Investments  

Biotech foray as Scottish Mortgage soars to success

The freshly crowned king of the investment trust industry, Scottish Mortgage, is banking on a suite of new bets in the biotechnology sector to retain its leading position in 2014.

The freshly crowned king of the investment trust industry, Scottish Mortgage, is banking on a suite of new bets in the biotechnology sector to retain its leading position in 2014.

The manager of the trust, Baillie Gifford’s James Anderson, has revealed the new holdings in his first press outing since the £2.6bn fund eclipsed the Alliance Trust to become the biggest trust listed in London late last year.

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Established in 1909, Scottish Mortgage has benefited from its global investment outlook, gaining 204.1 per cent in the past five years compared to an 81.8 per cent gain from arch-rival Alliance Trust, according to FE data.

Scottish Mortgage has also benefited from longstanding bets in innovators such as US internet groups Amazon and Google.

Mr Anderson said areas such as healthcare, transport and energy would benefit next from technological innovations. Healthcare in particular will be “the most important area” for innovation in future, he said, which was both “fascinating and exciting” as it had the power to “destroy so much market capital and tradition”.

Key to the revolution is biotechnology, including advances stemming from the sequencing of the human genome, he said.

The manager cited US firm Illumina, now the fifth-largest holding in the trust, as being at the forefront of this change. The group manufactures equipment used to analyse gene structures and has been the subject of bid speculation in recent years, with US pharmaceutical giant Roche making a failed approach in 2012.

Mr Anderson, along with deputy manager Tom Slater, has added a number of other new biotechnology stocks in recent months.

The recent purchases include Genomic Health, a cancer research firm, and Myriad Genetics, a molecular diagnostic company.

Mr Slater said that it was impossible to know if the new companies will be the winners of the future, but “the opportunity is so large that even partial success could be extremely lucrative”.

Scottish Mortgage remains smaller than Alliance Trust in terms of its total assets, but it is bigger than its rival in terms of its market capitalisation.

The trust’s shares are trading at a slight premium to its net asset value, while Alliance Trust’s shares are trading at a 12.3 per cent discount, according to the Association of Investment Companies.

The trust has only recently moved to a small premium after the discount narrowed sharply in the past year and the managers said they would consider issuing new shares, which would help prevent the premium from widening further, if there was continued significant demand from investors.

In running the fund, Mr Anderson continues to focus on long-term investment with two main themes: the rise of China and the potential of new and disruptive technology.

In the past year, the managers also invested in Twitter and in electric car firm Tesla Motors.