Scottish Mortgage (SMT ) tumbled nearly 8% in torrid trading this afternoon, sending its shares below their New Year starting point, as a sell-off in US tech stocks continued to pummel Baillie Gifford and other trusts with big exposure to stock market winners from the pandemic.
The £18bn Baillie Gifford flagship dropped around 105p to £11.61 this afternoon, the FTSE 100’s biggest faller, as the US Nasdaq technology index sank another 2.8% on Wall Street, with heavy selling in Microsoft and ‘FAANG’ stocks Alphabet, Amazon, Apple and Netflix.
Stablemate Baillie Gifford US Growth (USA ), the best-performing trust last year with a stupendous 133% return, sank over 8% at one point to be the FTSE 250’s biggest faller today. Baillie Gifford’s global smaller company trust, Edinburgh Worldwide (EWI ), slid over 7%, while Pacific Horizon (PHI ), the top-performing Asia trust, slid 8.7%, the biggest faller on the FTSE Small Cap index, in mid afternoon trades.
But it was not all Baillie Gifford trusts falling, as Allianz Technology (ATT ) and Fidelity China Special Situations (FCSS ) and JPMorgan China Growth & Income (JCGI ), retreated 7.8%, 5.1% and 8.2% respectively, the latter two hurt by their big weightings to tech heavyweights like Tencent.
This follows a 2.5% decline in Nasdaq yesterday as investors sold off tech giants spooked by rising yields on US government bonds that could signal rising inflation and higher interest rates as an economic recovery from coronavirus potentially triggers a rotation from expensive ‘growth’ stocks to cheaper ‘value’ shares.
’There’s definitely an assumption that inflation has crept and bled through and we are starting to see some impact of that assumption in the growth style of investing,’ Keith Buchanan, portfolio manager at GlobAlt in Atlanta, told Reuters.
This is the second big fall this week for Scottish Mortgage, one of the leading funds to benefit from last year’s surge in tech stocks. Its shares fell 6% yesterday as the Nasdaq began to drop, shedding this year’s gains to stand about 50p below their opening level on 4 January.
From their peak on 15 February the shares of the country’s largest investment trust have now dropped 16.7%. However, with the shares having more than doubled last year with a 110% total return, SMT has plenty of gains to give away before investors become unduly worried.
With high conviction positions in the likes of Amazon, Tesla and Alibaba, SMT is well known for being a volatile stock. Even after the sharp decline of the past week, the shares are up nearly 8% from their £10.85 level on 9 November, when they fell 6% in response to Pfizer’s announce of a Covid-19 vaccine. That sparked a furious ‘value’ rally that until the past week had not disturbed SMT’s progress.
As the afternoon wore on, the shares clawed back some ground and approaching 4pm stood at £11.99, down 5.4% on the day.
Fund managers James Anderson and Tom Slater take a famously long-term view and do not typically comment on short-term gyrations in their trust or markets in which it invests. However, their halving of former top stock Tesla after the electric car manufacturer’s incredible nine-fold increase last year has drawn much attention from investors.
Despite the unwinding of some of the recent gains, the shares trade close to their net asset value (NAV) and have delivered an astounding 428% shareholder return over five years, more than four times the return of the MSCI World index.
The S&P 500, the mainstream US stock market index, held up better this afternoon, off 1.3%. The FTSE 100 reversed direction, shedding an early small gain to trade 0.5% down at 6,580.
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