At a recent investment conference Tom Slater, fund manager at Scottish Mortgage Investment Trust (SMT), explained why the likes of Amazon and Alibaba are ‘phenomenal businesses which have proved to be more powerful than we dared to imagine’.
Slater said that the trust ‘looked quite stupid’ owning Amazon for a while, as when it first bought the company in 2005, Amazon proceeded to lose a third of its value a year later. From 2006 to 2008 its value continued to shrink, falling by around a half.
Now Slater says that its been the trust’s biggest winner, predicting Amazon will generate $100bn from US retail sales alone this year. ‘Despite the high profile it’s still in its infancy,’ says Slater regarding Amazon.
He points out that despite Amazon’s sizeable US retail sales, it still only accounts for 2% of the addressable market and has not moved into the grocery sector yet either. Also, there are markets such as India that are rising fast that Amazon has yet to even penetrate.
Beast from the East
While a big fan of the US tech giants - the trust owns Facebook, Netflix and Google owner Alphabet as well - Slater says it’s ‘nothing compared to what we’re seeing in China’.
Alibaba is the trust’s fourth largest holding and China’s e-commerce behemoth is another stock with huge potential according to Slater. According to Alibaba, during its 18-year life, growth in the Chinese economy has driven a 10-fold increase in disposable income.
During China’ s biggest retail event, ‘Singles day’, Alibaba amassed over $25bn in sales. Slater was with the company’s management at the time and recalls they were more interested in seeing how their systems stood up to the heightened demand rather than seeing it as an ‘accomplishment’.
One of the draws of these huge tech players to Scottish Mortgage is that due to their sheer size ‘it seems unlikely they’re going to be outdone by competitors’. Scottish Mortgage Investment Trust’s shares appreciated by 30.4% in the year to 31 October.
