The Times - UK - 04.12.2021

64 Saturday December 4 2021 | the times

Money

Scottish Mortgage already owned

Tencent and Baidu in China when it

looked at Alibaba in 2012 and bought a

stake in the business from Yahoo. “It

was a difficult period for Alibaba,” Slat-

er said. “Everybody believed that they

had ripped off Yahoo, so they were

having trouble finding finance.”

But Slater and Anderson believed

that the management team understood

better than most what the Chinese

consumer wanted. “The potential was

massive,” he said.

Both firms have come under pressure

this year as the communist ruling party

tightened regulation over technology

firms. Tencent’s shares are down 38 per

cent since January’s peak and Alibaba

has more than halved.

Slater said, however, that investors

and consumers have become just as

sceptical about the Amazon, Facebook

and the like as China has about Tencent

and Alibaba. Amazon’s Alexa voice

speaker “couldn’t be a greater invasion

of privacy”, Slater said, yet five years

ago no one minded; they actually

trusted Amazon.

“I think the zeitgeist has moved on

massively and that’s what regulators

are responding to,” Slater said. “That’s

global, but in China the regulators have

teeth in a way that... we’re still figuring

out in the West.”

Slater said that the regulation makes

it harder for these firms to continue

delivering “supernormal returns”, but

E

ven though he is one of Britain’s

leading fund managers, Tom

Slater has invested in plenty of

firms that have flopped. But when you

ask the Baillie Gifford stockpicker what

his worst investment is, he does not

choose any of those that lost him the

most money.

Certainly his backing of Lending

Club, the US peer-to-peer loans com-

pany, galls him. Scottish Mortgage, the

£28 billion investment trust that Slater

runs, invested in Lending Club when it

floated on the stock market with a

market capitalisation of $5.4 billion. A

couple of years later, with the firm

engulfed in a loans scandal, Scottish

Mortgage sold out having lost 80 per

cent of its investment.

No, the mistakes that really keep

Slater, 43, up at night are the ones that

got away. For him and his long-time

joint manager James Anderson, 62,

who is stepping down in April, that

means Netflix.

Slater said: “The worst investments

are the companies that you look at

seriously, don’t follow through and buy

that subsequently turn out to be big

successes.”

Slater thinks back to 2012, when he

and Anderson were getting to know

Netflix. The managers liked the

business and believed in the vision of

the chief executive Reed Hastings.

At the time, Netflix was separating its

DVD and streaming business and its

customers hated it. Slater recalled:

“They lost a million subscribers in the

course of a year and the share price got

killed.”

Anderson and Slater decided not to

invest. Shares had peaked at a high of

$42 in July 2011 but fell 80 per cent to as

low at $7.70 a year later. Today they are

‘My biggest mistake

was being too slow

to snap up Netflix’

Star stockpicker at the

£28bn Scottish Mortgage

Trust regrets the ones

that got away, he tells

David Brenchley

Tesla 4,413.95%

Amazon 1,649.22%

Tencent 1,563.33%

Illumina 1,047.82%

Alibaba 871.58%

Kering 735.66%

Facebook 708.8%

Atlas Copco 582.49%

Inditex 130.79%

Baidu 15.77% Ten-year growth to September 30, 2021. Source: Baillie Gifford

Scottish Mortgage's top ten returns

There’s less regulation here than in

medicine, Slater said, and the techno-

logy should help many industries to use

less carbon — important as the world

focuses on climate change. Scottish

Mortgage holds the US biotech firms

Ginkgo Bioworks and Solugen.

Space exploration is another area

where technology is having a big

impact. The cost of launching a rocket

has fallen massively, while the minia-

turisation of electronics is helping to

build rockets that are a fraction of the

size and weight they used to be. Scottish

Mortgage holds Elon Musk’s SpaceX,

and the US aerospace firm Relativity

Space, which is building an automated

rocket factory.

Slater named the Chinese messaging

app provider and video games maker

Tencent as Scottish Mortgage’s best

investment, while Alibaba, China’s

ecommerce firm, has been one of the

most important because it was the first

private company the trust invested a

meaningful amount of money into.

We don’t think giving

voice to pessimism is

particularly helpful

worth $617. “It would have been a great

time to invest,” Slater said, which

seemed like something of an

understatement.

Slater and Anderson did invest in

Netflix, but three years after they

should have, by which time shares had

hit about $40. Admittedly, though, they

have still made a handsome return.

