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Scottish Mortgage heading for where

Closed-end funds and OEICs
MaraMan
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Re: Scottish Mortgage heading for where

#336290

Postby MaraMan » August 27th, 2020, 11:00 am

Easy to speculate on these things but I guess if I were in charge of SMT I would not want any more exposure to tech shares, given their exposure to Tesla, Amazon etc. What they have already, arguably, overexposes them.

MM

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Re: Scottish Mortgage heading for where

#336337

Postby richfool » August 27th, 2020, 1:36 pm

Interesting perspective on SMT from Morning Star, (20th August), but the comments at the end of the article are I think more perceptive:
Morningstar downgrades Scottish Mortgage over costs

Investment research group says top-performing trust’s use of borrowing raises costs, while Stifel analyst argues there is a ‘good case’ for investors to take profits.
Morningstar has downgraded its rating on Scottish Mortgage (SMT) on cost grounds, claiming low ongoing charges were pushed up by the top-performing global investment trust’s use of borrowing.

Morningstar analyst Robert Starkey cut the £13.4bn Baillie Gifford trust’s rating from ‘gold’ to ‘silver’, under the data provider and research group’s new ratings methodology, which places more of an emphasis on costs.

Starkey said SMT’s ongoing charges of 0.36% were low, but said the trust’s use of gearing, or borrowing, to enhance returns meant costs were higher than they first appeared.

‘An ongoing charge of 0.36% is offset when the cost of debt is considered, pushing the representative cost up to 0.77%. This is not as attractive as the management fee alone, although it is still attractive given the access the trust offers to unquoted assets,’ he said.

https://citywire.co.uk/wealth-manager/n ... pular-list

scrumpyjack
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Re: Scottish Mortgage heading for where

#336340

Postby scrumpyjack » August 27th, 2020, 1:46 pm

MaraMan wrote:Easy to speculate on these things but I guess if I were in charge of SMT I would not want any more exposure to tech shares, given their exposure to Tesla, Amazon etc. What they have already, arguably, overexposes them.

MM


I'm sure that issue has been discussed on this board at length a while ago and BG do not consider themselves to be investing in 'Tech'. Rather they invest in what they think are the companies of the future. Whether or not the companies are regarded by others as 'tech' is irrelevant to them. Certainly I don't think Amazon would regard themselves as primarily a Tech company.

MaraMan
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Re: Scottish Mortgage heading for where

#336350

Postby MaraMan » August 27th, 2020, 2:15 pm

scrumpyjack wrote:
MaraMan wrote:Easy to speculate on these things but I guess if I were in charge of SMT I would not want any more exposure to tech shares, given their exposure to Tesla, Amazon etc. What they have already, arguably, overexposes them.

MM


I'm sure that issue has been discussed on this board at length a while ago and BG do not consider themselves to be investing in 'Tech'. Rather they invest in what they think are the companies of the future. Whether or not the companies are regarded by others as 'tech' is irrelevant to them. Certainly I don't think Amazon would regard themselves as primarily a Tech company.


Yes apologies I mispoke in classifying them as tech, but hopefully it doesn't affect the point about the dramatic rise in the SP of Tesla, Amazon etc.

MM

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Re: Scottish Mortgage heading for where

#336362

Postby scotia » August 27th, 2020, 2:35 pm

richfool wrote:Interesting perspective on SMT from Morning Star, (20th August), but the comments at the end of the article are I think more perceptive:

Morningstar has downgraded its rating on Scottish Mortgage (SMT) on cost grounds, claiming low ongoing charges were pushed up by the top-performing global investment trust’s use of borrowing.
‘An ongoing charge of 0.36% is offset when the cost of debt is considered, pushing the representative cost up to 0.77%. This is not as attractive as the management fee alone, although it is still attractive given the access the trust offers to unquoted assets,’ he (Morningstar analyst Robert Starkey) said.

https://citywire.co.uk/wealth-manager/n ... pular-list

My immediate thoughts were that this is a strange way to compute costs and even stranger that it deserves a downgrade. If the borrowed money is earning returns well above the cost of borrowing, how can it possibly be a cost? Then I read the article, and Baillie Gifford have responded in a similar fashion.
A Baillie Gifford spokesman pointed to Morningstar’s change of methodology. ‘We are disappointed that cost of debt is now included in their analysis without accounting for the actual returns produced from the borrowing,’ he said.

