Dan McEvoy
Tariffs may have spooked the markets, but for the Scottish Mortgage Investment Trust (LSE: SMT), its aim is “pretty simple”: the trust sets out "to own the world’s most exceptional growth companies, wherever we find them, and be long-term patient owners,” says Tom Slater, manager of Scottish Mortgage.
Scottish Mortgage is one of the most popular trusts among investors. Having started in 1909, it is now also a constituent of the FTSE 100 and also features on MoneyWeek’s portfolio of investment trusts.
But while investors are loyal to the long-standing trust, some may still be feeling nervous after shares in the trust plunged 45% in 2022 when markets turned against growth companies during the pandemic.
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Though investors may be feeling anxious once again as tariffs keep the markets on edge, Slater’s confidence in chasing growth is perhaps reassuring, but adds that the trust is “not for everybody”.
“Investors should accept that we're investing in a very uncertain world and that there will be volatility. If you're concerned about volatility, I don't think trying to manage it in the equity market is the way to do it. There are less volatile instruments you can invest in, but I think you have to accept volatility in equity markets and be return-seeking rather than risk-averse.”
Slater tells MoneyWeek that the trust will be investing in China, is not shying away from unicorns and will look all over the globe for the best opportunities.
Investing in private companies
The trust’s primary focus is putting investment into exceptional growth companies for exceptional returns – “and the best companies just happen private”, says Slater.
"One evolution of our approach over the past 15 years is that we've had to go into private companies to maintain our opportunity set.”
He adds that to get access to the best companies, the trust also operates with no global barrier so that it can gain access to the big themes and opportunities.
“If you want to look at Zipline for example, which [specialises in] autonomous drones for medical deliveries and increasingly for general merchandise and food, that’s a private company,” Slater says.
Scottish Mortgage owns more than half of the world's 10 most valuable unicorns.
Its biggest holding is Space Exploration Technologies (Space X) at 8%, and it also has holdings in fintechs like Revolut and Stripe.
“Where we find exceptional growth companies, we're prepared to back the management teams for the long run. And where we see the opportunity growing, where we see the likelihood of success increasing, we will let those positions become big positions.
“We think that's how we make long term returns in stock markets; it’s that small handful of big winners that you manage to hold on to, that you don't chip away at in the name of risk reduction or risk control, but instead, you carefully analyse the opportunity, the upside, and you stay true to that, to those positions.”
Trusts and volatility — is Scottish Mortgage for you?
While volatility is pretty normal for investors, some of the risks present in Scottish Mortgage could mean volatility hits harder and could make some investors nervous, says Slater.
“We're going to produce a very different return to benchmark indices. We will be volatile. We make no apology for that. I think it's one thing that the board has really helped us with over the past 15 or 20 years, is really defining what it is we're trying to do in people's portfolios and why they should own Scottish Mortgage. But we aren't for everybody,” he explains.
While active managers are paid to fish out exceptional companies to deliver a strong return, Slater admits they do sometimes get things wrong and lose money.
But exceptional returns can also balance out losses. ”We made more money in our investment in SpaceX last year than we lost in our investment in Northvolt,” he says. “I think that speaks that getting the big winners is really important, because it pays for the inevitable losers that you get along the way.”
Investing in China: “Ignore China at your peril”
While many investors may be running away from China, Slater argues this could be where some of the biggest opportunities are, flagging a huge disconnect with it having 20% of the world economy but 3% of the market.
“That's why we think you ignore China at your peril, combined with the fact that you get some fantastic entrepreneurs there where people can really operate at a scale in a way that has been more challenging for Western companies.
“Take one of our purchases from last year, which is BYD, a Chinese automaker, which has emerged from this absolutely, viciously, ruthlessly competitive domestic market in electric vehicles (EVs).
"To be the winner in that market, to merge profitable at scale, you have to be really doing something right. You have to be lean. You have to be hungry. And I think that's why they are the one global player that's on a par with Tesla in EVs. And it is why you haven't seen the Europeans actually mount an effective offering in this area, because they're up against companies like BYD. I don't think you can ignore China.”
AI: Scottish Mortgage ditches more than £1.3 billion in Nvidia
The trust invested £65 million in Nvidia in 2016 and last year sold £1.3 billion of Nvidia stock – taking the profits while also demonstrating what it means to get into a company early. In 2024, Nvidia became the fourth biggest company in the world.
Slater said that while the trust is keeping a keen eye on artificial intelligence (AI), there were concerns whether margins were sustainable.
“AI is sufficiently important general purpose technology that it will be ubiquitous. But for it to be ubiquitous, it has to be cheap. We've seen previous technology waves, whether laptop PCs, laptop computers, mobile – part of the driver of the spread of those technologies was that they kept going down and down in price.
"So, when we've been looking at AI systems, we've taken the view that while some of the capabilities of these systems are really impressive, they are just too expensive. And for them to become ubiquitous, they have to get cheaper and cheaper and cheaper.”
Scottish Mortgage’s full year results
Scottish Mortgage announced its results for the year to 31 March 2025 on 22 May.
Its share price gained 6% and net asset value (NAV) rose 11.2% – bearing the FTSE All-World Index, which returned 5.5%.
That implies a widening discount: this grew from 4.5% to 9%, which is roughly in line with the investment trust sector average of 9.1%
“In a volatile world, resilience is a strategic advantage, allowing companies to adapt and emerge stronger,” said Justin Dowley, Scottish Mortgage’s chair.
The trust deployed £132 million in new capital during the year, including into new buys Revolut and Enveda, as well as providing follow-on funding for holdings like Zipline, PsiQuantum and Databricks.
The board announced it would put at least £1 billion aside for share buybacks last March, and it has since bought over 222 million shares through the scheme, costing £2 billion.
“The year has been one of compounding progress despite a disorientating backdrop; markets remain volatile, interest rates are higher, confidence remains fragile and economic uncertainty endures,” said Slater.
“But beneath the surface noise, the companies we back have, in many cases, delivered quietly impressive operational results. They have grown more resilient, more disciplined, and in several cases, more profitable.”
Slater highlighted the impact that generative AI has had on returns this year, with Meta and Spotify among the strongest contributors to the trust’s returns.
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