Why I’d pick this investment trust, up 200% in five years, for a starter pension portfolio
If I only had £1,000 to invest and had to pick just one investment trust to buy, the Scottish Mortgage Investment Trust(LSE: SMT) would be my first (and only) pick.
Over the past 10 years, this trust has transformed itself from a relatively unknown company to one of the best performing investment trusts in the UK. With nearly £8bn in assets under management, the firm is also one of the biggest investment trusts listed in London. Its size has earned it a place in the FTSE 100.
At the cutting edge
Founded in 1909, Scottish Mortage has been investing at the cutting edge of technology for the past 109 years. When it was founded, the firm’s purpose was to lend money to rubber plantations in the Far East, a play on the growing popularity of the motorcar.
Today, rubber is out, but the trust is still investing in the future of transportation. Its fifth largest holding is Tesla Inc, the high-profile, high-end electric car company founded and managed by Elon Musk.
Tesla is an excellent example of the sort of businesses Scottish Mortage’s managers, James Anderson, and Tom Slater, are looking for (Anderson has been at the head of Scottish Mortgage since the beginning of 2000). Their goal is to invest in companies that have the potential to disrupt industries, benefitting from transformational growth opportunities. As well as Tesla, the trust also owns e-commerce mega-giant Amazon.com (it makes up for 10.5% of the portfolio) as well as Chinese internet giants Alibaba and Tencent.
These businesses are changing the world, and while they’ve achieved staggering growth over the past decade, most analysts believe companies like Amazon and Alibaba are only just getting started.
Scottish Mortgage is a great way to play this trend. Almost all of the portfolio is invested in companies outside of the United Kingdom, which makes it the perfect vehicle for UK-based investors to get exposure to international digital disruptors, without having to worry about currency fluctuations or finding a global broker.
In recent years, the trust has also been taking advantage of its structure to invest in unquoted companies, which have so far produced impressive returns. Between the beginning of June 2010, when Anderson and team made their first unlisted investment, and the end of September, unlisted holdings produced a total return for investors of 419%, compared to an overall gain of 344% for the Scottish Mortgage portfolio. Over the same period, the FTSE All-World Index added just 163%.
Picking future winners can be pretty hit and miss, but these returns clearly show that Anderson and Slater have a knack for picking future winners.
With this being the case, I’m confident that the team can continue to achieve market-beating returns for investors offering exposure to businesses that investors would not usually be able to access. That’s why, if I had to pick just one investment trust to include in my retirement portfolio, I would choose Scottish Mortage.
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Rupert Hargreaves owns no share mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Amazon and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.