苏格兰抵押投资信托 — 经理人回顾，截至2018年3月31日年报（詹姆斯·安德森与汤姆·斯莱特）

Managers’ Review As the late, great Hans Rosling wrote “It is not a question of intelligence. Everyone seems to get the world devastatingly wrong. Not only devastatingly wrong but systematically wrong.” We agree. Therefore highly educated but deluded human beings believe the world to be far worse than it is given the advances in global health, wealth and well-being that ‘are too slow, too fragmented, or too small one-by-one to ever qualify as news’. It’s this ‘secret silent miracle of human progress’ that convinces us to remain optimistic about the investment opportunities despite the understandably lurid headlines of our age. But the investment world is devastatingly and systematically wrong in quite another manner. It does not understand the nature of investment returns, their origins or what may predict their occurrence. Investment returns are not generated by surveying the entire available field and adjusting correlations to the index by overweighting and underweighting according to marginal advantages and disadvantages, perceived risk of volatility, macroeconomic trends or comparative valuation. Investment is a far more dramatic and extreme universe than that. It’s not a well-behaved machine that cranks out returns to owners of all equities merely pausing to reflect the supposed laws of asset pricing relative to cash and bonds. Instead quite extraordinary returns flow to a tiny fraction of the companies in existence. This is articulated in more detail by Tom Slater later in this Report. The companies that have the opportunity to deliver exceptional returns tend to share initial characteristics. They address potentially huge markets at early stages, they are run for the long-term by founders or their descendants, and they zig and zag to adjust to developing circumstances rather than imposing a spread sheet on reality. It’s these sort of companies that we need to identify. Moreover, great results are only attainable if patience is the mantra for investors as well as for founders. It’s the persistent compounding of exponential returns that matters. So our task is

Amazon e-commerce.

not just to identify companies that possess extraordinary characteristics. It’s to own them for a prolonged period. All too often excessive fear of events and headlines and a misguided desire to lock in past profits lead investors to chop down trees when they are but saplings. All great companies endure through periods of struggle. All great shares endure periods of dramatic underperformance. It is only in retrospect that success appears smooth and inevitable. What is so remarkable about this era for growth investors is that we have been offered the chance to own a set of compelling companies that have the characteristics that denote the potential for greatness at extreme scale. The combination of digitalisation and globalisation has led to hitherto unimaginable opportunities for a cadre of founder led companies of the utmost ambition. It’s therefore natural enough that the corporate trees can continue to grow at previously incomprehensible scale. It’s appropriate yet again to cite Amazon in all of these regards. It’s not normal for a company of its size to achieve 43% sales growth, it’s abnormal to have a cloud computing business with accelerating growth as it hits a $20 billion run rate or to see the Prime subscription service exceed 100m customers. These are all opportunities that Amazon invented.

Not Just Silicon Valley Silicon Valley attracts headlines. Its companies have also contributed disproportionately to the returns enjoyed by global investors over recent years. But for Scottish Mortgage shareholders the focus on this area can become a little too intense. This isn’t just a reference to the rather different culture nurtured by Seattle’s Amazon or San Diego’s Illumina but also to much wider considerations. We should stress that our major investments are not confined to the West Coast of America – let alone to Silicon Valley. We go wherever any companies demonstrate the characteristics that offer the potential for greatness at scale. More often than not such companies herd together in clusters of mutual emulation.

Amazon Web Services.

Hangzhou, China.

Eastern China Over the next twenty years we consider it likely that Chinese companies will create the most value. It seems equally likely that almost all of these will be found in the hubs of Eastern China. Shenzhen, Hangzhou (not Shanghai) and Beijing appear the epicentres of potential. As in America, the concentration of returns will be notable not just geographically but in the rise of a small number of remarkable companies. This has certainly been the pattern of the last twelve months. During the period under review Alibaba and Tencent came to be recognised for what they are – dominant, thoughtful and highly sophisticated network companies with the technological and managerial abilities to extend their leadership into most segments of the Chinese economy and increasingly into international markets. We think these two behemoths are at least the overall equal of their American peers in vision and abilities. They are both more at ease with their home society and government than is the case in America. Unlike most of their US counterparts both Alibaba and Tencent are prepared to reinvest in their businesses in order to redeploy their extraordinary cash flows. We far prefer this policy to the passive generation of vast cash piles. Only Amazon of the US internet giants has a similar attitude. Tencent and Alibaba share with Amazon the ability to grow at 40–50% over long periods of time. So this is no longer geographically confined to America but it is historically unprecedented.