Scottish Mortgage is one of the best-

known and successful funds in the UK.

Anderson took over in April 2000 and

transformed the trust by bringing in a

new investment process: buying global

high-growth shares, largely in internet

and technology firms, with the aim of

delivering high returns for sharehold-

ers over long periods.

Today it does not seem like a radical

approach, but as the dotcom bubble

was bursting it was high-risk,

particularly because many shares

had fallen as much as 75 per cent

and hundreds of firms went to the

wall.

Many investors were unim-

pressed. But shares in Scottish

Mortgage (which as an

investment trust is a

company floated on

the stock market)

have gone from

about 95p to £14.57

today. A £10,000

investment when

Anderson took

over would now

be worth more than £200,000. Despite

the initial missed opportunity, Netflix

has been a big contributor to these

returns, as have the three tech giants:

Amazon, first invested in back in 2004,

China’s Tencent, first bought in 2008,

and the electric-car maker Tesla, first

purchased in 2013.

The portfolio has evolved as Scottish

Mortgage tries to find the next big and

exciting theme. This will be the first big

challenge for Slater when he takes over

as the trust’s lead manager.

At the moment it is invested in areas

such as digital payments, food delivery,

and blockchain, the technology behind

bitcoin.

At Baillie Gifford’s headquarters in

Edinburgh, Slater talked about syn-

thetic biology, the process of har-

nessing biology and organisms

and giving them a new pur-

pose, such as microorganisms

that can clean pollutants from

the air. It is used in a medical

context through companies

that are able to manipulate

our genes while

other firms are

using synthetic

biology to im-

prove manu-

facturing pro-

cesses.

T

he pain of trying

to get a quarantine

hotel in the UK led

one jetsetting couple to

Mexico instead, thanks

to their air miles.

Colin and Suzanne

Hawker, from

Shoreham-by-Sea, West

Sussex, were in Cape

Town last weekend on

a four-night break when

South Africa was added

to the red list because of

the Omicron variant.

This meant their flight

home was cancelled and

if they did manage to get

back to the UK they

would have had to have

quarantined for ten

days. Quarantine hotels

must be booked through

Corporate Travel

Management, a

government-appointed

agency, but it said there

weren’t any spaces.

The Hawkers, who

run an office supplies

business, said that their

only option was to go to

another country, so they

could say they hadn’t

been in a red list

country and return

to the UK without

quarantining. They

used their air miles

and hotel points to

save some money.

They considered

Ethiopia, but the

political situation was

too volatile, and Uganda,

but they hadn’t had a

yellow fever vaccine.

“I even asked the

hotel concierge in

South Africa to put

us on a container ship

so we could spend our

quarantine there, but it

didn’t work out,” Colin,

46, said. “So here we are

in Cancun. That beats

paying £4,000 for 11 days

in Heathrow. We have

spent just £620, which

includes our luxury

all-inclusive resort in

Cancun and the flights

to get there and back,”

The couple’s insurer,

American Express, had

paid them £150 a day

subsistence while they

tried to get a flight out.

It also agreed to cover

the cost of their return

journey. They are flying

back to the UK from

Mexico on December 12,

meaning they will have

been clear of South

Africa for ten days.

The Hawkers collect

air miles points through

their supermarket

shopping and credit

cards to use on

flights and hotels.

They were trying to

find ways to spend

about 800,000

points saved during

the pandemic —

one point is worth

roughly 1p.

The pandemic

has left about

6 million air miles

collectors sitting

on points that they

can’t or don’t want

to use. The main

schemes are Avios and

Virgin Atlantic’s Flying

Club. The points don’t

expire, but if there is no

activity on your Avios

account for three years

saved companion

vouchers, which

give you two-for-

one Avios flights

and are best-used

on long-haul and

business class trips.

These do expire.

BA has extended

the dates on some

until September 30,

2023, but not those

expiring after

January 2022.

Rob Burgess at

Head for Points, a

website that covers

Avios news, said:

“My strong suspicion is

that we will see a further

extension. It would be

odd if BA didn’t give

all unused vouchers a

further grace period.”

Tom

Slater

‘We used our air

miles to avoid

Covid quarantine’

s v g o a o b T B

th

u 2 e J H w

Colin and Suzanne Hawker A

ended up in Cancun

it will be closed, losing

all the points. Another

worry for Avios

collectors is if they have