Scottish Mortgage Investment Trust was once described as the UK stock market’s biggest technology company. While technically true, in that it was big, owned tech assets and was British, the image the sobriquet conjured up, of an equivalent to Alphabet or Amazon, was miles from the truth.
SMT today has a market value of over £9bn, but as its name implies, is a collection of investments, although in tech businesses rather than mortgages (the name is a hangover from another century). It grew by spotting emerging technology companies and placing big bets when they were small.
As the tech boom got underway, the shares multiplied threefold in two years, turning the lead manager, James Anderson, into something of a cult figure. Two years ago, he retired, coincidentally at the peak of the tech boom. Since then, along with the underlying investments, the share price has tumbled, from £15 in November 2021 to 670p today, and now the board has had a very public bust-up, costing the chairman her job.
Investment trusts are priced off the value of their underlying assets. A few fashionable ones stand at a premium, but as fashions change, they can fall to a discount. In that case, logic suggests that the best investment the manager can make is to buy in the trust’s own shares – after all, he is buying a portfolio of the stocks he likes at less than their market value.
For SMT, the calculation is not so simple. It grew rich buying into early-stage tech, and today 30 per cent of its assets – its self-imposed ceiling – are in 52 unquoted businesses, hoping to repeat past successes. But many of them will need more capital in future funding rounds, and the trust already has an uncomfortable level of debt. Selling some of the quoted investments instead would automatically raise the proportion of unlisted, breaching the guidelines.
Worse still, valuing such investments in a bear market is highly subjective, and is one reason why SMT shares now trade on a near-20 per cent discount to published net asset value. This was all too much for Amar Bhide, who left the board amid recriminations about whether Baillie Gifford, the trust’s management company, had the expertise to run the unquoted portfolio.
Getting out of this gluepot will be a severe challenge to the recently-promoted managers of the trust. Everyone has the grim example of Neil Woodford in their minds. His Woodford Equity Income imploded, in part because of its long tail of unquoted investments.
WEI was an open-ended investment fund, where investors could withdraw their money at its net asset value at anytime – until it had to shut following a run of redemptions. SMT is a closed-ended investment trust, and a selling investor must take the market price – currently after that 20 per cent discount.
These sorry tales prove the old adage: An open-ended fund is one where you can get your money out at any time, until you can’t, while a closed-ended trust is always open to sales, although you might not like the price you are offered.
Clive Black is not a fan of Ocado. Actually he never has been. The senior analyst at Shore Capital has been a consistent, ferocious critic of this ultimate jam-tomorrow business, and after the latest trading statement (the usual mixture of losses and optimism) he has rustled up some choice insults.
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“Hopefully, Ocado’s business model is evolving to the point that cash flows emerge from the billions of pounds of capital investment to at least yield a positive return on investment, maybe self funded R&D, perhaps even earnings per share… We shall keep praying albeit the patience of a Nepalese monk may also be necessary.”
For those who see those vans breezing about the place as a mark of success, it’s worth pointing out that at 530p, the shares are the same price as they were five years ago, having been up to £28 in the meantime. As Black rather wearily concludes his note: “Due to chronic fogginess and an ability to miss every market estimate, we do not seek to model Ocado Group’s financial output.”
With Jonathan Ford, Neil Collins publishes a weekly free podcast, A Long Time In Finance. Listen on Spotify or Apple apps.
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