Exactly!

scrumpyjack
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Re: Scottish Mortgage heading for where

#336368

Postby scrumpyjack » August 27th, 2020, 2:49 pm

I thought Morning Star was a communist newspaper?

Quite ridiculous to treat interest costs on borrowings, used to gear up the investments moderately, as a management fee and to ignore the return from the investment funded by those borrowings. A more logical approach would be to net off the interest paid against the return generated by the investments so funded. That, I'm sure, would result in the SMT costs percentage being a substantial credit rather than a charge.

Perhaps the Morning Star journalists have accidentally gone to the wrong offices?

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Re: Scottish Mortgage heading for where

#336382

Postby mc2fool » August 27th, 2020, 3:36 pm

scrumpyjack wrote:Quite ridiculous to treat interest costs on borrowings, used to gear up the investments moderately, as a management fee and to ignore the return from the investment funded by those borrowings. A more logical approach would be to net off the interest paid against the return generated by the investments so funded. That, I'm sure, would result in the SMT costs percentage being a substantial credit rather than a charge.

They're not treating as a management fee, just as a (another) cost. I too am somewhat bemused by this but I don't think your approach necessarily works: as these things are measured on an annual basis, what would you do in years when the market and SMT's NAV dropped, make it a substantial debit? That doesn't sound right either.

In any case, Morningstar's article on it is at: https://www.morningstar.co.uk/uk/news/204890/scottish-mortgage-downgraded-by-morningstar.aspx

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Re: Scottish Mortgage heading for where

#336427

Postby bluedonkey » August 27th, 2020, 6:20 pm

Dod101 wrote:Current share price £7.15. Wow!
Dod

Incredible that this is where the thread started only about three months ago. Perversely, I'd be happier with a rate of 25%/year rather than 25%/3 months.

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Re: Scottish Mortgage heading for where

#336431

Postby Lootman » August 27th, 2020, 6:47 pm

MaraMan wrote:Easy to speculate on these things but I guess if I were in charge of SMT I would not want any more exposure to tech shares, given their exposure to Tesla, Amazon etc. What they have already, arguably, overexposes them.

But at this point SMT is thought of by the investing community as a play on disruptive companies along with US and Chinese Tech.

People who buy or hold SMT want and expect that. Those who worry about large stakes in Tesla etc. have probably already sold out or reduced their stake.

So the fund managers would be betraying their shareholder base if they switched horses in midstream and started investing heavily in financials and energy, say. Or went significantly into cash. I don't want to have to second guess SMT's changes of strategy. I want them to do what they are clearly very good at.

I value consistency of approach in a fund because then I know what I am holding. I am quite capable of deciding what percentage I wish to devote to the kind of shares that SMT invests in. I don't need them to become an asset allocation or market timing fund. I need them to do what they have been doing, and then I will decide what size of position I want in that.

Transparency.

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Re: Scottish Mortgage heading for where

#336489

Postby Golam » August 28th, 2020, 7:40 am

An illuminating piece in today's FT by John Kay. 'A lifetime in Investment Trusts.'
Useful for SMT holders.
Meaningful for those wanting to know more about ITs and Funds.
I benefited from reading.

Itsallaguess
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Re: Scottish Mortgage heading for where

#336490

Postby Itsallaguess » August 28th, 2020, 7:42 am

Golam wrote:
An illuminating piece in today's FT by John Kay. 'A lifetime in Investment Trusts.'

Useful for SMT holders.

Meaningful for those wanting to know more about ITs and Funds.

I benefited from reading.


Link here -

https://www.google.com/search?&q=%27A+lifetime+in+Investment+Trusts.%27

Cheers,

Itsallaguess

Dod101
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Re: Scottish Mortgage heading for where

#336494

Postby Dod101 » August 28th, 2020, 7:53 am

Golam wrote:An illuminating piece in today's FT by John Kay. 'A lifetime in Investment Trusts.'
Useful for SMT holders.
Meaningful for those wanting to know more about ITs and Funds.
I benefited from reading.


And I found it here

https://www.ft.com/content/802486eb-a66 ... f6b6d03842.

Hope that works. I do not always agree with John Kay but it is a useful piece I think. I am a holder in SMT and naturally know about its philosophy but it is a useful article in general.

Dod

PS Woops. IAAG beat me to it.

