I’d invest £10k in the Scottish Mortgage Investment Trust

After its recent declines, this Fool would invest £10k in the Scottish Mortgage Investment Trust as a long-term growth investment.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Scottish Mortgage Investment Trust (LSE: SMT) has lost around 25% of its value since hitting an all-time high of 1,415p around the middle of February. 

However, as a long-term investor, this doesn’t concern me at all. In fact, by taking a step back, it becomes clear how insignificant this decline is in the grand scheme of things. Over the past 12 months, the stock has returned nearly 55%. 

While past performance should never be used as a guide to future potential, based on Scottish Mortgage’s past successes, I think the recent decline in the trust’s share price could be a fantastic buying opportunity

Scottish Mortgage opportunity

When I refer to the investment trust’s past successes, I’m not referring to its stock price. Instead, I’m pointing to the firm’s track record picking investments. 

Over the past decade, the investment company has earned a reputation as an astute growth investor. Accordingly, it searches the market for the best growth stocks.

These aren’t just companies with high growth rates. The investment manager is looking for enterprises that have a substantial competitive advantage. This can indicate the businesses selected will continue to grow year after year and get better at what they do. 

Picking these sorts of companies isn’t easy. Most professional investors fail. However, Scottish Mortgage has succeeded because it has such a strong reputation, it’s easy for the trust to build positions in firms before they even go public. 

For example, in the middle of March, the investment manager received a boost when one of its private holdings, Stripe, achieved a record $95bn valuation. 

Key advantages 

As a closed-ended investment company, Scottish Mortgage also has advantages. Unlike other funds, it doesn’t have to buy and sell securities to meet inflows and outflows. It also has more flexibility where it can invest and for how long. The firm has held a stake in Amazon for nearly two decades. 

It can also invest where some investors might be unwilling, or unable, to invest. Some 24% of the portfolio is currently invested in Chinese securities, with 37% in US stocks. Its largest holding is Chinese tech giant Tencent, and the trust’s managers believe “the pace of innovation at scale in China now exceeds anything we can find in the rest of the world.

All of these advantages have helped the firm achieve the record it has over the past five years. It’s returned 322% since May 2016. 

I think it would be unreasonable to say I believe the trust can repeat this performance in the years ahead. But I believe the advantages outlined above will persist, which may help Scottish Mortgage pick the market’s next big winners.

Of course, success isn’t guaranteed. Like all investment companies, Scottish Mortgage has and will continue to make mistakes.

Investing in growth companies can be a risky business. These stocks are also highly volatile. So the trust might not be suitable for all investors. 

Nevertheless, as a way to invest in some of the world’s growth champions, I think Scottish Mortgage has an unrivalled offer. That’s why I’d invest £10k in the business right now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon.  Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

10% dividend growth! 2 FTSE 100 stocks tipped to supercharge cash payouts

These FTSE 100 stocks have strong records of dividend growth. And they're expected to keep on delivering, as Royston Wild…

Read more »

Investing Articles

Down 17% in a month and yielding 7.39%! Is this FTSE 100 share a screaming buy for me?

When Harvey Jones bought Taylor Wimpey last year he thought this FTSE 100 share was a brilliant long-term buy-and-hold. Has…

Read more »

Investing Articles

Here’s how I’m using a £20k ISA to target £11k+ in income 30 years from now

Is it realistic to put £20k in an ISA now and earn over half that amount every year in passive…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

If I could only keep 5 UK stocks from my portfolio I’d save these

Harvey Jones is running through his portfolio of top UK stocks to see which ones he couldn't bear to do…

Read more »

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

I’m aiming for a million buying unexciting shares!

By investing regularly in long-established, proven and even rather dull businesses, this writer plans to aim for a million. Here's…

Read more »

Investing Articles

3 things to consider before you start investing

Our writer draws on his stock market experience to consider a few vital lessons he would use to start investing…

Read more »

Investing Articles

Will this lesser-known £28bn growth stock be joining the FTSE 100 soon?

As the powers that be plan a reorganisation of Footsie listing rules, this massive under-the-radar growth stock could find its…

Read more »

Investing Articles

Fools wouldn’t touch these 5 FTSE 350 flops with a bargepole – how come I own 3 of them?

Harvey Jones took a chance on three struggling FTSE 350 stocks in the hope that they'd stage a dramatic recovery.…

Read more »