Scottish Mortgage has always had an international focus, and with the proportion of British stocks in its portfolio declining, there’s only one FTSE 100 stock it wants to buy: Itself.
The UK’s second-largest investment trust has bought back more than £1bn of its shares since it began the buyback in March, setting new records for the largest buyback in trust history.
This included the largest single-day buyback of any investment trust, with the Baillie Gifford-backed trust buying back £311m in one day during May.
Scottish Mortgage’s stock price is still down almost 40 per cent from its peak four years ago, but has climbed 18 per cent since it began its buyback programme in March.
While the trust’s share price discount to its underlying assets climbed from 22 per cent in the middle of 2023 to eight per cent, it then began to rapidly drop at the start of the new year, reaching 15 per cent in March.
This was enough to push it towards a massive share buyback programme, but Scottish Mortgage is less keen on the rest of the FTSE 100.
UK-listed companies make up just over two per cent of its portfolio, with Wise making up 1.8 per cent, while Ocado has been held by Scottish Mortgage since it was a private company.
Rather than the UK, one new area of focus for Scottish Mortgage is Latin America.
The trust’s largest holding is currently e-commerce platform Mercado Libre, while a new investment for the trust is Nubank, a Brazilian financial technology company and the largest digital bank in the world outside of China
“If you think about Nubank, taking on half the Brazilian population, it’s a pretty high bar” to invest in the UK, Stewart Heggie, commercial director of Scottish Mortgage, told City AM.
However, Heggie was clear that the trust was still looking for opportunities in the UK.
“If they have five times or more upside, and they’re of a sufficient size that, bear in mind, we’re a £14bn vehicle, we can actually take a holding in them, then absolutely,” he said.
Another new holding for Scottish Mortgage, luxury brand Hermes, took some by surprise when it was revealed in September.
However, Heggie stressed that the trust had a long history of investing in companies beyond the tech stocks the trust is known for.
“We’ve made 14 times our money in Ferrari,” he said, adding that the trust had always viewed it as “the world’s best luxury brand”.
“And if you were to put another luxury brand next to that, Hermes is one of these candidates, and what they’re successfully managing to do is very patiently but successfully roll out their products internationally, and it just turns into the steady compounder,” he explained.
Whether the stock is a rapid grower or a steady compounder, the target is always to make a five times return, but “we just might get there at slightly different times,” said Heggie.
This is the second time Scottish Mortgage has invested in Hermes, having previously held its stock between 2003 and 2008.
In June, Scottish Mortgage deputy manager Lawrence Burns told City AM that it had been slowly selling its holding in star stock Nvidia, and it has since fallen from the largest holding in the trust to fourth.
However, the trust’s holding in Nvidia is still 87 times higher than when it bought in in 2016, and has sold almost 20 times worth its original stake.