Scottish Mortgage: Growth Via Private Firms, China

Have you ever wondered what it takes to chase exceptional returns in today’s unpredictable markets? I’ve often found myself marveling at how some investors manage to spot opportunities where others see only risk. Take Scottish Mortgage Investment Trust, for instance—a name that’s been synonymous with bold, forward-thinking investing for over a century. This FTSE 100 powerhouse doesn’t just follow trends; it seeks out the world’s most promising growth stories, from private startups to Chinese innovators, and holds on for the long haul. Let’s dive into why this trust is doubling down on private companies, eyeing China, and embracing volatility to deliver results that keep investors talking.

The Scottish Mortgage Philosophy: Growth Without Borders

At its core, Scottish Mortgage’s mission is refreshingly straightforward: find the world’s best growth companies, invest in them early, and stay patient. But don’t let that simplicity fool you. This trust, which has been around since 1909, operates with a global lens, scouring every corner of the planet for businesses that can redefine industries. Whether it’s a private firm revolutionizing drone deliveries or a Chinese automaker outpacing global competitors, Scottish Mortgage isn’t afraid to go where others hesitate.

Our aim is to own the world’s most exceptional growth companies, wherever we find them, and be long-term patient owners.

– Trust manager

This approach has made Scottish Mortgage a darling among investors, but it’s not without its ups and downs. Back in 2022, the trust’s shares took a 45% hit as markets turned against growth stocks during the pandemic. Yet, instead of retreating, the trust doubled down on its strategy, proving that volatility is just part of the game when you’re chasing big wins.

Why Private Companies Are the New Frontier

One of the most intriguing shifts in Scottish Mortgage’s strategy over the past decade has been its pivot toward private companies. Why? Because that’s where the real game-changers are hiding. Public markets are crowded, and by the time a company goes public, much of its explosive growth potential may already be priced in. Private firms, on the other hand, offer a chance to get in on the ground floor.

Take a company like Zipline, which uses autonomous drones to deliver medical supplies and even food. It’s not listed on any stock exchange, but Scottish Mortgage saw its potential early. By investing in such unicorns—private companies valued at $1 billion or more—the trust gains access to innovation before it hits the mainstream.

• SpaceX: The trust’s largest holding at 8%, revolutionizing space travel.
• MercadoLibre: A Latin American e-commerce giant dominating its region.
• Revolut and Stripe: Fintech disruptors reshaping how we bank and pay.

What’s fascinating is how Scottish Mortgage doesn’t just dip its toes in these companies—it goes all in. When the trust spots a winner, it’s willing to let that position grow, even if it dominates the portfolio. This isn’t about diversification for the sake of it; it’s about maximizing returns by sticking with the best.

China: The Opportunity Too Big to Ignore

Let’s talk about China. For many investors, it’s a market shrouded in uncertainty—tariffs, regulations, and geopolitical tensions make it a tough sell. But Scottish Mortgage sees things differently. With China accounting for 20% of the global economy but only 3% of global market capitalization, the trust believes ignoring it would be a colossal mistake.

One standout example is BYD, a Chinese electric vehicle (EV) maker that’s gone toe-to-toe with Tesla. Emerging from China’s cutthroat EV market, BYD has proven it can innovate, scale, and stay profitable in ways that Western automakers struggle to match. Scottish Mortgage’s bet on BYD reflects its belief that Chinese entrepreneurs are operating on a level that demands attention.

Ignore China at your peril. Its entrepreneurs operate at a scale that’s hard to match.

– Investment expert

But it’s not just about EVs. China’s tech scene, from AI to e-commerce, is brimming with potential. By investing here, Scottish Mortgage taps into a market where growth is still in its early stages, even if the headlines suggest otherwise.

Embracing Volatility: A Necessary Evil?

Here’s the thing about Scottish Mortgage: it’s not for the faint of heart. The trust’s focus on high-growth companies means volatility comes with the territory. When markets wobble—think tariffs or pandemics—Scottish Mortgage’s portfolio can take a hit. But the trust’s managers are unapologetic about this.

Instead of trying to smooth out the ride, they lean into it. Why? Because they believe that chasing exceptional returns requires accepting uncertainty. For investors who can stomach the swings, the rewards can be substantial. Just look at their track record: a single year’s gains in SpaceX more than offset losses in other bets, like the battery company Northvolt.

This approach won’t suit everyone. If you’re someone who checks your portfolio daily and panics at a 5% drop, Scottish Mortgage might keep you up at night. But for those who share the trust’s long-term vision, the volatility is just noise.

AI and Beyond: Knowing When to Cash Out

Artificial intelligence is the buzzword of the decade, and Scottish Mortgage has been in the game longer than most. Back in 2016, the trust invested £65 million in Nvidia, a company that would later become the world’s fourth-largest by market cap. Last year, they sold £1.3 billion worth of Nvidia stock, locking in massive profits.

But here’s where it gets interesting. Despite AI’s transformative potential, Scottish Mortgage is skeptical about its current economics. The trust’s managers argue that for AI to become truly ubiquitous, it needs to get cheaper—much cheaper. Think about how laptops and smartphones became affordable over time; AI will need to follow a similar path.

AI is powerful, but it’s too expensive to be ubiquitous right now. Costs must come down.

– Investment strategist

This disciplined approach—knowing when to take profits and when to hold—sets Scottish Mortgage apart. It’s not about chasing hype; it’s about understanding where the real value lies.

Is Scottish Mortgage Right for You?

Let’s be real: Scottish Mortgage isn’t a one-size-fits-all investment. Its bold bets on private companies, China, and high-growth sectors make it a thrilling ride, but it’s not without risks. If you’re looking for steady dividends or a sleepy index fund, this trust will probably feel like a rollercoaster.

1. High risk, high reward: Expect volatility, but also the potential for outsized gains.
2. Long-term focus: This is for investors who can stay patient through market swings.
3. Global exposure: From SpaceX to BYD, you’re betting on the world’s biggest trends.

Personally, I find Scottish Mortgage’s approach inspiring. It’s a reminder that the biggest rewards often come from taking calculated risks and thinking beyond the obvious. But it’s not a decision to make lightly—do your homework and make sure it aligns with your goals.

What’s Next for Scottish Mortgage?

As markets continue to grapple with tariffs, inflation, and geopolitical shifts, Scottish Mortgage remains unfazed. The trust’s managers are already eyeing the next wave of opportunities, from biotech breakthroughs to renewable energy innovators. And with their track record, it’s hard not to pay attention.

Perhaps the most exciting part is how Scottish Mortgage continues to evolve. By blending private and public investments, embracing global markets like China, and staying disciplined in hyped-up sectors like AI, the trust is positioning itself for another century of growth. Will it deliver? Only time will tell, but one thing’s for sure: Scottish Mortgage isn’t afraid to dream big.

So, what’s your move? Are you ready to embrace the volatility and bet on the future with Scottish Mortgage, or is a safer path more your style? Whatever you choose, there’s something undeniably compelling about a trust that’s willing to go all in on the world’s boldest ideas.