As elsewhere the recent pattern has been for the next generation of Chinese companies to grow up in private. But privacy should not be mistaken for lack of ambition. Given that funding at scale is available from Tencent, Alibaba and Baidu as well as a vigorous venture capital system, remaining unquoted is no obstacle to scale and, as elsewhere, allows investment to occur without the impatience of public markets. We can only reflect on the comparative appeal of the frequently hysterical and always opinionated daily news gauntlet that Tesla endures versus the quiet progress of its Chinese equivalent NIO (in which we now have a holding). We would expect our exposure to Chinese unquoted companies to grow over the coming year. We see no evidence that the Chinese economic and corporate miracle is fading – indeed rather the reverse. The increasing scale, wealth, education and sophistication of the domestic market are likely to mean that the opportunities will become more, rather than less, alluring. Just as Scottish Mortgage 100 years ago had to confront America becoming the leading economy and the stock market with the most opportunities so we must acknowledge a similar transition today. It would be no surprise if China replaces the United States as the leading geographical location for Scottish Mortgage’s assets. 100 years ago there was much murmuring in the Annual Reports that Canada or Argentina might be more appealing. We are more single minded.

Surprising Successes Our commitment to China and to the beneficiaries of exponential change has been consistent and frequently discussed in these pages. What may be less well-known to shareholders is that we’ve been fortunate enough to own a group of European companies that have delivered quite excellent business and share price performance over a prolonged period. Sometimes the degree of success has surprised the Managers. Such is the case in our ownership of first Fiat Chrysler and then its Ferrari spin-off. Given the economics and maturity of the internal combustion engine this may seem unlikely territory for growth investors – so much so that we acknowledge that we may have been the beneficiaries of luck rather than good judgment. But we have believed for many years that Fiat Chrysler has outstanding leadership. It is prepared to be radical in thinking about the auto industry from first principles. This led to a preparedness to abandon the search for volumes to focus instead on a limited number of special brands. Ferrari itself is the lodestar of this approach with a mere 8,398 cars translating into operating earnings of €775m in 2017. Both figures have the potential to grow in the decades ahead.

Ferrari GTC4 Lusso.

Similar excellence in luxury brand development has been the driving force behind the progress of Kering. The growth of its Gucci division has been exceptional. But behind this rests a patient and thoughtful approach that has created a luxury clothing group that should endure into future generations. It is tribute to the sustained efforts of the Pinault family. It is often assumed that whilst Europe retains historic brands, it lacks technology expertise and is bereft of businesses of the scale of America and China. This is an exaggeration. The most impressive European technological and commercial feat of the last thirty years has been the emergence of ASML, from a near bankrupt affiliate of Philips, to global leadership and now dominance of the lithography industry. Without ASML’s achievements Moore’s Law would have stumbled. Without Moore’s Law the transformation of communications and the internet would have withered away. But though ASML enabled the rise of the global platform companies, until now Europe could not boast such a company of its own. But it is possible that Spotify may fill this void. We have been investors in Spotify as a private company during a phase of intense and challenging work to establish music streaming with consumers and as a business model in the face of the entrenched interests of labels and competition from Apple, Amazon and Tencent. We suspect that Spotify would not have succeeded in becoming the global leader if it had been a quoted company during this period. But we are happy that it has now emerged into public markets. We have purchased more shares since the Scottish Mortgage year end.

Tesla Model 3.

NIO ES8.

