One of the most popular investment trusts with retail investors in the UK has increased its position in the automotive market through a mix of quoted and private businesses.
Scottish Mortgage (SMT) has lifted its stake in sports car giant Ferrari which was spun out of Fiat in 2015. Its investment is now worth just shy of £100m and is now the tenth largest position in its portfolio.
‘We believe Ferrari continues to be an attractive asset, with a differentiated luxury brand and production level which can be scaled from here,’ says fund manager Baillie Gifford which runs the investment trust.
CAR TECHNOLOGY OPPORTUNITY
Scottish Mortgage has made a debut investment in graphics processing units (GPU) designer NVIDIA. The privately-owned business is best known for serving the computer games industry, yet the investment trust believes there is an opportunity to crack other markets including the automotive sector.
It argues the processing structure of a GPU is better suited to computational tasks needed to support driverless cars, among other industries, than the alternative central processing units used in traditional computing.
TESLA’S GROWING IMPORTANCE
One of Scottish Mortgage’s biggest holdings is Tesla which designs and makes electric vehicles and driverless cars. The trust’s half year results, published today, show its investment in Tesla is now worth £234.3m or 4.9% of the entire portfolio as of 30 September 2016. That compares with a £185.5m valuation six months earlier.
Scottish Mortgage likes to back companies which it believes have significant growth prospects and can operate anywhere in the world. A good chunk of its portfolio is concentrated on technology-led businesses.
It says electric cars are really driven by their software. Commenting on its portfolio in the half year results, the investment trust says: ‘Improvements in data gathering and real time processing have enabled technology to reach the stage where the adoption of autonomous vehicles is largely a matter of time and acceptance, rather than of technological capability. Tesla is at the forefront of this.
‘The requisite hardware for such capability now comes as standard on all new Tesla vehicles, and it will simply require an “over the air” software update in the future to activate it.’
FIAT BOOTED OUT
It has sold a stake in FIAT in recognition of the potential competitive challenge it may face from the likes of Tesla and other electric and driverless car companies.
Other investments sold in its half year period include Burberry (BRBY), Lending Club and Twitter.
Scottish Mortgage’s net asset value and its share price both increased by 25% on a total return basis over the six-month reporting period. In contrast, the FTSE All World index rose by 18% over the same period.
DISCLOSURE: The author owns shares in Scottish Mortgage
