By Scott Wright

MANAGERS of the venerable Scottish Mortgage Investment Trust have hailed Elon Musk’s Tesla for upholding Silicon Valley’s reputation for “disruptive innovation”, while pointing to Asia as the engine room of growth in the world economy as it unveiled its latest results.

The Baillie Gifford flagship trust, run by James Anderson and Tom Slater, out-performed its benchmark FSTE All-World Index in the 12 months ended March 31, with the latter weeks of the period coinciding with the coronavirus pandemic.

Its market worth went on to exceed £10 billion for the first time after seeing its share price rose by 23 per cent between March 31 and the close of play on May 12.

Global stock markets have staged a recovery since plunging steeply in the second half of March, when

investors’ fears over the pandemic peaked.

The trust, which traces its roots back to 1909, saw its net asset value rise by 13.7% over the 12 months to March 31, during which time the FTSE All-World Index dipped

by 6.2%.

Scottish Mortgage underlined its commitment to taking a long-term approach to investment, with very little change to the composition of its holdings. The trust still owns 29 of the 30 holdings it had one year ago, with Amazon still the biggest, accounting for 9.3% of total assets held at March 31. Tesla is the trust’s second biggest holding, at 8.6%, followed by Tencent Holdings, the Chinese internet services giant at 6.5%, and Alibaba Group, the Chinese online retail platform, also at 6.5%.

Mr Slater highlights in his report the flow of innovative companies from China’s “internet ecosystem”, including Bytedance, developer of the hugely popular TikTok social media platform. It was founded by former engineers of Baidu, the Chinese internet search company from which Scottish Mortgage has now exited

its investment.

While Baidu was once the trust’s largest holding, Mr Slater said it has “struggled to use its enduring dominance in search as a base to build new services for consumers”.

Mr Slater said: “Failing to evolve means being left behind. China’s online companies have built the backbone of its consumer economy and their pace of development and innovation has been ferocious. Alibaba and Tencent have become dominant platforms through which much economic activity flows and recent events have further cemented their centrality.”

By contrast, Mr Slater observed progress has been “limited” on this front in the west, with the trust’s holdings in Facebook and Alphabet, parent company of Google, smaller than they were previously. He said: “With consumer internet development muted, it has been left to Tesla to uphold the reputation of West Coast America for bringing disruptive innovation to the world. It has made remarkable progress. The vision and ambition at Tesla have always been clear but at times the company has struggled with execution. That has changed.”

As examples of Tesla’s progress, he cited the steady increase, and profitable production, of the Model 3 sedan, and the earlier than planned production of the Model Y sport utility vehicle (SUV). He also highlighted Tesla’s establishment of a second production facility in Shanghai and launch of a pick-up truck, “which has already amassed hundreds of thousands of pre-orders”.

Fellow trust manager James Anderson observed that the Covid-19 crisis has stoked tensions between the US

and China.

“It could hardly be otherwise given the characteristics of leadership in both countries,” he said. “But it seems clear to us that the geographical centre of the global economy continues to move to Asia, generally at an accelerated pace. This is an observation not an endorsement of one country or a political system. It is likely at the simplest level that Asian GDP (gross domestic product) can grow in 2020. That is improbable in the USA and impossible in Europe.”

Mr Anderson avoided reaching for conclusions about Covid-19, noting:

“We cannot know the consequences of Covid-19 beyond human tragedy.”

But he expressed hope that the current crisis will “provoke a further acceleration in digitalisation and healthcare innovation.”

Mr Anderson said: “As observers we would hope that the current crisis will prompt increased concern over the threat driven by other extreme outcomes in inequality or climate decay.

“But it is not at all clear

that these are more than

pious hopes.”