Update: This story was first published at 18:25 on Friday.

Activist US hedge fund Elliott Management has taken what appears to be very handsome profits in Scottish Mortgage after reducing its stake to below 5%, according to a stock market filing on Friday afternoon.

The sale took place last Wednesday when Scottish Mortgage bought back £311m, or 2.5% of its shares, a record one-day purchase by a UK investment company.

Elliott declined to comment on its trading but sources say it remains the largest single shareholder in the Baillie Gifford flagship.

Analysts believe Elliott was probably the main, if not the only, seller in the buyback, meaning its position will have halved to around 2.5%.

Stifel analyst Iain Scouller believed Elliott had begun building its position last summer between 640p and 700p, which would imply a gain of around 33% for those shares against last week’s buyback price of 895p.

However, as one reader commented, if the position was ‘triple geared’ as it is believed Saba Capital’s was last year when it made an estimated 30% return from an underlying 10% gain in Scottish Mortgage, then that would take Elliott’s return closer to 100%, potentially doubling its money.

Elliott’s use of equity swaps for most of the holding, a similar tactic to Saba’s, is another reason to believe the position was highly geared, thereby increasing the hedge fund’s overall gain beyond the movement in the Scottish Mortgage share price.  

The big unknown in this speculative estimate, though, is the cost of these swaps which could reduce the return significantly. 

Scouller said: ‘This appears to be Elliott realising some sizeable profits, but at the same time they remain one of the largest shareholders and they are likely to continue to give the board clear views as to how shareholder value could be enhanced in the future and keep their “feet to the fire”.’

‘We assume that if any other shareholders also want to exit a large or small position in Scottish Mortgage’s shares in the market into the buyback, the board will be quite happy to facilitate this in the same way that they have accommodated Elliott’s realisation,’ the analyst added.

Speculation about Elliott’s intentions grew after Scottish Mortgage disclosed its big repurchase, which took the total bought back since mid-March to £490m.

That’s nearly half the £1bn target the company set over two years, indicating the total return of capital could end up being greater than this.

Elliott’s behaviour with Scottish Mortgage contrasts with the long battle it fought with the board of Alliance Trust (ATST ) a decade ago, forcing it to buy out its large stake and unwind its financial services group structure and appoint an external fund manager. 

‘Is this the shortest activist investor campaign in history? Less than two months after declaring a 5% stake in Scottish Mortgage, Elliott has started to sell down its holding,’ said AJ Bell investment director Russ Mould.

‘Elliott has been laughing all the way to the bank as it has barely taken its feet off the desk, let alone had to flex its muscles in the normal way an activist does to get their message across,’ he said.

Shares in Scottish Mortgage traded more than 20% below the net asset value of its investments last summer when Elliott began buying. Since the investment trust announced the buyback programme in March, with Elliott revealing its 5% stake a week later, they have narrowed the gap from 15% to 6%.

Scottish Mortgage shares more than halved in the growth selloff caused by soaring interest rates and surging inflation, falling from a £15.28 high in November 2021 to a low of 628p in May 2023, shortly before Elliott is believed to have started buying in.

The shares have rallied nearly 44% in the past year but remain 21% down over three years. Over a decade, however, they are the best performer in the AIC Global sector with a total 399.5% shareholder return.