The Scottish Mortgage Investment Trust (LSE: SMT) remains one of the UK’s most popular funds yet its recent performance has been dismal.
Last year, the Scottish Mortgage share price crashed by half. I saw it coming, too. I realised that the trust’s primary manager James Anderson had made a massive play on US tech in general and Tesla in particular, and wasn’t backing down even as valuations became more and more toppy. It looked vulnerable to a tech self-off, and so it came to pass.
No, it doesn’t sell mortgages
I was worried that many investors didn’t realise its tech focus, in part because of its odd name, a historical quirk. The fund was launched in 1909, when US tech wasn’t the big deal it is today. Adding to the confusion, its benchmark is the global investment trust sector, suggesting this was a broad-based international fund when it wasn’t.
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Anderson quit while he was ahead and today’s co-manager Tom Slater has admitted that 2022 was “humbling” as the fund fell by more than £10bn, a staggering loss.
What I didn’t see coming was that Scottish Mortgage would struggle to recover in 2023 even as the US tech sector rockets on artificial intelligence hype.
Scottish Mortgage really should be flying right now. Nvidia and Tesla are the fund’s third and fourth biggest holdings, after all. Their shares are up 185% and 125%, respectively, year-to-date. Yet Scottish Mortgage has fallen another 7% in 2023.
MercadoLibre and Amazon are the trust’s fifth and seventh biggest holdings respectively and both are up more than 60%. If you can’t make money from those four killer growth stocks, when can you make it?
Clearly, some of its other holdings are struggling, notably the biggest of all, Moderna, which is down 43%.
Scottish Mortgage invests heavily in private equity and unquoted companies, which have been hit by rising borrowing costs and general uncertainty. Despite that, FTSE 100 private equity company 3i Group, which I hold, has grown almost 45%. Co-managers Slater and Lawrence Burns recently admitted making some “bad picks” after getting carried away with“misplaced enthusiasm”.
You’re telling me.
Despite this, I’ve actually bought Scottish Mortgage shares this year. Twice. I invested £2k on 30 May and when those showed signs of life I invested another £2k on 1 August. I thought it had done so badly, things had to get better. So far, I’m down 5.95%, or £237.76.
What have I done?
Now I’m bracing myself for more pain, because I think the AI-fuelled tech rally has run its course, as interest rates remain high while the US flirts with recession.
Since I bought Scottish Mortgage, its shares have acted as a geared play on market sentiment. When the FTSE 100 rises, it rises faster. And when it falls… ouch.
My fate now rests in the uncertain hands of Slater and Burns. They’re outwardly calm, with Slater sticking to his strategy of patient ownership of growth companies.
It’s turning Shakespearian. “They have tied me to a stake. I cannot fly, But, bear-like, I must fight the course,” as Macbeth said before he was hacked to death. I’m hoping my Scottish play won’t end as badly as that. But right now, I’m not sure.
