Sell Scottish Mortgage, top broker tells investors
Scottish Mortgage Investment Trust, one of Britain’s biggest funds, has been downgraded to “sell” by the influential broker Investec after it suffered one of the worst years in its 113-year history. In a research note for clients, Investec said it believed the £11bn investment trust was “vulnerable to a sharp correction in the coming months” and warned of “significant” risks facing its assets. Scottish Mortgage, the flagship fund of the venerable Scottish investment partnership of Baillie Gifford, offers investors exposure to growth stocks in the US and China such as Amazon, Apple and Alibaba. It is the second largest fund in Britain by total assets and has returned almost 70pc to shareholders over the past five years. Alan Brierley, of Investec, co-author of the research note, told Telegraph Money: “I have covered investment trusts since the early 1990s and cannot ever remember having a negative recommendation on the stock [Scottish Mortgage].” One of Investec’s concerns was the trust’s high level of borrowing, or “gearing”, which is now 17pc, significantly above the fund’s 10pc target and its highest level for a decade. Investec said this represented a clear risk given the fund’s exposure to private investments, which represent 35.9pc of its net asset value. Such investments would not be easy to sell. The broker also said it was concerned about a “valuation lag” between latestage venture capital investments and similar listed companies. It said it expected a reduction in the valuations of Scottish Mortgage’s private investments to “gather momentum” over the coming year. Investec said that while the global economy faced recessionary risks, Scottish Mortgage would continue to struggle thanks to its preference for stocks with “explosive” growth. Ewan Lovett-Turner, of Numis, another broker, said it had been a “very difficult time” for Scottish Mortgage but added: “I think Scottish Mortgage is still worthy of an allocation because it has arguably the most active approach to valuations of unlisted companies.” Baillie Gifford did not comment.