The Scottish Mortgage Investment Trust (LSE: SMT) had a dismal 2022, its share price crashing almost 45%. Yet investors are not giving up on it. It was the best-selling investment trust on the AJ Bell platform in January.
For as long as I can remember, private investors were dismissed as being short termist. They stood accused of jumping onto hot trends at the top of the market, then fleeing in panic at the bottom, turning paper losses into real ones.
Top FTSE 100 investment trust
No doubt, plenty of investors sold Scottish Mortgage after last year’s crash. But plenty are seizing this opportunity to buy it too. Could there be more contrarian private investors out there than we think?
As a long-term writer for the Fool, I hope so. We urge investors to go shopping for shares after they have fallen and top stocks trading at bargain prices.
Scottish Mortgage tempts on that front, but I am approaching with caution. While it enjoyed a blistering performance during the US tech boom, there is no guarantee it can repeat that success. Top portfolio holdings such as Amazon and Tesla flew in the era of near-zero interest rates and endless fiscal and monetary stimulus. As inflation rages, those days are gone.
I suspect one reason Scottish Mortgage remains popular is that investors are calculating that the US Federal Reserve and other central bankers will soon stop hiking interest rates as inflation falls, and start cutting them instead. When that happens, risky growth stocks will be back in vogue, tech will fly and take Scottish Mortgage with it. That’s the theory, anyway.
We are not there yet. There are signs inflation is proving to be stubborn, and we may have to wait that bit longer for substantial rate cuts. Also, macro events are impossible to predict.
If I was to buy Scottish Mortgage today, it would be with a long-term view. I would not expect an instant recovery this year, but give it five or 10 years.
But then, why buy Scottish Mortgage at all? Are today’s buyers still being seduced by recent past performance? I suspect they are. After all, the trust is still up 90% over five years, and a staggering 420% over 10 years.
We encourage long-term investing here at The Motley Fool, and those performance figures confirm just how rewarding it can be. My worry is that Scottish Mortgage fund captured a moment in time, and one that may never return.
I would still buy, but for one reason only. To plug a portfolio gap. Its management focuses on buying smaller, fast-growing companies, and I could do with more exposure to that corner of the market. Yet not right now.
Today, my focus is on buying top FTSE 100 dividend stocks. The index is near its all-time high, but there are still lots of bargains out there.
