1.2||8.9|
|IA Targeted Absolute Return||1.4||-0.8||-1.5||4.2||7.2|
By contrast, Scottish Mortgage’s growthy tech companies have helped keep it in the top quartile of investment companies in the IT Global sector over one, three and five years. However, the trust was hammered in the market selloff last October and again in December.
Despite the recent underperformance, Clunie said he was sticking by long value/short growth approach, forecasting the end of the bull market. He said empirical and academic studies have proven time and again that “a classic mistake investors make is to shun value and buy growth”.
“Maybe people are smart enough to pick the ones that do grow and shun the ones that don’t. If you buy loss making companies with enormously aggressive assumptions bad stuff can happen,” said Clunie. “I admire the Scottish Mortgage track record, I think they’re great. Hopefully there’s scope within the long-run that we’re both right.”