Scottish Mortgage trust increases borrowing

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Scottish Mortgage trust increases borrowing

The board of the £7bn Scottish Mortgage investment trust have agreed to borrow £170m to fund more investments.

Unlike open-ended funds, investment trusts can borrow money to invest, in addition to the capital they receive from investors.

If the managers of the trust achieve a return on the borrowed money that is higher than the cost of interest payments on the debt, then shareholders benefit by effectively having more than the amount of capital they invested generating a return for them.

Scottish Mortgage is the largest trust on the London Stock Exchange, and is a constituent of the FTSE 100.

Over the last five years to 4 June it has returned 216 per cent, compared with 89 per cent for the average trust in the AIC Global sector in the same time period.

The managers of the trust have about £83m of their own capital invested in Scottish Mortgage.

The cost of the borrowing is 2.94 per cent.

Fiona McBain, chairman of Scottish Mortgage investment trust, said: "The company’s track record of strong performance has delivered growth that gives scope for additional borrowings at competitive rates.

"The board believes that this in turn creates opportunities to invest in additional future growth for shareholders over the long term, and reflects one of the principal advantages of the investment trust structure."

david.thorpe@ft.com