Investment trust Scottish Mortgage (SMT) could win promotion to the blue-chip FTSE 100 index at the end of March, potentially attracting a swathe of tracker funds to buy its shares.

The flagship investment trust of manager Baillie Gifford, Scottish Mortgage is currently valued at £4.7bn, second only to investment bank  Investec (INVP) in the queue to make the leap. This is substantially above the rough £3.5bn to £3.6bn valuations of the FTSE 100's current lowest ranked stocks, including outsourcer Capita (CPI), Dixons Carphone (DC.) and real estate business Intu Properties (INTU).

Every quarter FTSE reviews the constituents that make up its various indices based on market capitalisation.

If Scottish Mortgage is successful and joins the FTSE 100 it would be something of a rarity. Only Foreign & Colonial (FRCL) and Alliance Trust (ATST) are investment trusts to have been included among the UK blue-chips in the past, and neither currently is.

Scottish Mortgage graph

WHAT SCOTTISH MORTGAGE BUYS?

Scottish Mortgage refers to itself as a low-cost global fund that picks stocks with strong growth prospects. Shares in the trust have enjoyed a strong run during the past year, soaring more than 50% to the current 351.2p.

Much of that strength comes from the trust owning stakes in several of the world's biggest, and best performing, tech stocks. The trust's single biggest stake is in online delivery giant Amazon (AMZN:NDQ), in which it has ploughed 9.9% of the fund's resources.

Amazon shares have soared 58% to $842 since February 2016, but it is not alone. Stakes in electric cars manufacturer Tesla (TSLA:NDQ), genomics research company Illumina (ILMN:NDQ)Facebook (FB:NDQ), Netflix (NFLX: NDQ) plus Chinese tech giant Alibaba (BABA:NYSE) and Baidu (BIDU:NDQ) have all raced ahead during the past 12 months, pumping up Scottish Mortgage's net assets value (NAV), currently standing at 347.84p.

In November, Shares reported that the fund had bought a stake in graphics card designer NVIDIA (NVDA:NDQ), which supplies many of the world's top computer games console manufacturers. One-time social media darling Twitter (TWTR:NYSE) and luxury fashion house Burberry (BRBY) were booted out last year.


Issue Date: 16 Feb 2017