A guide to Scottish Mortgage Investment Trust 

Research shows that only a small number of companies make investing in the stock market worthwhile; these are unique businesses with the ability to transform their respective markets. Scottish Mortgage Investment Trust (SMT) looks to seek out these business models across the globe, believing that over the long term they can take advantage of the asymmetric pay-off of uncapped upside and bounded downside. The result is a highly active portfolio (90% active share). SMT has delivered on its aim in the long term, with names like NVIDIA (80x growth), Tesla (25x), Netflix (13%), Amazon and Spotify (both 12x) just some of the generational company success stories it has tapped into*.

Managed by Baillie Gifford, SMT is not for the faint hearted – all the aforementioned companies have seen drawdowns approaching or above 50% during the lifetime of the investment*. However, the team are willing to stomach this once they believe they have identified sustainable models which they can hold for more than five years and generate significant upside.

SMT is managed by Tom Slater and deputy manager Lawrence Burns, who replaced industry veteran James Anderson in 2021. Long-term performance has been excellent, with total return (share price) of 288.3% in the past 10 years (NAV has risen 351%), beating the FTSE All-World benchmark (196.9%)**.

Investment Process

With a strong growth bias, the portfolio tends to have a relatively high allocation to technology companies. The team at SMT focus on the long-term potential of a business rather than its current value. In their own words, they “own companies rather than rent shares”. The managers also try to avoid forecasting the direction of markets or economies.

The number of equity holdings will typically range between 50 and 100 and the portfolio can be relatively concentrated. The managers do focus on diversification when building their portfolio, but an unconstrained approach is adopted, meaning there are no fixed limits from a geographical, industry or sector exposure standpoint. Scottish Mortgage also has an allocation to unlisted companies, the majority of which are late-stage businesses which have already demonstrated reasonable growth.

Why now for this portfolio

• Exceptional long-term track record of alpha generation by investing in a global portfolio of transformative businesses
• Falling interest rate environment should offer a more attractive investing climate following a challenging period
• SMT remains on attractive double-digit discount
• The trust has a history of finding attractive unlisted companies to drive returns
• 90% active share with a top 10 that looks markedly different to their peers
• Lowest annual management charge in the sector

Manager’s View

“We are increasingly convinced that in the short term the stockmarket looks a bit broken. However, in the long term we genuinely believe there remain big opportunities and I would say there has never been a better time for the long-term investor to invest in a high growth portfolio like the one we aim to construct.”

SMT investment specialist Hamish Maxwell says there is no doubt we have moved into an era of increased volatility – citing the trillions of dollars coming and going from the market one week after another. As a result, there has been an increased obsession with news and daily prices, with volatility jumping for the likes of earnings calls. Maxwell says this short-term malaise is almost shrouding the longer-term view (5-10 years), which is that earnings and revenue remain the main driver of a company’s share price: “The market is deeply frustrating over shorter periods, but there is still that north star of focusing on finding companies with the ability to grow their revenues and earnings faster than the rest of the market,” he adds.

Volatility is nothing new for a trust which has a history dating back to 1909. SMT’s goal is to cut through the noise to find those generation-defining companies, which offer something better to the consumer. Today’s drivers include the likes of artificial intelligence (enablers and infrastructure); digitalisation of commerce and finance; the future of advertising and entertainment; healthcare innovation and energy transition – all of which are major themes running through SMT.

Research conducted periodically by SMT reaffirms the view that only a small number of companies drive overall returns in markets. These businesses can come in different shapes and sizes – it might be a relatively new business like Chinese commerce offering PDD (which has delivered a 6x return for shareholders since its IPO in 2018) or a business like Ferrari, which although founded in 1940, has delivered an 11x return for SMT shareholders over the past decade***. Other examples in various industries include NVIDIA (growth of AI); BYD (electric vehicles); and Mercado Libre (LatAm e-commerce and digital platform).

Hamish says focusing on winners means the portfolio can be volatile in the short term (a good example is 2022 when headwinds like rising rates saw SMT fall -45.7%)****. 

“The returns we offer will be attractive, but the journey may not be. But the potential for extreme returns in a market like this is attractive if you can find companies growing their top-line in double digits year-on-year ahead of the market. That will tell in share price terms.”

Portfolio activity

Top 10 holdings

The combination of a 90% active share, a belief that returns come from a narrow list of companies and a desire for a global focus has resulted in a portfolio which has a high-conviction list of names at the top end. The top 10 holdings account for 45% of the portfolio (the top 30 account for 80%)*.

The top 10 does have a couple of popular Magnificent Seven names in the shape of Amazon (5.6%) and Meta (4.7%)*, but Maxwell says the broad research desk at Baillie Gifford has allowed them to offer a list of global outliers, which can contribute to long-term returns.