Current Challenges

Future Challenges

We regard it as inevitable that there will always be major holdings in your portfolio that are topics of either popular concern or intense investment discussion in our own minds. Sometimes these categories overlap. In recent months, we have found that external questioning has been almost exclusively focussed on just two stocks – Facebook and Tesla – which have generated headline after headline. Thus far this attention has generated little reaction in stock prices but some comments on each may be worthwhile.

We are fully aware that Scottish Mortgage has enjoyed the rewards of an uncommonly long bull market. Although we remain delighted at the progress and prospects of our portfolio it would be unrealistic to exclude the possibility of market setbacks. Indeed it would be foolish to rule out such an occurrence at any time.

We have reduced our holding in Facebook. This was initially provoked by a concern dating to last summer that Facebook was too focussed on monetising its astonishing reach solely through advertising. We thought this was both unduly limiting and potentially mistaken. We did not expect this anxiety to be translated into public drama so rapidly. We continue to discuss the relevant ethical and financial issues with management but for now we are content to be shareholders but at a lower level. Tesla is a rather different case. We need to be clear that the ‘production hell’ that Elon Musk spoke of entering has been both more persistent and at a lower circle of hell than we thought likely. But we do not believe that it is likely to fundamentally endanger the intense brand loyalty that has been built. We still believe that the business model is intact. We cannot be certain in these opinions but we think the rewards for shareholders if they prove to be justified considerably outweigh the risks. As ever we do not want to interrupt the potential for exponential compounding. We therefore believe it appropriate to resist the temptation to give into hysterical headlines and storm of hedge fund criticism that is the daily round at present. We intend to endure.

But beyond the compulsion to take profits that most shareholders exhibit we do not share the presumption that Scottish Mortgage is doomed to suffer unduly in a bear market. To us the underlying cause of the next market retreat is most likely to be the dawning realisation that broad swathes of the stock market that have been assumed to be strong and stable in difficult market conditions are instead acutely vulnerable to severe setbacks. From consumer staples, to traditional retailers to TV moguls to oil and utility behemoths to traditional pharmaceuticals and back to banks and insurance companies we see long-standing business models that are already showing signs of intense strain. In the next decade we fear that strain will morph into permanent collapse. It seems to us that this is a far greater cause for concern than the perennial and excessive angst that the valuation of the great global growth companies that we are invested may be ahead of some traditional metrics. We believe that Scottish Mortgage is insurance against a world utterly changed just as much as it is the beneficiary of extraordinary corporate achievements. James Anderson

Evolution of Core Beliefs

We first stated our Core Beliefs in the Annual Report of 2013 and we’ve included this statement in our reports ever since. It still accurately captures how we approach investment. This year I’ve updated it for the developments in our thinking and evolution of our investment philosophy over the intervening years. The original stands. What follows is an addendum. We are optimists. In a world where limiting volatility and avoiding downside is the dominant investor mentality, we focus unashamedly on the drivers and implications of corporate success. Limiting volatility can make sense for an overall investment portfolio but we doubt the benefits of using equities to meet this objective. The asymmetric payoff structure (you can make far more if you’re right about a stock than you can lose if you’re wrong) is the fundamental attraction of investing in equity markets. Whilst we have long believed in the impact of a small number of exceptional companies, even we are surprised by how narrowly returns have been shown to extend within the market. Our own research demonstrates that in the past thirty years approximately five per cent. of stocks have returned at least five-fold in any five-year period. Over longer time horizons, this power law is even more dramatic. Academic work on the past ninety years of US data shows that over half of the excess return from equities came from just 90 companies. Investors enjoy little (if any) reward for taking the risk of owning the median stock in the market. Instead it is the outsized impact of a small number of exceptional companies that dominate the payoff structure. In this context we have defined our core task more narrowly: to identify companies that have sufficient opportunity to deliver such outlying returns and to own them for long enough without interference so that the return accrues to our shareholders. We previously noted our investment time horizon to be at least five years. In practice, for businesses where our conviction has remained steadfast and our difference from the market view is clear, we have held the shares for far longer. Today all of our top ten holdings have been held for more than five years and two have been held for more than ten. Whilst listed equity markets currently remain the principle focus of our investments, the nature of capital markets has changed and our search for outliers has moved with it. Some of our most successful investee companies have benefited from (and indeed created) new growth models with dramatically lower financing requirements than has been the case historically. Access to online distribution has grown the addressable market for breakthrough businesses by an order of magnitude. The ability to harness third party infrastructure has drastically reduced the capital intensity of growth. This has made new companies less dependent on external financing. As a consequence, their boardrooms are not dominated by early financial investors looking to realise their gains and these companies are remaining private longer. They are being selective about their shareholders and they are reluctant to accept the burdens that accompany public status. We are determined to own the most promising Growth companies in the world. To maintain our opportunity set we have expanded our operations in private markets. This has little impact on our investment process. Access to fluctuating daily quotations for our holdings is more often a distraction than an advantage for a fund with permanent capital. We are preoccupied with company fundamentals and increasingly indifferent to a company’s private or public status. As access to the most promising private companies is dependent on relationships and reputation our task becomes more important, as it is much harder for our shareholders to invest directly. Our scale and commitment to low costs allows us to do this without changing our fee structure.

