Fund manager James Hanbury has cut his short bet on Scottish Mortgage (SMT ) following a tumultuous week for the investment trust.

According to an investor update seen by the Financial Times, Citywire A-rated Hanbury said he had reduced a number of short positions within his LF Brook Absolute Return and Developed Market funds, ‘notably some of [the] position in Scottish Mortgage’.

Hanbury (below) is understood to have been shorting, or looking to take advantage of a fall in the shares of, Scottish Mortgage since interest rates started moving north.

The trust was among a number of stocks he shorted in expectation their shares would fall as borrowing costs increased. This strategy has rewarded investors in his fund handsomely. In the three years to the end of February the Brooks Absolute Return fund has returned 87.4%, smashing the peer group average of 11.6%. 

According to data from S&P Global Market Intelligence, cited by the FT, the percentage of Scottish Mortgage shares on loan has fallen from around 1% last summer to 0.1%, indicating short-seller interest has declined.

Crispin Odey is another who has shorted the trust and although his position is smaller now, he does not believe the investment company isn’t quite out of the woods. 

‘It’s got problems and it’s very expensive still and of course they’ve got quite a lot in private equity ventures, tech ventures, which is dangerous — they all demand rights issue after rights issue,’ Odey was quoted to have said. ‘[So] the percentage in unquoted stocks will keep on going up and people will get scared.’ 

The trust’s exposure to private equity stocks has breached its 30% shareholder approved limit twice in the last two years. This has drawn criticism from analysts at Stifel, who criticised the trust for its ‘poor’ level of disclosure of the valuations of its unquoted stocks.

The analysts made their comments after an astonishing attack on the £9bn trust’s ability to manage its private equity investments by former director Amar Bhidé. Along with his resignation, the row resulted in chair Fiona McBain and fellow director Paola Subacchi announcing their intention to stand down from the board after the next annual meeting.

Last week Scottish Mortgage commercial director Stewart Heggie dismissed Bhidé’s accusation that it lacks the resources to invest in private equity. 

Shares in Scottish Mortgage have plunged by 60% in the last 18 months as its high exposure to tech and growth came unstuck following a major turn in sentiment. 

However, it remains the best performing trust in the global AIC sector over 10 years, returning 343% versus the 161% rise in the MSCI AC World Index. The brutal sell off in the trust since its 2021 peak has pushed its discount to 20%.

Some fund and wealth managers who own the trust remain relatively unfazed by the bust-up. 

These include Columbia Threadneedle’s Peter Hewitt (pictured). ‘I think if you are a private investor and you did not own Scottish Mortgage, but if you had a five- or 10-year view, now is not a bad time to start taking a position in the trust,’ he told Citywire. 

‘[The trust is] still appropriately governed, but the board could still have handled this whole transition business better.’ 

Raj Basra of Tacit is also keeping the faith. ‘[When it comes to growth investing] there are very few stocks that generate your return. The guys at Scottish Mortgage have been very good at picking those stocks over time,’ he said.