The largest holding is Space X (7.8%), which is also the largest unlisted company in the world. Maxwell says they are a classic example of one of the transformation growth companies of our generation. He says: “Imagine every time you took a journey on an aeroplane and at the end of the journey that airline just threw the aeroplane away! That was the previous business model – so Space X introducing reusable rockets has been a fantastic innovation and they are dominating that space by owning the launch market and the revenues they generate from that. I’ve seen an estimate that next year’s revenue from launch is going to be bigger than the budget for NASA. That is before you get to Starlink, the satellite network which has 5m users and is cash generative.”

Examples of this global approach include Mercado Libre, a Latin American firm which offers numerous business lines, including e-commerce and digital banking. It has well over 100m users across its platform. Another is Ferrari, a business Maxwell says is totally distinct to any other globally – citing the brand’s demand and exclusivity.

He says: “It is not just an automotive company, it is a frontier engineering and luxury company, which has a unique brand strength that allows it to limit supply and therefore keep prices extremely high. It is in a position other companies should be extremely envious of – they deliberately sell one too few cars than the market demands. 12,000 cars sold a year – there is demand for more but by limiting supply the brand integrity stays intact, as does their pricing power. 

“They have used Formula 1 as a showcase for their engineering prowess – there has been really impressive developments in their hybrid and electric technology -which dispels the idea they will be disrupted over time as purely an internal combustion company. The result is good financials, growth and a steady growing share price, which is extremely rare.”

Taking a truly global approach

Scottish Mortgage Investment Trust currently has around 53% in US equities, part of which is down to trimming positions in both NVIDIA and Tesla after strong returns. Maxwell says Tesla grew rapidly last year, particularly after Donald Trump’s election, but there wasn’t a corresponding improvement in fundamentals, so they took the opportunity to trim the position. 

As for NVIDIA, it is a holding that was first introduced back in 2016 (for £65m) but over a £1bn stake was sold last year on the back of concerns that the AI chip maker’s pricing could prove unsustainable. Maxwell says when you get to over $3trn market-cap it becomes more challenging for growth investors to see in their analysis where the case for a stock doubling (or more) may come from. 

He says: “We are looking for asymmetry in our returns – that the upside payoff is much greater than the downside. When you get to $3trn the return profile becomes a bit more symmetric. That is why we’ve taken over a billion pounds out of NVIDIA in the last 12 months and re-employed this elsewhere.”

Names added in that time include Revolut and Enveda Therapeutics, as well as funding for holdings like Zipline, PsiQuantum and Databricks (see more below).

SMT currently has 14% in China as a result of its bottom-up analysis. Outliers they believe are ripe for rapid growth include e-commerce company PDD Holdings, Meutian – which delivers around 100m meals a day and has a platform of almost 1bn people; and Horizon Robotics, which focuses on autonomous driving.

Another is BYD, which manufactures passenger battery electric vehicles and plug-in hybrids. Not only is the company growing rapidly, but Maxwell says they have strong exporting ambitions.

He says: “They offer competitive pricing and also want to provide autonomous technology across their own range from next year (putting God’s Eye censors in all of their line-up). All these things lead us to conclude this is a really interesting company poised to dominate the global market. They could make 10m cars a year – or possibly even more.”

Building relationships early with private companies

Part of the success of SMT over the long term has been its exposure to unlisted companies. The aim is to focus on businesses which have achieved some success already, with the firm holding around half of the world’s 10 most valuable unicorns.

SMT currently has 28% in unlisted companies (it can invest up to 30%). Companies are staying private for longer than they were two decades ago (it has risen from 8-12 years and at roughly $2trn there is a lot more capital in late-stage private markets). 

The majority of SMT’s holdings are in late-stage companies, but they do have a few smaller positions (20-30bps) in earlier start-up businesses. The late-stage businesses have demonstrated they have revenue growth but are still rapidly growing their customer base.

Examples of these businesses include:

• Space X – worth $350bn and is much larger than the majority of publicly-listed companies.
• ByteDance – China’s equivalent of Meta, which has a range of social media platforms across the world (TikTok, Douyin). It has a huge network of almost 4bn people, is cash generative and is using AI to improve user experience.
• Stripe – a digital payments platform which uses software to improve payments infrastructure for companies domestically and around the world. Last year they processed $1.3trn of payments.

There are also some lesser-known names making strides, including Databricks, a data and AI company that provides a cloud-based platform for building, scaling, and governing data and AI workloads, including generative AI and other machine learning models. 90% of the world’s data was generated in the last couple of years and data has become one of the most important commodities in the world as humans become much more connected to the internet and each other. For example, in 2010 the world created about two zettabytes of data; in 2024 this was 140 zettabytes.

Maxwell says this can provide a competitive edge for companies looking at their business models and consumer behaviour. The firm can analyse patterns humans simply could not do.

He says: “Databricks helps you do that – they operate what are called data lakes, these are large pools of structured data, they offer machine learning hardware and algorithms to find those patterns. The public available estimated revenue is about $4-5bn and they have double-digit growth and thousands of employees worldwide. 16% of Fortune 500 companies use their services.”

