The managers of UK’s largest investment trust have abandoned their key investment themes from the past decade in a fundamental shift in their thinking about the outlook for markets.
In the annual report for the Scottish Mortgage investment trust, the Baillie Gifford management team, led by James Anderson, outlined three new themes it will be focusing on in the next five years.
Mr Anderson has managed the top-performing investment trust since 2000, implementing an approach that has led to a share price total return of 375 per cent in the past ten years, more than double the rise of its FTSE All World benchmark, 147.9 per cent, or the average return of trusts in its IT Global sector, 143.7 per cent.
But in the trust’s annual report, the manager said changes in the investment world had made him rethink the underlying assumptions that have led to the trust’s outperformance.
The three key themes underpinning trust in the past decade had been the “power of technological change”, the emergence of China and its impact on the global economy and the threat of the flawed financial system in the Western world.
Mr Anderson said these “themes have served us well” but the Baillie Gifford team behind the trust had now “conclude[d] that we need to abandon our previous themes”.
Instead, the veteran manager outlined three new “emergent themes of the future”, which he thinks will be “crucial in the next five years”.
The first theme is that technological progress should drive huge improvements in healthcare, energy and transportation, but that this has not yet been appreciated as many market participants are instead worried the world is entering a period of “secular stagnation and limited productivity gains”.
The second theme is that the resilience and longevity of “global brands”, which has led investors to companies with such brands in their droves since the financial crisis, may come under threat.
Mr Anderson said: “It seems to us that several industries, such as healthcare, oil majors and utilities, which have been havens of stability may face dramatic change. Global brands may follow national grocers into a margin storm.”
The final theme rests on whether the dominance of “capital” over “labour”, which Mr Anderson said has dominated “almost everywhere and almost regardless of political labels” since the 1970s, will survive the coming decade.
“Many strains are already apparent. From concern over marked inequality in the developed world to rising wages in China the compact seems under threat,” said Mr Anderson.
“At the same time relations between most states and many corporations has been frayed by battles over tax versus globalisation, and security versus freedom of expression.”
Mr Anderson said he did not know how such conflicts will be resolved, but highlighted the issue as likely being one of the key drivers for markets in the next five years.
