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Holly's Blog: A challenge from Mr Mackay Senior

11 July, 2017

Earlier this week I had a chat with Mr Mackay Senior, one of the most audacious and smartest investors there is. Like so many, he holds the Scottish Mortgage Investment Trust (SMT), perennial bestselling investment trust on many platforms, (which has shot up by 50% over the last three months, 250% over the last 5 years) and was asking himself about taking profits and getting out.

Trouble is – where else to go? Hmmmmm. I didn’t really have a good answer. So this morning I spoke to James Budden, Director of Marketing and Distribution for Baillie Gifford, company behind the SMT and others. And asked him the question.

Active shares and using your loaf

First on the trust’s success and growth. James makes the very clear point that it is run by stock pickers. People who fundamentally believe in the changes driven by technology. They pick companies they believe in, hold them for a long-time and don’t dip in and out of things, tweaking and fiddling all the time. Cut this fund and it does indeed bleed tech and innovation – Tesla, Amazon, Tencent, Netflix and Alibaba for example.

(For any interested readers, have a look at what we call the ‘active share’ and also turnover levels of any fund you hold. The active share looks at how similar a fund is to an index. If you flat out copy the FTSE 100, you have an active share of 0%. So if you are paying for an active manager to use their loaf, you do not want to see a low active share – which means they’re basically being chicken and not making meaningful decisions. The SMT has an active share of 94%. Other DIY investor darling Fundsmith has an active share of about 90% in his Equity fund. Not chicken.)

Looking under the bonnet of other funds in the Baillie Gifford stable, such as the American fund or the Positive Change fund, Tesla is a huge component of all of these. Are they not worried about hitching their wagon as a company to a few massive businesses which pop up in most funds. What if Elon has a wobble?

Unsurprisingly, I’m told they’re not worried. Global trends are driving the decisions. This is a game of probabilities – with no crystal ball, we can but ask if things are more likely to happen or not? Do we believe in the advance of electric cars and the collapse of carbon – is this more likely to happen than not? Has Covid accelerated this? Yes. And yes.

Another big view is the ongoing rise of China and the Far East. "Ah", I said. Should Mr Mackay go East? Well in a way he already is, as the Trust holds Alibaba and Tencent – 17% is invested in China.

Are they not concerned about the ongoing squabbles between the US and China? James talks about a perceived inevitability about the clash and some form of ongoing commercial Cold War, but not a sense that this materially impacts China’s long-term aspiration and potential. Conversely he thinks that societal imbalances in the US create a more challenging backdrop for economic success – and that this market has the tougher outlook.

Global is less grey

Finally we get on to discussing the broader and longer-term market outlook. I don’t talk to anyone in the investing world these days who does not see huge ongoing volatility and yes, a further downturn at some point, as job losses and economic slowdowns bite. James was sitting in Scotland and reminded me that the two biggest industries there are oil and tourism. 'Ouch', indeed. But despite the short-term grey clouds, he sees continued global opportunities – although he’s less convinced about the UK.

It’s true that most UK investors have grown up with a UK-centric view, led for years by fund managers such as Anthony Bolton and Neil Woodford (who remember had demi-God status but a few years ago). If we wanted income – we thought UK, not global. We favour known and local brands. We worry when Tesla gets bigger than Exxon Mobil, as it did this week. This challenges our perceptions of “what is right”. This must be wrong, there must be a correction coming, things will 'get back to normal’...

I see Dead Things…

I agree that it is worth re-considering our relationship with UK-centric funds and indices. For example, 10% of the FTSE100 is non-renewable energy. 6% is tobacco. If we really strip the concept of investing back to its core – using our money to back growth, development and ultimately to build and own a slice of the future – what is the point of investing in ‘dead stuff’? It doesn’t logically make much sense.

Sustainable investing is top of the pops now - and before anyone starts, there’s enough research out there to debunk any concerns that this involves performance sacrifices. For those interested, we’ve crunched together the sustainable/ethical fund shortlist on 8 leading investment platforms and you can see the latest inclusions and recurring favourites here (

It's super interesting to think about our reactions to both technology and sustainable investments, which are dominating column inches and also returns right now. Do you see technology as a sector? Do you see sustainable as a sector and/or a style? Or are they both, in fact, just common denominators which will run across all successful businesses? So not sectors or styles at all? Here’s some food for thought – anyone aged 40+ will remember the job title of “ecommerce manager”. Millennials may find the concept of a single person in a large firm being responsible for this a trifle confusing. What on earth was everyone else doing?? The 40+ brigade are also more likely to say “mobile phone” whereas a 20-something will just say “phone” – was there ever any other sort?

Our relationships – and interactions – with technology and sustainability cannot stand still.

Yes, jolly interesting yadda yadda, but answer the damn question Holly...

So what to do? As always, the frustrating bit about investment is that there’s never a sure-fire right answer. After a very pleasant and occasionally philosophical chat with James, I’m still not really sure what to say to my Dad. The people running the SMT have made some pretty shrewd stock picks over the last 10 years, so no reason to think they will lose their mojo. At some point this year or next I’m sure there will be more falls in markets, so having a cash buffer feels important. There will be a time when the Daily Mail is screaming Armageddon, when it will be a lovely time for people with cojones and cash to buy. Don’t forget to look East.

And perhaps – older readers – question what you have learned over the last 40+ years of investing from a UK base – and ask if you are global enough and future-facing enough? And should technology and sustainability be a sector decision – for maybe a few 5% chunks of your overall portfolio – or in fact just the way of the world in 2020? (Tweet this ( 👆)

Have a lovely weekend everyone.

I will be out on a wee break next week and so normal service will resume in a fortnight. Am awaiting the incoming call from Dad to complain about a lack of specificity ;0) ...