The growing role of AI

One of the more well-known names the team have added in the past 12 months has been TSMC. Perhaps surprisingly, the team have not held the business before as they have traditionally owned ASML as their exposure to the foundry/production side of semiconductors. ASML makes the machines for producing semiconductors; TSMC employ those machines in their foundries. Maxwell says ASML has done a lot to prove EUV (extreme ultraviolet lithography) is possible, adding that they are leading the industry in the production of the smallest semiconductors. However, this acted as almost a lightbulb moment on the future of TSMC.

He says: “What occurred to us is that regardless of what technology is being designed for producing semiconductors, TSMC can incorporate that into its foundries. It is a slightly broader play on the future of this market and TSMC is a well-run business which is cash generative (around $80bn of revenue in 2024). It is also growing in double digits with enormous Capex of $30-40bn a year, which is an incredible competitive moat. 

“The key to their success was recognising a few years ago that it was less preferable to design and make chips; they focus on just making them. They suddenly no longer became competitors with their customers, which means their customers can trust them.”

Another name added was Sea Limited, which is based in Singapore and operates in South East Asia. The e-commerce company operates across three areas (gaming and entertainment through a platform called Garena; shopping with a platform called Shopee; and a fintech arm called Sea Money). Maxwell says the firm now has global ambitions, having announced the seventh consecutive year of profits and a 30% increase in year-on-year revenues.

Others names include BYD, Enveda Therapeutics, Hermes, Insulet, Nu Holdings and Revolut*.

Among the sales are names like Tencent, where the team feel the exceptional growth previously seen is unlikely to be repeated. Another disposal was ready meal provider Hello Fresh, where the view was that the business plan was not being executed as well as they’d like, with the business not growing rapidly enough as a result.

Other notable sales included HDFC, Zalando and Zoom*.

Performance

Speaking at Baillie Gifford’s Investment Trust conference in Edinburgh on 15 May, Tom Slater noted that Scottish Mortgage has had to contend with a “typically shorter” attention span of markets. As a result, “we have delivered a volatile ride for shareholders over the past five years”.

It does seem like performance has picked up after a challenging period, notably in 2022 when SMT fell -45.7%. SMT’s total return (share price) has risen 288.3% in the past 10 years (NAV has risen 351%), beating the FTSE All-World benchmark (196.8%)**. 

Over three years, STM has returned 26.9% (share price) and 31.9% (NAV), slightly behind the FTSE All World benchmark (38.1%)^.

What else do investors need to know

• The board of SMT believe the strategic use of gearing will enhance shareholder returns in the long run. Gearing is restricted to 35% of the adjusted NAV, although the company will not take out additional borrowing if this takes gearing beyond a 30% threshold. Gearing currently stands at 9%**.

• SMT’s primary focus is to provide a total return to investors. However, the board can pay a dividend and in the last financial year (31/3/25) this stood at 2.78 per ordinary share^^. This, in tandem with the interim dividend of 1.60p, brings the total to 4.38p (vs. 4.24p in the previous financial year).

• SMT is currently on an attractive discount of -10.4%**. SMT traditionally traded on a premium prior to the outbreak of coronavirus in 2019/20, and while the discount has been wider, it is still trading beyond the five-year average of -7.8%. By comparison, the average trust in the AIC Global sector is trading on a discount of 8.54%**.

• The widening of the discount has seen SMT buy back 210 million shares over the past financial year (1 April 2024 to 31 March 2025). These buybacks represented 15.2% of share capital in issue and cost £1.9bn^^. Some of these buybacks have been financed by notable sales in positions like NVIDIA and Tesla.

• With an ongoing charges figure of 0.31%, SMT is the most attractively-priced global trust in the AIC sector (the average is 0.47%)**.

Outlook

Scottish Mortgage Investment Trust may not be appropriate for lower-risk investors. However, for those seeking exposure to higher growth prospects worldwide, this trust is a well-managed option that focuses on finding tomorrow’s winners. The track record speaks for itself – with names like NVIDIA, Tesla, Netflix, Space X and Spotify just some of the long-term success stories which have significantly increased in value. But there will be losers as well – for example, it was a major backer of Swedish electric battery developer Northvolt, which filed for bankruptcy in 2024.

But history shows the big winners have proven the philosophy of an asymmetric payoff – there will be some pain and volatility, but ultimately SMT has delivered excellent returns for investors. Having faced a number of headwinds and increased volatility in the past few years, SMT is now on an attractive discount given the long-term track record of the portfolio.

Maxwell says: 

“I believe we have the big winners of tomorrow. I think the themes we have targeted are compelling and we have the best companies in the world in those markets.

*Source: Scottish Mortgage Presentation, Q1 2025

**Source: AIC, figures at 9 June 2025

***Source: Scottish Mortgage – Lawrence Burns, Manager Review

****Source: FE Analytics

^Source: FE Analytics, total returns in pounds sterling, 9 June 2022 to 9 June 2025

^^Source: Scottish Mortgage Investment Trust Annual Report, 31 March 2025