Morningstar analysts have reinstated Scottish Mortgage’s gold rating, despite bumpier performance and the impending retirement of its frontman James Anderson.
The £19.1bn trust was upgraded from its silver rating by analysts earlier this week thanks to slightly lower fund fees.
Last August it was downgraded from gold to silver as Morningstar made changes to the way it rates funds, including greater scrutiny of fund fees. While the research and ratings firm said the trust’s ongoing charges figure of 0.36% was low, they argued the additional cost from gearing makes it “less price competitive”.
Twelve months on and the OCF has edged down to 0.34%, while invested gearing is around 7%.
“Scottish Mortgage Trust continues to deliver on its unique hyper-growth mandate,” analyst Daniel Haydon said in a note.
“Overall costs to investors have declined modestly in the past 12 months, and alongside the combination of a best-in-class team with a well-executed process, this results in the strategy receiving a Morningstar analyst rating of gold.”
Scottish Mortgage battered by value rotation and China sell-off
Scottish Mortgage’s reinstated top rating comes despite the trust enduring a more volatile period for performance this year.
Though managers Anderson (pictured) and Tom Slater began 2021 on a high with shares hitting a record £14.15 in mid-February, they were soon battered by the value rotation and had slumped to £10.17 by early March.
The China sell-off has also added to Scottish Mortgage’s woes, shaving 2% off its share price in September as its punchy positions in tech giants like Tencent and Alibaba were hit.
At £13.68 each, it shares are trading at a 2.9% premium to net asset value, according to the Association of Investment Companies.
“The nature of this high-growth, leveraged portfolio means performance is likely to be volatile, as demonstrated by the notable drawdown in March 2021,” Haydon said. “While we are reassured by the experience of the portfolio management team, risk-averse investors need to factor this into their considerations.”
See also: Can Baillie Gifford endure a long-term value rally?
Morningstar reassured by Anderson succession plans
The impending retirement of Scottish Mortgage lead manager Anderson in April 2022 has also not dampened Morningstar’s outlook on the trust.
Haydon said while Anderson’s departure is “a loss to the team,” succession plans have been in place for a long time, with Slater stepping up as deputy manager and a “decision-maker” on the trust over 10 years ago.
Slater and Lawrence Burns, who was appointed as the new deputy manager in April, have “accrued all their investment experience in-house and share a common investing DNA,” Haydon added and will also draw on Baillie Gifford’s 100-strong investment team.
See also: Morningstar downgrades Nick Train’s £9bn global equity fund as it falls behind rivals
