Morningstar has downgraded Scottish Mortgage investment trust from a 'Gold' to a 'Silver' rating amid an overhaul of its ratings framework, while broker Stifel has told investors to "lock in gains" from the Baillie Gifford flagship fund.
An acceleration of the trends buoying some of its holdings through the Covid-19 pandemic, such as video conferencing for Zoom and online shopping for Meituan, has helped the £13.7bn trust return 61.1% in 2020 so far, well ahead of its FTSE All World benchmark's modest 3.4% gain.
The FTSE 100 constituent features a 0.36% ongoing charge, but Morningstar analyst Robert Starkey noted that this is "offset when the cost of debt is considered, pushing the representative cost up to 0.77%".
As a result, Starkey downgraded the trust's rating to ‘Silver', noting even at a cost of 77 basis points, the mandate "is still attractive given the access the trust offers to unquoted assets".
Starkey said the downgrade owes to Morningstar's "enhanced ratings framework, which places a greater emphasis on fees and expected benchmark-relative performance".
The analyst said Scottish Mortgage's management duo was "well regarded", while the company "sets a very high standard for shareholder communication and articulation of the process through regular and up-to-date reporting and frequent roadshows".
Starkey noted the addition of unlisted holdings was a positive for shareholders, complementing the high active share portfolio is listed holdings headed by e-commerce giant Amazon.
"The management believes that many companies are able to perform better away from the intraday spotlight of quoted markets where investors and management are increasingly focused on quarterly figures to the detriment of longer-term investment and growth," Starkey said.
"As patient and cornerstone investors in a range of unlisted companies, the managers have gained the reputation as long-term supporters of management and hence have been able to gain access to a range of unlisted opportunities.
"In addition, the closed-ended nature of the trust makes such investment eminently more appropriate than for an open-ended structure.
"Finally, Baillie Gifford has assembled a robust valuation and governance framework around the unlisted investments which gives comfort.
"The nature of this high-growth, leveraged portfolio means it is likely to be volatile, and while we are reassured by the experience of Anderson and Slater, risk-averse investors need to factor this into their considerations."
The downgrade from Morningstar came following a note to clients from Stifel, which said that while it viewed Scottish Mortgage as "a core holding" it reasoned "there is a good case to take some profits and lock in some gains" after its recent "exceptional performance".
Iain Scouller said experience had taught Stifel's analysts that "trust NAVs and share prices do not rise in a straight line indefinitely".
"What none of us knows is what the catalyst will be for a change in market conditions," he added.
Scouller set out a trio of conditions that could cause negative consequences for Scottish Mortgage: a rotation to value stocks from growth; a change in policies on tech companies if there was a change in administration in November's election; and markets questioning the valuations of tech and growth stocks.
"Taking into account the gains that have been made and the increased weighting many portfolios will have in Scottish Mortgage shares following their relative outperformance, compared to other equities, we believe that banking some profits could be a contrarian but prudent course of action," Scouller suggested.