Scottish Mortgage IT (SMT): Dependent on AMZN and TSLA?

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

Thanks Maynard,

The other thing to bear in mind is that up to 30% of the fund can be invested in unlisted companies and whether the investor is comfortable with this.

At outset, only 8% of the fund may be invested in one company. It looks as though the investment would be subsequently reduced if it is successful and concentration grows. I know SMT had been selling down Tesla due to this concentration risk, despite there being no 10% regulatory rule for ITS, as exists with funds (as far as I can see).

Ben

Thanks Ben. My stats interestingly show SMT selling down AMZN, from 1.5 million shares to 541k shares. Must admit I am unfamiliar with the IT rules on portfolio weightings, but I do wonder whether the fund’s performance would have been even better had it just held on!

Maynard

Google competing with Amazon Web Services on cloud prices discouraged smt, I think