InvestmentsJun 25 2018

Baillie Gifford’s £7bn manager on what investors do wrong

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Baillie Gifford’s £7bn manager on what investors do wrong

Financial advisers and their clients should avoid recommendations and advice of “boneheaded” market analysts, according to James Anderson, who jointly runs the £7bn Scottish Mortgage investment trust.

Speaking at an event for shareholders in the trust, including advisers and wealth managers, in London last week, Mr Anderson said he feels as though he is living in a “parallel universe” from everyone else in the markets.

“They concern themselves with what is happening in politics, and with inflation and whether interest rates are going up or down, but there is actually no evidence any of that helps to generate investment returns.”

The £7.7bn Scottish Mortgage investment trust is the largest such fund in the UK market, and has returned 251 per cent over the past five years to 21 June, compared with 98 per cent for the average trust in the AIC Global sector in the same time period.

The trust is heavily invested in large technology and healthcare businesses.

It has an investment of several hundred million pounds in US carmaker Tesla, the share most owned by short sellers - those who think the company's share price will fall - on the US market.

Mr Anderson said Tesla is the stock investors most want to discuss with him.

"They particularly wanted to discuss it after a recent earnings calls when [company founder] Elon Musk called analysts “boneheads.”

“Well the next day Mr Musk called a few of the largest shareholders in Tesla, including us. I was away that day, but he called my co-manager [Tom Slator] and explained that he wasn’t calling long-term shareholders such as us boneheads.

"Tom told him not to worry, because we think analysts like that are boneheads.

"There is a fixation among analysts and in the market with things that don’t matter, and the best thing investors can do is get away from the market noise, and what worries analysts, and certainly pay little attention to the 90-days worth of data that is earnings forecasts.

"The biggest risk, the biggest risk, an adviser can take for their clients is to fixate on the things that don’t matter but are much discussed, and not be invested in the companies that matter for the future.”

The Edinburgh-based Mr Anderson has expressed a distaste for London in the past, saying that the crowds of people and noise make it hard to think differently, and he feels this bubble encourages a form of thinking that disadvantages clients.

Adrian Lowcock, investment director at Architas, said because the Scottish Mortgage trust focuses on identifying companies with high growth and then looks to hold those investments for the very long term, its turnover of investments tends to be very low and the managers don’t pay any attention to benchmarks.

"Strong performance is recent years hides the fact this fund is likely to be volatile as it tends to have exposure to disruptive companies and sectors such as technology, healthcare and consumer cyclicals,” he added.

David.Thorpe@ft.com