Thursday, 22 August 2019

Scottish Mortgage Trust - Portfolio Sale


This global investment trust was added to my SIPP portfolio at the start of 2017 at the initial purchase price of 338p. A year later, following a little turbulence in the share price, I added SMT to my ISA portfolio at 415p. 

In May they issued full year results and, in my write-up, I flagged up some concern that Elon Musk's SpaceX had been added to the portfolio. For someone who is concerned about the environment, this was a red light. I subsequently established that this space exploration company was also held in my other BG holding Edinburgh Worldwide and also their recently launched American Fund.

I wrote to Baillie Gifford to express my concerns and from their lengthy response (which I won't bore you with), I concluded that BG were excited about all the potential offered by their holdings and I suspect they will be increasing this across various trusts and funds in their stable.

The Problem for Me

As I understand it, the ultimate goal of companies such as SpaceX is to revolutionise space exploration and enable humans to live on other planets such as Mars. In a bizarre article in the Independent this week, Musk said he wanted to "Nuke Mars" as part of a plan to make the planet habitable with a view to establishing a city and colonising Mars by 2050. Musk suggests that colonising the red planet is essential for our survival.

Musk launches Tesla into space
Of course, Musk is not the only rich entrepreneur engaged in these fantasies. Amazon CEO, Jeff Bezos has Blue Origin which is looking to make space travel more feasible. Our own Richard Branson has recently announced plans to float his Virgin Galactic on the New York stock exchange and be the first business to provide commercial space travel.

You don't need a degree in rocket science to understand the environmental impact of all the emissions generated from these activities. Thousands of test rockets are injecting harmful emissions high into our upper atmosphere which is adding to warming and also depleting the ozone layer over the polar regions.

Jeff Bezos and Blue Origin
I guess a lot of people think it's 'cool' for these billionaire entrepreneurs to try to outdo each other in the race for space dominance. Personally, I think it's just plain stupid and the height of human folly when so much effort is required to prevent global warming and when so many young people are doing everything to address our climate emergency.

These people are spending billions of dollars on finding solutions to living on another planet. I prefer to find solutions to continuing to live on this planet.

To Conclude

So, time to say goodbye to one of my largest global managed trusts.

The sale price was 542p which represents a rise of 17% year to-date. I have had a good run with SMT over the past few years - a total return of 65% on my SIPP investment and 32% for my ISA. I am sorry to have to give it up as my intention would normally be to hold for the longer term. However, for me, profit is not the only consideration and I like to think my investments are making a positive contribution to the world. 

Therefore I just do not feel at all comfortable holding a fund which has SpaceX and possibly similar holdings and certainly do not want to profit from organisations which trash the environment and pollute space with junk just like we fill our oceans with single-use plastics. As they say on Dragon's Den..."I'm Out".



The proceeds will remain in cash for the time being whilst I think about where to reinvest the money and explore other options.

As ever, this article is merely a record of my personal investment decision to sell and should not be regarded as a recommendation - always DYOR!

10 comments:

  1. Well done on both sticking to your principles and making some money along the way.

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    1. Thanks GFF. I think the long standing relationship between the SMT trust managers and the likes of Musk at Tesla and Bezos at Amazon has been instrumental in acquiring a stake in these space ventures. They may well be rewarding for SMT shareholders but for me it's not a direction I wish to go down so I have withdrawn my small holding of shares and will redirect the proceeds into areas where I feel more comfortable.

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    2. "...both sticking to your principles and making some money..." No, rather, making some money before realising the situation and making changes as a result.

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    3. I think the situation is fairly simple. The managers introduce an element to the portfolio that I find uncomfortable to the extent that I decide to sell my investment and reinvest the proceeds elsewhere. At this point in time, my holding in SMT is showing a nice profit.

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  2. Love the cartoon.

    But there is truth behind it. The nature of invetment trusts and funds is that they get bought (mostly) on whether they make money for their investors, not on how "nice" they are.

    That doesn't mean there isn't a market for ethical funds. However in practical terms they need to decide what "ethical" means to them, and then be active investors trying to get best gains from shares that meet their definition. Unfortunately there isn't a universal definition of ethical in investment terms, and what ethical investors want evolves faster than company policy.

    If you want to be ethical as a small investor, you probably have to accept that you are either accept the risk of low diversication from picking individual shares or you hold your nose and buy a trust/fund that approximately but not entirely satisfies your principles.

    (Disclosure as far as it goes: while I have environmental and political views myself, when it comes to choosing investments I know my personal limititations and stick to Lifestragegy balanced funds).

    Jonathan

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    1. Thanks Jonathan, sometimes an image/cartoon can express many words but this one seemed appropriate.

      With the global climate emergency, all aspects of our everyday living is coming under scrutiny - food, travel, energy usage etc. and obviously the investing community is no exception. I suspect we will soon be moving beyond 'ethical' towards investments that are 'climate-friendly' and those deemed not to fall into this category will fall away.

      I believe we may be at the start of a transition towards a new world order which embraces 'green' capitalism as the new norm in the future. Interesting times but I hope it will not involve small investors having to accept funds which compromise our life-support system.

      The future is green or is not at all...

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    2. Agreed, the future investment universe is going to have to be climate-friendly - if only because carrying on the same as always is now impossible. However I am sceptical that the investment community will spontaneously make that change, it will need a new legal framework.

      (And apologies for the too rapidly typed comment yesterday, embarrassing to see how many typos).

      Jonathan

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    3. I think one of the big problems is the unclear picture of who is doing what to the environment and what the consequences are. Of course the polluters have a big interest in maintaining this muddy scenario. However this will not prevail for much longer. The Green Finance Initiative is championed by the likes of Mark Carney and is trying to throw more of a light on these issues and provide more accountability.

      They suggest 300 of the worlds worst polluting companies can be identified and subjected to a proper climate risk assessment. The financial community can bring pressure to bear on the boards of these companies to bring them into line with the Paris Agreement.

      Futhermore, the GHG emissions of the most polluting companies can be widely publicised to investors, regulators and the media. Many are global household names who will most likely change their business model rather than risk being ostracised.

      I guess the question remains how quickly this landscape will change. My best guess would be quicker than most people would imagine...but I'm an optimist... (But even I didn't give England much hope of a win at the Test Match at the start of play today!!!)

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  3. Well done on taking such a principled stance. I looked under the bonnet at SMT's holdings, but veered away for similar reasons. A few of these tech giants appear drunk on their own power, but Mush stands out above the rest for his bizarre behaviour. It's a shame he doesn't concentrate on further development of his very good ideas (ie electric vehicles and solar roof tiles) instead of his grandiose pollute-the-universe scheme!

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    1. I think it must be something in the water...President Trump has now launched a US space command to focus on future warfare in space. Absolutely crazy!

      https://www.bbc.co.uk/news/world-us-canada-49518612

      This is the president who says 'windmills' cause cancer and kill all the eagles in response to a question at the G7 on climate. He cannot engage with other world leaders on the most pressing issue of our time.

      Unfortunately, I have no confidence that he will be replaced next year.

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