The Scottish Mortgage Investment Trust (LSE:SMT) has plummeted in value this past week and shareholders would like to know if it will recover. Shares in the trust are down over 25% since last month after riding high most of last year. Its share price is now back around where it was in November, but in a year, the trust is still up 85%. The reason for the boom and bust is technology. The US tech sector had a sensational run through 2020 but is now experiencing a correction, and SMT is heavily tech-focused.
Can US tech stocks recover?
I don’t own shares in SMT, but I did buy another Baillie Gifford fund last month, at the peak of the US tech boom. Today that looks a big mistake. My investment in the Baillie Gifford American Fund is down 17% and its main holdings, Shopify and Amazon, are haemorrhaging money. But let’s take a step back and look at the reasons I invested and whether they still stand.
When I bought shares in the Baillie Gifford American Fund, I was planning on holding for the long term. My reasoning was that if the big holdings correct, or crash, I trust that the fund managers will find other exciting companies to rebalance the fund. Most successful funds have their trials. But over the long term, I hope I’ll come to appreciate this purchase and be glad that I waited it out.
A lot of the individual holdings are strong companies with a compelling long-term vision. The global economy is in an unusual state of flux today, so predictions are difficult. But overall, I think investing in quality companies is a good long-term strategy. Therefore, I’m happy to hold.
Is The Scottish Mortgage Investment Trust a buy?
The Scottish Mortgage Investment Trust and the American Fund offer a simple way to invest in a basket of American stocks. I like a lot of the companies included, and this is a simple way to access them. Main holdings in SMT include Tencent, Amazon, Alibaba, and Tesla.
I’m a Tesla fan, an Amazon addict, and I respect that Tencent and Alibaba are goliaths in Asia. But there’s no doubt the US tech market was getting bubbly, with shares overvalued. So what now?
I think these companies in the funds have a strong future vision that gives the funds reason to believe in their longevity. That being said, if the US becomes more inflationary, then tech stocks are sure to suffer. Mass stimulus gives reason to believe this could be on the cards.
Also, it’s not always possible for a fund to liquidate and alter its holdings without short-term pain. Personally, I like the underlying stocks in these funds and would be happy to hold them as part of a diversified portfolio.
Of course, there are no guarantees in investing, and putting my trust in fund managers is risky. But it’s a risk I’m willing to take. I will continue to invest in a mixture of funds and individual stocks. I like specific stock-picking the best, but funds offer a cheap and easy way of accessing an entire sector or basket of stocks. It’s also a good way to hedge my portfolio.
