Key points
- Scottish Mortgage Investment Trust prides itself on long-term growth
- Investors gain global exposure to listed and unlisted stocks
- The upcoming Federal Reserve rate hike may cause shares to fall further
The recent sell-off of technology stocks took no prisoners. Indeed, Scottish Mortgage Investment Trust (LSE: SMT), which is largely composed of tech holdings, was not immune from the downturn. Since the beginning of 2022, the stock is down 20.7%. By contrast, its index, the FTSE 100, is up 2.5% in the same period. Yet this stock has many good points that warrant investigation. I think I should add it to my portfolio for three reasons.
Long-term outlook
Scottish Mortgage Investment Trust is proud of the long-term nature of its investments. Indeed, it says: “We look to add value over five-year time frames, preferably much longer. We don’t see that we can add much more than anyone else in the short term”.
It is easy to see how well the stock has performed over this timeframe. In the past five years, holders have enjoyed a 211% increase in the value of their shares. This is quite remarkable considering the FTSE 100 has only managed 4.1% in the same period.
Geographical and sector diversity
While primarily tech-focused, Scottish Mortgage Investment Trust has Moderna, a pharmaceutical stock, as its largest holding. Moderna is now known as one of the companies that manufactured a Covid-19 vaccine. This stock accounts for 7.77% of the trust’s assets.
Furthermore, investing in this stock provides geographical diversity. Although many of the big holdings are from the US, like Tesla Motors and Nvidia Corp, shareholders enjoy exposure to other companies from around the world.
These include Tencent and Alibaba, video gaming and e-commerce stocks, respectively, that both hail from China. What this all means is that investors are therefore gaining access to the biggest and best stocks from the two global economic powerhouses of out time. It also provides exposure to unlisted companies, like SpaceX.
But one issue that concerns me is the upcoming Federal Reserve rate hike. This could have a negative impact on tech as investors retreat from growth stocks. I will be watching closely to see how the leadership navigates this threat.
Strong leadership
The stock is run by three managers, James Anderson, Tom Slater and Lawrence Burns. Anderson, who has run the fund since 2000 and has been the architect of its long-term success, will retire in April 2022.
These managers have been responsible for exceptional growth over many years and have found a number of great companies. Bolstering SMT’s holding in Moderna in December 2020 was a stroke of genius given its impact during the pandemic.
With Anderson’s imminent departure, I expect the trust to maintain its global reach. This is chiefly because Tom Slater is experienced in both US and Chinese equities.
The managers have presided over long-term growth and found high-performance companies early on. Although the upcoming rate hike next month could negatively impact this stock, I will be buying now for long-term gains that outweigh short-term fluctuations.
