Scottish Mortgage takes profits as Tesla is hit by tech rout

Scottish Mortgage Investment Trust, managed by Baillie Gifford bought into electric carmaker Tesla in 2012 at $30 a share, and has been a major beneficiary of its stellar growth; today the stock sits at almost $420, up 386% on the year.

Now manager James Anderson, has reduced its holding after the rising share price took it outside of the Trust’s portfolio concentration rules; at the end of July Tesla was the largest position in the trust at 13.4% of the $13.5 billion total.

At one point Baillie Gifford owned almost 7% of Tesla, making it the second largest stakeholder after founder Elon Musk with seven of its ten best performing funds invested; in addition to Scottish Mortgage, it also appeared in BG Positive Change, BG Managed and the much loved Baillie Gifford American fund which has turned a £1000 investment into £3500 in the last five years.

Mr Anderson, said the firm had to reduce its exposure to Tesla to stick to portfolio concentration rules, although in some quarters this move is being seen as canny profit taking from a stock that was starting to look frothy in a sector that was losing its shine; in the recent tech sell-off of high-growth stocks, Tesla shed 18%.

In announcing his move, Mr Anderson said:  ‘The substantial increase in Tesla’s share price means that we needed to reduce our holding in order to reflect concentration guidelines, which restrict the weight of a single stock in clients’ portfolios.

‘However, we intend to remain significant shareholders for many years ahead. We remain very optimistic about the future of the company. Tesla no longer faces any difficulty in raising capital at scale from outside sources but should there be serious setbacks in the share price we would welcome the opportunity to once again increase our shareholding.’

He said that Baillie Gifford felt ‘privileged’ to have been Tesla’s largest external shareholder during  a critical period in the company’s development, and also the role the business fulfils in the fight against climate change.

‘We are immensely grateful for the extraordinary efforts and achievements of Tesla in driving forward a transportation and energy revolution in the face of persistent scepticism and often downright hostility. Without Tesla’s efforts, the possibility of averting climate disaster would have been significantly reduced.

‘In our view, the underlying purpose of providing equity capital at scale is to try to assist in mitigating, and hopefully solving, the most serious problems the world faces. For sure, we and our clients are extremely happy with the progress of the share price but we see this as but a reflection of the ultimate objective,’ says Anderson.

There can be no denying that Baillie Gifford investors have benefited hugely from Tesla’s soaring valuation; many may now be mighty relieved that the gains have been crystallised and put to work in rather more circumspect pursuits.