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Searching for the next Tesla among the FTSE 100 companies using Scottish Mortgage’s investment strat

The investment manager’s report in today’s results statement from Scottish Mortgage Investment Trust PLC (LON:SMT) provides some useful insight into the trust’s strategy.

Tom Slater – the Baillie Gifford man who is the joint manager of SMT’s investment portfolio – explained the team’s strategy is to create long term value by finding companies pursuing big opportunities and investing in projects with uncertain payoffs.

Investing in these stocks often involves investors holding their nerve, which is why investing in a basket of such shares through an investment trust is a sensible policy.

Nevertheless, you may have a bit of money you can afford to lose and are hoping to get in on the ground floor of the next Tesla; does Baillie Gifford have any top tips (Boomer generation) or investment hacks (Generation Z) for you?

As EV as pie

“It is not an anomaly that Tesla has contributed so much to the portfolio this year. It is a predictable consequence of the structure of stock market returns. You no longer need to inhabit the arcane world of investment to understand such results,” Slater told investors in the report.

All you need to do is look at is identify the areas in which the world is changing most rapidly and seek out those companies most likely to benefit from those changes.

Easy as pie, really. Why aren’t we all doing it?

“There are many quite predictable trends in communications, computation, machine learning, energy generation and storage, gene sequencing and synthetic biology that, as they compound over time, can have a huge impact. The vaccine developments that are allowing us to emerge from this crisis are just one example,” Slater expanded.

During the financial year just ended, SMT took profits on electric vehicle (EV) pioneer Tesla, selling 80% of its holding. Some of that money was invested in Northvolt, a company led by a former Tesla engineer, which is aiming to become Europe’s largest supplier of batteries for electric vehicles and which agreed a US$14bn deal with Volkswagen earlier this year.

It also took a holding in ChargePoint, which is one of the world’s largest electric vehicle charging networks.

The broader field of transport and logistics is also piquing Baillie Gifford’s interest.

Meituan in China and Delivery Hero in South East Asia now have the order frequency and distribution infrastructure to move beyond prepared food and into grocery and convenience offerings. Doordash is doing something similar in the US. SMT has also purchased holdings in Ocado and GoPuff, both part of a massive wave of funding for online marketplaces in the past 15 months.

“Ocado’s grocery offering is performing strongly and profitably in the UK and there is increasing interest from grocers around the world in implementing its technology. GoPuff is seeking to replicate the traditional convenience store with a delivery offering which has proved popular on US university campuses and is expanding into a more general setting,” Slater noted.

Droning on

While we are at it, get prepared for the march of the robots, with Slater predicting a lot of these delivery and logistics companies will start making the transition soon from human to robot delivery. This explains the trust’s investment in Nuro, which is developing ground-based autonomous delivery vehicles for last-mile delivery which should help to further reduce the cost of home delivery.

As for ideas that are a bit more out there, fans of the Hannah-Barbera cartoon The Jetsons will be pleased to see SMT backing flying taxi companies, Lilium and Joby.

Elsewhere in the aerospace world, Slater is a fan of Zipline, which has refined the performance of its autonomous fixed-wing aircraft while delivering medical supplies in sub-Saharan Africa. It is now launching in the US and delivering a broader range of products.

SpaceX, the satellite launching company, has been in the SMT portfolio for a while but it recently added Relativity Space to its holdings; the latter is aiming to reduce launch costs for smaller payloads using 3D-printed rockets.

So, while investing in stock market winners is not rocket science (if you are a canny judge such as Tom Slater or James Anderson, the other co-manager of SMT’s portfolio), there does seem to be some rationale behind investing in rocket science.

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