Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Activist investor Elliott has built a 5 per cent position in Scottish Mortgage Investment Trust, whose early bets on tech groups such as Amazon turned it into one of the UK’s most popular investment vehicles before falling out of favour over the past two years.
The US investment group owns 0.5 per cent of the shares in Scottish Mortgage and amassed the rest of the position via equity derivatives, taking it over the 5 per cent disclosure threshold, according to a stock exchange filing from the trust.
The emergence of Elliott as an investor comes a week after Scottish Mortgage announced a £1bn share buyback in a bid to support its own stock, which peaked in late 2021 before higher interest rates chilled investors’ appetite for the high-growth companies the trust made its name backing.
Elliott, which is headquartered in Florida and manages around $65bn in assets, has over the past two decades built a reputation as a fearsome activist prepared to pursue boardroom battles to force change at the companies it targets.
According to a person familiar with the matter, Elliott started building its position in Scottish Mortgage last year and supports the trust’s share buyback plan.
While the tech sector has staged a rebound on Wall Street over the past year, Scottish Mortgage’s own share price has failed to keep pace, opening a discount with the underlying value of its holdings that include Nvidia. Scottish Mortgage is trading at a roughly 8 per cent discount to its net asset value, according to the Association of Investment Companies.
Justin Dowley, chair of Scottish Mortgage Investment Trust, said of Elliott’s investment: “We have been in contact, as we often are with shareholders,” without giving any details. Elliott declined to comment.
The disclosure of Elliott’s interest late on Thursday after the stock market closed comes as investment trusts face pressure to consolidate as higher interest rates and complex regulations have cut their appeal and widened the discounts at which they trade.
The average discount between an investment trust’s share price and its net asset value hit 16.9 per cent last October, just below the 17.7 per cent recorded at the end of 2008, according to the Association of Investment Companies.
Scottish Mortgage became an unlikely star of global tech investing this century when its former manager, James Anderson, made a series of early and highly successful bets on Facebook, Amazon and Tesla.
Its bet on Scottish Mortgage is not Elliott’s only recent interest in London-listed companies. Earlier this month, it made two proposals to buy UK electronics retailer Currys that were rebuffed by the group.
Shares in Scottish Mortgage climbed 1.5 per cent on Friday, but remain down almost 40 per cent from their record high.
Equity swaps are financial instruments that allow investors to gain exposure to a stock. They are commonly used by hedge funds to build positions in companies and are typically facilitated by big banks.
Read the full article here