As we make these investments we are providing more primary capital to businesses and directly funding investment in future economic growth. The role of public equity markets in providing such investment capital has diminished. Declining holding periods and frenzied speculation around newsflow is the norm. More insidiously, the demand for immediate returns pressures companies to pay out their cashflows to shareholders rather than investing in their future. Professional management teams incentivised to maximise share prices have been happy to oblige, resulting in a declining proportion of cash flow being devoted to research and development or capital expenditure across the market. Such investments are needed more than ever in a world that is experiencing rapid change. Our holdings in public markets are heavily focused on companies whose ownership or management structure allows them to ignore such demands. Whilst we expressed our scepticism of the value of routine information in our original document, we didn’t articulate where more useful counsel might lie or suggest that we ought to play our part in ensuring its existence. Some of you may have attended the book festivals we sponsor or read some of the shortlisted titles for the Baillie Gifford Prize for Non-fiction. We have invested in supporting interesting authors and sought to enhance our investment thinking with their insight. We have built relationships with academics and universities. We are funding research which we hope will inform our long run thinking on companies. At the same time, our time horizon is facilitating a different type of relationship with the management teams with whom we invest. They find little of value or interest in the endless cycle of quarterly updates. They delight in having less frequent and more in-depth discussion about the longer-term development of their business. Getting to listen to the entrepreneurs and visionaries that have built some of these outstandingly successful franchises is a hugely valuable input to our investment approach. In turn, this is challenging us to re-evaluate our long-held belief that there is no opportunity for informational advantage in markets. Such inputs seem largely neglected in a world where ‘colour on the quarter’s numbers’ is the main preoccupation of so-called investors. For instance, we first invested in Alibaba back in 2012 as a private company. Through our patient ownership and ongoing support, we have earned the opportunity to speak with the company’s senior management. We believe the growth of the Chinese consumer economy is a transformational force in the global economy and there is no one better placed to help us understand its implications. Dialogue with management is a valuable input but the relationship extends in both directions. The investment management industry has ceded much of its role in the governance of companies to the vested interests of activist investors. We must do better. Ensuring strong governance and engaging with our holdings on matters of substance is our responsibility. More than that, it is essential if we are to be seen as attractive shareholders by our investee companies and if we are to maximise the returns we can generate on your behalf. Tom Slater

The Managers’ Core Investment Beliefs Whilst fund managers claim to spend much of their careers assessing the competitive advantage of companies they are notoriously reluctant to perform any such analysis on themselves. The tendency is to cite recent performance as evidence of skill despite the luck, randomness and mean-reverting characteristics of most such data. If this does not suffice then attention turns to a discussion of the high educational qualifications, hard work and exotic remuneration packages that the fund manager enjoys. Sometimes the procedural details of the investment process are outlined with heavy emphasis on risk controls. Little attention is given to either the distinctiveness of the approach or the strategic advantages the manager might enjoy in order to make imitation improbable. We think we should try to do better than this.

visions that are barely noticed by the markets. There is more in the investment world than the Financial Times or Wall Street Journal describe.

