Amid soaring demand for rubber tyres for the emerging auto industry, Edinburgh lawyers Colonel Augustus Baillie and Carlyle Gifford launched The Straits Mortgage and Trust Company in 1909 to lend to the rubber industry in Malaya, squeezed by an Edwardian Credit Crunch. Four years later the credit market recovered and, as few loans had been made, the founders quickly pivoted to global investing, renaming the firm, Scottish Mortgage and Trust Company Limited, a name that has caused some confusion ever since.  Having survived two World Wars, the Great Depression and several Bear Markets, their investment focus has naturally adapted. Long ago they had around half of their funds in fixed interest. Today they are very much a global equity house seeking out the winners of tomorrow.

The current fund philosophy was formulated in 2003 by James Anderson, since retired, but is carried on by Tom Slater who co-managed the fund from 2009. Their belief is that a small number of exceptional growth companies will drive returns and that the investment trust structure under which they operate allows them to take a longer-term view as they are not required to sell down assets when clients need access to their investments.

With up to 30% being held in unquoted companies it is not surprising that the fund can become quite volatile. From when James Anderson took over, the fund rose by +214% up until the Global Recession of 2008, powering ahead of the S&P 500 return of just +43%. With the onset of the Credit Crunch, it plummeted by over 60%. It then rose an incredible +2921% against the S&P 500 return of +687% before falling again by 60% in the stock market crash of 2022. As Tom Slater says, “The returns we aim to produce for shareholders will appeal to many, but the road travelled in achieving them may not.” Despite the ups and downs the return from 2003 to date is still +2331% compared to the mighty S&P 500 of +952%*.

One of Scottish Mortgage's top five holdings is Moderna which gained global fame for its Covid-19 vaccine. At its core, Moderna is a software company using ground breaking technology to develop vaccines for some of the most problematic viruses affecting human health. Moderna uses messenger RNA to build drugs in the form of  a molecule that takes code from your DNA and instructs the cells to build proteins which in turn have several different functions. Its little known that once they received the code for the Covid virus from the Chinese, it took them just 10 minutes to design the vaccine. The reason they took 48 hours to alert the media is because after 10 minutes they wanted to be certain! This was the first time they had been able to design a drug on a computer digitally. What they are now doing is using this completely novel way of developing vaccines and addressing a whole host of other unsolved clinical problems.

This has led them to make some exciting advances in the field of oncology and the concept of personalised cancer vaccines. Their next-gen sequencing allows them to read the DNA of both healthy and cancerous cells. Using AI, they can identify the 34 mutations that are most visible to the immune system and code it to a fairly long mRNA that can be injected into the arm with the intention of rebooting the immune system to attack those mutations. Their first target is against skin cancer, and they realistically feel they might have something available by 2025. Stephane Bancel, Moderna's CEO believes that in his lifetime cancer will “move from a death sentence to a manageable disease."

Comments from Tom Slater of Scottish Mortgage taken from an interview with Moderna Chief Executive Officer, Stephane Bancel in January 2024.

Scottish Mortgage is available through EXE Capital Management.

The views are those of the author only. The above does not constitute a recommendation to buy the fund and advice should be sought from your financial advisor as to the appropriateness of this fund in your portfolio. The value of investments can fall as well as rise.

* FE Analytics 27/06/2024

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