If someone gave me one sentence to explain why I own Scottish Mortgage (LSE: SMT) shares, I’d probably say something like “it buys companies that might surge”.
That is to say, the fund focuses on exciting smaller firms that could grow massively and might make me loads of money.
In its own words: it “aims to identify, own and support the world’s most exceptional growth companies”. So big growth is the name of the game here.
And so far, this philosophy has worked like a charm. If I’d bought Scottish Mortgage shares 15 years ago, I’d be looking at a 987% increase in my stake, nearly 11 times what I started with. That blows many other investments I could have made out of the water.
The FTSE 100 hasn’t even doubled in value over that time, up around 97% instead. The S&P 500 has done better – which makes sense as it has lots of US growth firms – but still lags behind at a 558% increase.
Two of the fund’s biggest winners over this time were Tesla and Nvidia. These two seem like obvious choices now, but go back 10 years and they weren’t.
Smorgasbord
Tesla didn’t turn a profit for ages and it wasn’t even clear there was much money to be made from electric vehicles. Nvidia had plenty of admirers but was a long, long way from its current $1trn+ valuation. Scottish Mortgage’s belief in this type of stock meant it held both as they skyrocketed.
As for what’s to come, well, the fund’s current portfolio is a smorgasbord of firms with potentially bright futures. Here are a few:
- Dutch semiconductor manufacturer ASML
- South American online marketplace MercadoLibre
- Italian supercar firm Ferrari
- Swedish lithium battery firm Northvolt
- Chinese tech firm and TikTok owner ByteDance
- American space exploration company SpaceX
Notice how varied these companies are. I’m looking at diverse sectors around the world. I’m not in the habit of making investments in China or South America, but with Scottish Mortgage, I can get exposure to some of the best stocks in these emerging markets.
I’ll point out here that many of the fund’s holdings are unlisted, including the last three mentioned above. In some ways, that’s a good thing. I can’t buy shares in Elon Musk’s SpaceX on the stock market, but I can enjoy any future growth of the space exploration company through buying shares of the fund instead.
It has a downside as well though. Unlisted firms don’t have a market price, so Scottish Mortgage might be overpaying compared to their real value. And it’s near the maximum of 30% it set itself for private holdings, so perhaps they’re overrepresented.
A buy?
One analyst caught my attention on this topic when issuing a ‘sell’ recommendation on the fund. He said: “Ultimately… there will be price discovery, and for many this may be brutal.”
Yet I disagree. Scottish Mortgage’s strategy of targeting firms with huge potential makes it a no-brainer buy for me. I’m happy to continue holding and may top up in the near future.