— The investment management industry is ill-equipped to deal with the behavioural and emotional challenges inherent in today’s capital markets. Our time frame and ownership structure help us to fight these dangers. We are besieged by news, data and opinion. The bulk of this information is of little significance but it implores you to rapid and usually futile action. This can be particularly damaging at times of stress. Academic research argues that most individuals dislike financial losses twice as much as they take pleasure in gains. We fear that for fund managers this relationship is close to tenfold. Internal and external pressures make the avoidance of loss dominant. This is damaging in a portfolio context. We need to be willing to accept loss if there is an equal or greater chance of (almost) unlimited gain.

and returns can be so dramatic. On the stocks that flourish the valuation will have turned out to be derisorily low. On the others we will lose money.

— We are global in stock selection, asset allocation and attribution. We are active not passive – or far worse – index plus in stock selection. Holding sizes reflect the potential upside and its probability (or otherwise) rather than the combination of the market capitalisation and geographical location of the company and its headquarters. We do not have sufficient confidence in our top-down asset allocation skills to wish to override stock selection. We do not have enough confidence in our market timing abilities to wish to add or remove gearing at frequent intervals. We do, however, have strong conviction that our portfolio should be comparatively concentrated, and that it is of little use to shareholders to tinker around — We are long term in our investment the edges of indices. We think this produces decisions. It is only over periods of at better investment results and it certainly least five years that the competitive makes us more committed shareholders in advantages and managerial excellence companies. We suspect that selecting of companies become apparent. It stocks on the basis of the past (their current is these characteristics that we want market capitalisation) is a policy designed to to identify and support. We own protect the security of tenure of asset companies rather than rent shares. managers rather than to build the wealth of We do not regard ourselves as experts shareholders. Companies that are large and in forecasting the oscillations of established tend to be internally complacent economies or the mood swings of and inflexible. They are often vulnerable to markets. Indeed we think that it is hard We are growth investors. assault by more ambitious and vibrant to excel in such areas as this is where newcomers. so many market participants focus and where so little of the value of companies lies. Equally Baillie — We are Growth stock investors. Such has been the preference Gifford is more likely to possess competitive advantages for for Value and the search to arbitrage away minor rating the good of shareholders when it adopts a long term differentials that investors find it very hard to acknowledge the perspective. We are a 111 year old Scottish partnership. We extraordinary growth rates and returns that can be found think about our own business over decades not quarters. today. The growth that we are particularly interested in is of an Such stability may not be exciting but it does encourage explosive nature and often requires minimal fixed assets or patience in this most impatient of industries. We only judge indeed capital. We think of it as ‘Growth at Unreasonable our investment performance over five year plus time horizons. Prices’ rather than the traditional discipline of ‘Growth at a In truth it takes at least a decade to provide adequate Reasonable Price’. We need to be willing to pay high multiples evidence of investment skill. of immediate earnings because the scale of future potential

— We are very dubious about the value of routine information. We have little confidence in quarterly earnings and none in the views of investment banks. We try to screen out rather than incorporate their noise. In contrast we think that the world offers joyous opportunities to hear views, perspectives and

— We believe that it is our first duty to shareholders to limit fees. Both the investment management fee (0.30% on the first £4 billion of assets, and 0.25% thereafter – please see page 28) and ongoing charges ratio (0.37% as at 31 March 2018) are low by comparative standards but at least adequate in absolute terms. We think that the malign impact of high fees is frequently underestimated. The difference between an ongoing charges ratio of 0.37% and one of 1.5% may not appear great but if the perspective is altered to think of costs as a percentage of expected annual returns then the contrast becomes obvious. If annual returns average 10% then this is the difference between removing approximately 4% or 15% of your returns each year. Nor do we believe in a performance fee. Usually it undermines investment performance. It increases pressure and narrows perspective.