Further to this topic I have looked at Scottish Mortgage (SMT) to determine whether the out-performance of this investment trust has been dependent on a few huge winners.
Extracted from SMT’s 2010-2020 annual reports, the table below lists the weighting percentage of the trust’s top 30 holdings as well as the number of annual winners and losers:
| Top 30 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 |
|---|---|---|---|---|---|---|---|---|---|---|
| Weighting (%) | 64.3 | 80.3 | 78.7 | 79.2 | 82.6 | 78.6 | 83.3 | 83.1 | 78.3 | 80.3 |
| Winners | 24 | 19 | 22 | 22 | 27 | 16 | 29 | 23 | 22 | 23 |
| Losers | 6 | 11 | 8 | 8 | 3 | 14 | 1 | 7 | 8 | 7 |
In a typical year, SMT enjoys 23 winners and 7 losers among its top 30 holdings — or a 7.6 out of 10 success rate. Admittedly that 7.6 is not strictly accurate as we can’t tell whether the long-term performance of an individual holding is up or down.
Furthermore, those top-30 results may be biased as regular losers will drop out of the top 30. But the top 30 shares consistently represent approximately c80% of the trust, so if the other 20% is full of losers, their aggregate contribution to the portfolio will not be too significant.
That first table does give not the impression of SMT relying on a handful of winners to offset numerous losers.
SMT’s two largest holdings in the 2020 report were Amazon (AMZN) at 9.3% and Tesla (TSLA) at 8.6%. How dependent has SMT been on these two stocks?
The table below lists the value, stock price, shares held, price movement and overall portfolio-movement contribution of SMT’s AMZN holding:
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Value (£m) | 167 | 187 | 214 | 228 | 305 | 330 | 510 | 661 | 779 | 850 |
| Price USD | 180 | 203 | 266 | 336 | 372 | 594 | 887 | 1447 | 1781 | 1949 |
| Price GBP | 112 | 127 | 175 | 202 | 251 | 413 | 707 | 1,032 | 1,365 | 1,571 |
| Shares owned (m) | 1.487 | 1.474 | 1.225 | 1.131 | 1.217 | 0.798 | 0.721 | 0.641 | 0.570 | 0.541 |
| Performance(%) | 25.5 | 12.7 | 38.6 | 15 | 24.2 | 64.4 | 71.7 | 45.5 | 32.4 | 15.1 |
| Contribution(%) | 2.1 | 0.6 | 3.8 | 1.7 | 1.9 | 5.7 | 7.6 | 3.7 | 3.0 | 1.7 |
This table shows SMT total assets, yearly change and yearly change excluding AMZN’s contribution:
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Total assets (£m) | 2,501 | 2,379 | 2,593 | 2,986 | 3,819 | 3,954 | 5,383 | 6,667 | 8,130 | 9,154 |
| Change | n/a | (4.9%) | 9.0% | 15.1% | 27.9% | 3.5% | 36.1% | 23.9% | 21.9% | 12.6% |
| Less AMZN | n/a | (5.5%) | 5.2% | 13.4% | 26.0% | (2.2%) | 28.5% | 20.2% | 18.9% | 10.9% |
I reckon SMT’s assets advanced by 266% between 2011 and 2020 — but without AMZN’s contribution would have advanced 183%.
This table shows SMT total assets, yearly change and yearly change excluding TSLA’s contribution (SMT first bought TSLA during 2013):
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Value (£000) | n/a | n/a | n/a | 55 | 68 | 186 | 367 | 325 | 428 | 791 |
| Price USD | n/a | n/a | n/a | 42 | 38 | 46 | 56 | 53 | 56 | 105 |
| Price GBP | n/a | n/a | n/a | 25 | 26 | 32 | 45 | 38 | 43 | 85 |
| Shares (m) | n/a | n/a | n/a | 2.173 | 2.645 | 5.795 | 8.221 | 8.581 | 9.978 | 9.342 |
| Performance(%) | 92.1 | 1.7 | 26.4 | 40 | (14.8) | 13.2 | 96.6 | |||
| Contribution(%) | 0.2 | 0.3 | 0.5 | 2.5 | (0.5) | 0.9 | 4.5 |
I reckon SMT’s assets advanced by 253% between 2014 and 2020 — but without TSLA’s contribution would have advanced 229%.
Combining the two stocks from 2014, I reckon SMT’s assets would have advanced 165% (c18% CAGR) rather than 253% (c24% CAGR) without AMZN and TSLA:
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Total assets | 2,501 | 2,379 | 2,593 | 2,986 | 3,819 | 3,954 | 5,383 | 6,667 | 8,130 | 9,154 |
| Change | n/a | n/a | n/a | 15.1% | 27.9% | 3.5% | 36.1% | 23.9% | 21.9% | 12.6% |
| Less AMZN&TSLA | n/a | n/a | n/a | 13.2% | 25.7% | (2.7%) | 26.0% | 20.7% | 18.0% | 6.4% |
From these rough sums, perhaps a third of SMT’s 2014-2020 returns were dependent on AMZN and TSLA. But SMT would have done very well anyway without those two holdings, which between them have turbo-charged the trust’s performance.
My initial conclusion from this study therefore is SMT’s approach (at least between 2011 and 2020) picked more winners than losers and was not obviously dependent on a few huge winners to generate superior all-round outperformance.
Maynard
