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Is Scottish Mortgage Investment Trust doomed now its star fund manager is quitting?

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Matthew Dumigan
·3-min read
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Note paper with question mark on orange background
Note paper with question mark on orange background

Since mid-February’s all-time high, Scottish Mortgage Investment Trust’s (LSE: SMT) valuation has tumbled by around 20%.

Having delivered a stellar return in recent years, the popular investment trust, which is managed by Baillie Gifford, has been a disappointment in recent weeks for its poor performance.

Throw into the mix the announced retirement of one of its star fund managers and things could begin to look even more gloomy.

With that in mind, how worried should I be in regard to the future outlook for SMT?

Explaining the sell-off

Baillie Gifford’s flagship investment trust has been a much loved vehicle for capital growth for many years. Investors seeking global exposure to some of the world’s best companies have long flocked to it.

Some of the trust’s top holdings include global titans such as Amazon, Tencent and Alibaba. Not to mention exciting growth stocks like Tesla and NIO.

Following an outstanding performance throughout 2020, punters continued to pile in until a dramatic drop in price occurred last month.

Partially accounting for the fall was a widespread sell-off in volatile tech stocks, particularly high-growth US ones.

This has come about as a result of a few factors. One includes the increased appeal of cyclical recovery plays in light of the mass rollout of Covid-19 vaccination programmes.

Another concerns worries over increased inflation prospects, which also appear to be impacting the bond markets.

Either way, it’s important to note that even with the 20% fall in price, SMT’s valuation is still double what it was a year ago.

Moreover, with the trust committed to a long-term buy-and-hold philosophy, I’m not particularly concerned by recent lacklustre performance.

The impact of Anderson’s departure

That said, the departure of James Anderson is a bitter pill to swallow. Anderson has become synonymous with the success of SMT over recent years after an impressive 21 years managing the trust.

His phenomenal record of identifying the companies of the future has consistently delivered lucrative returns to investors.

Whenever a top fund manager decides to move on, I consider several potential long-term implications. Will the trust be able to sustain such a strong performance in light of its manager’s departure? And are there any obvious alternatives comparable in nature that may now present a better opportunity?

Regardless, when it comes to SMT, I’m not sure I have much cause for concern. Tom Slater, who has been involved with managing the trust since 2015, will take over running SMT after Anderson’s departure.

Having been immersed in the trust’s investment strategy for a while now, Slater is well-positioned to take up the mantle.

My final verdict

Nevertheless, Slater has gigantic shoes to fill and there are certainly tangible risks ahead. For example, with Anderson deciding to leave after delivering 106% share price growth in a year plagued by a global pandemic, expectations will be high regarding the trust’s continued phenomenal performance.

Furthermore, bullish market exuberance in relation to tech stocks can’t go on forever. That presents yet another potential risk for a trust that so heavily relies on lucrative-but-risky investments.

All things considered, I’m confident that with a robust long-term strategy and continued solid management, SMT still represents a worthwhile buy for my portfolio.

In fact, I’d look at the recent sell-off as an opportunity to load up on the shares at a discounted price.

The post Is Scottish Mortgage Investment Trust doomed now its star fund manager is quitting? appeared first on The Motley Fool UK.

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Matthew Dumigan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2021