Scottish Mortgage investors should consider locking in gains after the Baillie Gifford investment trust’s strong performance during the coronavirus pandemic and ahead of potential changes in market conditions, argues analyst Stifel.
James Anderson’s investment trust has risen 57% since the start of the year and almost doubled from its share price low of 468p on 18 March. Its opening share price on Wednesday was 905p. By contrast, the FTSE World Index has risen 29% since the start of the year.
Tesla and Amazon are among the standout performers this year delivering 442% and 71% respectively in the year to 17 August. The former represented 14% of the portfolio at the end of June compared to 9% at the end of March.
“Taking into account the gains that have been made and the increased weighting many portfolios will have in Scottish Mortgage shares following their relative outperformance, compared to other equities, we believe that banking some profits could be a contrarian but prudent course of action,” Stifel said in an analyst note issued Wednesday morning.
Stifel currently holds a neutral rating on Scottish Mortgage.
While the 7% gearing had enhanced returns as the share price rallied, Stifel argued it would compound falls if markets turn. The analysts were also concerned about concentration in the portfolio with the top 10 holdings representing 58% of NAV.
The analysts argued that investment trust net asset values and share prices do not move in a straight line indefinitely.
“What none of us knows is what the catalyst will be for a change in market conditions,” the note said. “Scenarios include: 1) A rotation to value stocks from growth; 2) Change in US policies on tech companies if there was a change in administration in November’s election 3) Market questions the valuations of tech and growth stocks.”
Nevertheless, Stifel described Scottish Mortgage as a core holding and said it had a number of positives in its favour.
It noted over the 10 years to 31 March, the NAV had returned 361% compared to 128% returns in the FTSE World Index and Baillie Gifford’s access to unlisted investment opportunities. This year, Scottish Mortgage’s largest unlisted holding, Ant Financial, which represents 2.5% of NAV, is set to IPO, which Stifel reckons will support sentiment regarding the investment trust’s unlisted holdings.
See also: Active advocate Baillie Gifford trounces Vanguard and Blackrock for UK fund flows
