Scottish Mortgage has been one of the big winners in the investment company sector through 2020 to date, as its disruptive portfolio of companies has helped it return 56.3% compared to its MSCI FTSE All World benchmark’s 3.3% gain.
One area of focus has been China in recent years. How do you assess that particular investment opportunity amid the obvious risks from trade wars and other pressures?
A few years ago, the potential limiting factor on how big Amazon and Alibaba could get was inter-competition in their own domestic market - Amazon moving into China and Alibaba moving into the US.
There is a broad assumption that trade wars are universally bad, but, for us, both of these companies have huge opportunities in their own domestic markets, so not having another player willing to come in, think long term and allocate capital is actually beneficial.
As an investor, you have to take into account that the domestic opportunity from China is so large. This is not about taking a view in any way on the politics in either country. It is purely saying if you are looking for great businesses, there are some in China that have huge potential.
Most of the holdings we have in China are involved in that domestic story. One that stands out would be ByteDance, which owns TikTok. It was the second most-downloaded app behind Whatsapp last year.
The thing that sometimes gets missed is that the scale of the TikTok platform is actually much smaller than its domestic platform. If you compare that with Facebook, we think there is a huge opportunity here that is quite hard to access because it is still a private company.
Another area of interest recently has been private companies. Can you explain the attraction they bring to the portfolio?
We are not buying them because they are private; we are buying them because they fit our philosophy and our structure allows us to be agnostic. Companies are able to stay private to a much later stage, crucially for us when a lot more value has been generated through their growth.
There are enough people in the [private] market today that you need to be able to offer these companies something above and beyond just actual money. This is about capital being less commoditised.
What we can offer is a genuine, long-term shareholder relationship, and they can see the proof of that.
One of the most disruptive things companies can do is go through that public or direct listing process. Most other providers of capital in this area of the market have structures that mean they cannot continue to hold once a company becomes public.
That is not true for Scottish Mortgage; we will remain committed shareholders.