James Anderson, joint manager of the £6.7bn Baillie Gifford Scottish Mortgage investment trust, has defended the substantial investment he has in electric car maker Tesla, amid a set of poor results from the company and criticism from investors.
The trust - which is up 43 per cent for the 12 months to 6 November, compared to performance for the wider sector of 28 per cent - has an investment of 6.8 per cent in Tesla, a stake equating to more than £400m.
Baillie Gifford as a business are believed to be the second largest owners of Tesla shares behind the company’s founder, Elon Musk.
Mr Anderson said client reaction to owning the shares has been mixed.
He said: “We've never made an investment for which we've received such criticism.
"From the generous sharing by hedge funds of their detailed rationales for their hostility" - by which Mr Anderson means at times 40 per cent of Tesla's shares were owned by short sellers holding them in expectation they would fall in value - "to kind emails telling us that we will be central exhibits in the mutual fund hall of shame”.
Last week, Tesla reported losses that were wider than expected due to “production bottlenecks. In the three months to October the company's target was to build 1,500 cars - however it only managed to build 260.
But the fund manager shrugged off the results, saying the fund management industry tends to be too focused on safety, and on earning dividends for the short-term and so ignore the opportunity to invest in a company such as Tesla.
Mr Anderson said investors today seem to prefer to “recycle capital into government bonds paying, “minimum, zero or even negative yields.”
He linked the lack of productivity growth in the world right now to the trend for investors to deploy capital in safe ways.
Peter Hargreaves, the co-founder of Hargreaves Lansdown, has previously said the technology crash at the turn of the turn of the century has led to advisers focusing more on expensive equity income shares at the expense of growth businesses.
He said Tesla's founder Mr Musk deploys energy, intellect and capital in “worlds beyond the common understanding and abilities”.
Mr Anderson said that of course Tesla could fail - “any equity investment that is worthwhile or credible can fail” - but he said he believes Tesla could take to the mass market electric cars which can replace the internal combustion engine, “saving millions of lives" and which would “multiply the investment of our clients many times over”.
But David Jane, who runs £790m across three multi-asset funds at Miton, is sceptical of the investment case for Tesla shares.
He said Chinese electric car manufacturers are much further along in terms of getting products to market and have greater levels of state support, presenting an advantage over Tesla.
James Pigott, who runs Pigotts Investments, an adviser firm in Dorking, said he has owned the Scottish Mortgage investment trust for many years, during which time the performance has been strong.
He said the trust is part of his “high growth” portfolio".
“Anyone who owns the trust expects there will be years when it underperforms or just moves in line with market, due to the innovative nature of the companies in which it invests.
"The fund manager is on the record as saying there are only a small number of companies that will drive the returns of the S&P 500, and finding those early is hard to do. But I think it is a trust one cannot be without really.”
Mr Anderson has an investment of around £50m of his own money in the Scottish Mortgage investment trust, and has said it is his only equity investment.
He also has property investments in Scotland, Vineyards, and a share in Hearts Football club in Edinburgh.
David.Thorpe@ft.com
