Scottish mortgage investment trust

LarryR

Hi,

I hope this isn't a silly question, but I was just looking at the Telegraph Top 25 Funds to Invest in and quite liked the sound of the Scottish mortgage investment trust, however, when I searched on the three platforms j currently use - Charles Stanley direct, Hargreaves and share centre - none of them listed the investment as a fund, they all had it as a stock. Is that the same thing? I can't see how it is, as there would be no management fees with buying a stock, etc. So why don't they list the IT as a fund for investment, or am I missing something obvious/basic?

Thanks in advance

cloud_dog

LarryR wrote: »

Hi,

I hope this isn't a silly question, but I was just looking at the Telegraph Top 25 Funds to Invest in and quite liked the sound of the Scottish mortgage investment trust, however, when I searched on the three platforms j currently use - Charles Stanley direct, Hargreaves and share centre - none of them listed the investment as a fund, they all had it as a stock. Is that the same thing? I can't see how it is, as there would be no management fees with buying a stock, etc. So why don't they list the IT as a fund for investment, or am I missing something obvious/basic?

Thanks in advance

They are subtly different, have different structures. What you know as a 'fund' (quite a generic term) is in fact a open ended investment company (OIEC) or old school Unit Trust. Investment Trusts are referred to a 'closed fund' and are listed as a stock because, well, they are. They are run in exactly the same way Tesco is run, with a defined number of shares, a board, they have the ability to borrow, etc, etc.

Not sure if that answers your question but, that is why.

iglad

I suggest you do a lot more research on SMT before investing as it's not quite what it seems. It has decided to invest in early startups a bit like Mr Woo........ did.

https://citywire.co.uk/investment-trust-insider/news/scottish-mortgage-we-re-great-venture-capitalists-now/a1232883

Read This also

https://www.sharesmagazine.co.uk/article/know-your-fund-whats-inside-scottish-mortgage

I used to hold them but I sold as I did not like the direction their new strategy towards being a VC. Also they are listed as a Large Cap fund when in fact 50% of their find is small med caps, far too volatile and the poor performance over the past 12 months hasn't helped.

LarryR

Thanks for your reply, that does explain it and I kind of suspected it, but what threw me was that on the telegraph page it showed "OCF: 0.37pc" how could that be with a stock?

cloud_dog

LarryR wrote: »

Thanks for your reply, that does explain it and I kind of suspected it, but what threw me was that on the telegraph page it showed "OCF: 0.37pc" how could that be with a stock?

Ummm, because they have relatively low running costs, are efficient in managing the fund? There will also be a small percentage associated with transaction costs which are not included in that OCF figure (but that is standard across all funds).

But to put that in context, that is 0.37% of £7.4 billion.

LarryR

Ummm, because they have relatively low running costs, are efficient in managing the fund? There will also be a small percentage associated with transaction costs which are not included in that OCF figure (but that is standard across all funds).

That's the bit that confuses me - if I buy it as a stock, then how would I be affected by the OCF? Surely I buy it as a stock, at a price, place it in my ISA and that's it - price goes up or down (hopefully up) - and I sell it at some point in the future and realise the gain/loss, like any stock?

LarryR

iglad wrote: »

I suggest you do a lot more research on SMT before investing as it's not quite what it seems. It has decided to invest in early startups a bit like Mr Woo........ did.

https://citywire.co.uk/investment-trust-insider/news/scottish-mortgage-we-re-great-venture-capitalists-now/a1232883

Read This also

https://www.sharesmagazine.co.uk/article/know-your-fund-whats-inside-scottish-mortgage

I used to hold them but I sold as I did not like the direction their new strategy towards being a VC.

Thanks a lot.

Interestingly, the Shares Magazine seems to still like the stock, concluding with "A clear long-term growth strategy aimed at uncovering super-normal returns, the style lends itself to short-term volatility. But this really is a buy and forget type investment, one that has proven itself time and again. A long-run favourite of ours and it remains so."

cloud_dog

LarryR wrote: »

That's the bit that confuses me - if I buy it as a stock, then how would I be affected by the OCF? Surely I buy it as a stock, at a price, place it in my ISA and that's it - price goes up or down (hopefully up) - and I sell it at some point in the future and realise the gain/loss, like any stock?

Ultimately, the costs (OCF) are reflected in the SP, and if for example the OCF was 0% then the SP would be fractionally higher.

When you are dealing with funds there needs to be complete transparency so that you can understand what is going to affect your fund's returns. If, for example, there was another fund offering exactly the same investments as SMT but had a 2% OCF then you would rightly think.... I'll go with SMT they charge less for the same investment.

The difference you need to understand with ITs over OIECs (and there are a few others) is that the price, like any other stock, is driven by demand so, it may not accurately reflect the underlying (investments) value. The demand for a popular IT can cause the SP to race ahead of the trust NAV, and to some degree you need to wary of this as it means you are paying more for the underlying investment, i.e. if 'MY IT' had a SP of £1 but NAV of 90p the SP would be on a 10% premium (a little more actually). So for every share you bought you would, in essence be throwing away 10p. Now, like many things that is the basics but if 'MY IT' had historically always run at about a 10% premium then you might reasonably decide not to overly worry about that. (Note: 10% is obviously a high premium).

EDIT: Caveat....SMT is a high risk, highly focused trust and has a volatility that mirrors its approach.

LarryR

The difference you need to understand with ITs over OIECs (and there are a few others) is that the price, like any other stock, is driven by demand so, it may not accurately reflect the underlying (investments) value. The demand for a popular IT can cause the SP to race ahead of the trust NAV, and to some degree you need to wary of this as it means you are paying more for the underlying investment, i.e. if 'MY IT' had a SP of £1 but NAV of 90p the SP would be on a 10% premium (a little more actually). So for every share you bought you would, in essence be throwing away 10p. Now, like many things that is the basics but if 'MY IT' had historically always run at about a 10% premium then you might reasonably decide not to overly worry about that. (Note: 10% is obviously a high premium).

Thanks for the simple explanation, I almost understood it

When I look for SMT NAV I found this page -> https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/SMT/14327343.html which shows various NAVs, ranging between 540.57p to 545.79p (ex dividend).

And, according to this page -> https://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary/GB00BLDYK618GBGBXSET1.html the price is 531.5

So does that mean the IT is running at a discount currently (price 531 but NAV 545)?

Apodemus

Yes, but Trustnet is showing a Nav of 538 and a SP of 531, so slightly less of a discount than you were suggesting.

Another aspect of SMT that is worth noting is that it’s top ten holdings account for roughly 50% of its worth, so a lot of the value is concentrated in a small number of holdings. That’s not been a problem for them in the past and can happen to the best of us if we “ride our winners”! But it’s not without its risks!

Ciprico

....I'm currently in the process of selling SMT, after having held for 6 years. They had doubled in price over that time but not done much for the last 18 months and produce very small dividend.

If you like that kind of thing Monks IT might also be worth a look - similar high tech, without the cars (Ferrari/Tesla!), and smaller stakes in their larger holdings.....

As my appetite for excitement diminishes with age, I'll be transferring the proceeds to a World tracker and possibly Bankers IT

ITs seem out of fashion these days (losing out to trackers/ETFs?) - I like trackers, but they contain by definition good and bad companies.

So if you look a tracker, removed the dross, you may end up with something like Bankers/Witan....