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Re: Scottish Mortgage heading for where

#336611

Postby DavidM13 » August 28th, 2020, 2:28 pm

scrumpyjack wrote:I thought Morning Star was a communist newspaper?

Quite ridiculous to treat interest costs on borrowings, used to gear up the investments moderately, as a management fee and to ignore the return from the investment funded by those borrowings. A more logical approach would be to net off the interest paid against the return generated by the investments so funded. That, I'm sure, would result in the SMT costs percentage being a substantial credit rather than a charge.

Perhaps the Morning Star journalists have accidentally gone to the wrong offices?


Having earlier in my career worked for Morningstar for 10 years I can categorically say the thing that made us want to throw our keyboards out of the window and utter loud curses was when people called us Morning Star!! There was an interesting time where the PA of a client who was coming to meet me at our offices made an error as clearly she looked up the address on the internet and had him indeed down to visit the offices of the left wing Newspaper! The name actually comes from the last line of the a Walden book as one learns on their indoctrination. I mean induction.

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Re: Scottish Mortgage heading for where

#336663

Postby Lootman » August 28th, 2020, 5:19 pm

DavidM13 wrote:Having earlier in my career worked for Morningstar for 10 years I can categorically say the thing that made us want to throw our keyboards out of the window and utter loud curses was when people called us Morning Star!! There was an interesting time where the PA of a client who was coming to meet me at our offices made an error as clearly she looked up the address on the internet and had him indeed down to visit the offices of the left wing Newspaper! The name actually comes from the last line of the a Walden book as one learns on their indoctrination. I mean induction.

It is actually from the book Walden by Henry David Thoreau:

"The sun is but a morning star".

The location for that book is Walden Pond, near Concord in Massachusetts. I only know that because a friend who lives nearby took me there a few years ago. It is now a state park.

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Re: Scottish Mortgage heading for where

#337065

Postby unperplex » August 30th, 2020, 11:08 pm

They may say they “got it” from a book called Walden, however the provenance of “Morningstar” is far older than that. Look at Isaiah 14:12 (especially in the King James translation.) In that context, the choice of it for a financial organisation might be said to be a little dubious. Maybe they chose it tongue-in-cheek.....

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Re: Scottish Mortgage heading for where

#337152

Postby DavidM13 » August 31st, 2020, 1:08 pm

unperplex wrote:They may say they “got it” from a book called Walden, however the provenance of “Morningstar” is far older than that. Look at Isaiah 14:12 (especially in the King James translation.) In that context, the choice of it for a financial organisation might be said to be a little dubious. Maybe they chose it tongue-in-cheek.....


It wasn't a "they" it was a "he". It was started off by one man - Joe Mansueto in 1984. Nice guy for a billionaire! although I only have him to benchmark vs all the billionaires I have ever met admittedly

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Re: Scottish Mortgage heading for where

#337825

Postby scrumpyjack » September 3rd, 2020, 9:15 am

I see BG have announced they have cut their Tesla shareholding. Seems sensible, it was becoming rather overweight in the SMT portfolio

https://www.thetimes.co.uk/edition/busi ... -tchvr8vrr

MaraMan
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Re: Scottish Mortgage heading for where

#337841

Postby MaraMan » September 3rd, 2020, 9:56 am

That is good news, thanks for posting. I was getting very nervous about that exposure. I cut my SMT exposure by a third a few weeks ago and despite that it is again my largest single holding. Worries about this bubble have also led me to cut my personal holdings in Amazon.

MM

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Re: Scottish Mortgage heading for where

#337846

Postby Urbandreamer » September 3rd, 2020, 10:11 am

MaraMan wrote:That is good news, thanks for posting. I was getting very nervous about that exposure. I cut my SMT exposure by a third a few weeks ago and despite that it is again my largest single holding. Worries about this bubble have also led me to cut my personal holdings in Amazon.

MM


It's also by far my biggest holding. I'm getting close to cutting, and their actions probably won't change that. Those risks relate to how big the holding is rather than what they are invested in.
However it does change my thoughts about my childrens holding in SMT.

I'm now far less concerned about SMT's risk profile.

scrumpyjack
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Re: Scottish Mortgage heading for where

#337852

Postby scrumpyjack » September 3rd, 2020, 10:25 am

and I see that SMT's share price is now at a 2% or 3% discount to NAV when often it has been at a premium


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