The last two years or so have been tough for owners of Scottish Mortgage (LSE: SMT) shares. I know this because I’m one of them. In fact, the FTSE 100-listed investment trust is the largest position in my Stocks and Shares ISA.
Even so, I’m still keen on increasing my stake. And quickly. Here’s why.
1. These shares are (still) hated
As markets wound up on Friday (1 September), the Scottish Mortgage share price was down 4% year-to-date and 15% in the last 12 months. Interestingly, I note that it was also the week’s fourth most popular sell at broker Hargreaves Lansdown.
Whatever gauge is used, I think it’s fair to say that the previously wildly popular Baillie Gifford-run fund remains on the naughty step with investors.
Nevertheless, I continue to regard the current market malaise as ‘hunting season’ for patient Fools like me. This is particularly true with Scottish Mortgage as the 12-month average discount-to-net asset value stood at 14% in August. For many years, Scottish Mortgage traded at a premium.
In other words, I could be getting an awful lot of bang for my buck if I bought now. For a biased existing holder like me, ‘could’ can be replaced with ‘would’.
2. The ARM effect
A second reason I want to own more is undeniably speculative. It’s related to the forthcoming IPO of UK microchip designer ARM across the pond.
Now I don’t know whether managers Tom Slater and Lawrence Burns are backing ARM. However, I’d be surprised if it didn’t end up in the portfolio. The company seems like the sort of business Scottish Mortgage would want to own.
Regardless, ARM’s IPO is likely to generate much interest and we could see a scramble for its shares. That, in turn, could succeed in revitalising growth stocks and, consequently, SMT’s fortunes.
Yes, there’s definitely an element of risk here. The hype surrounding a new stock is often quickly replaced with a heavy dose of realism. Perhaps SMT’s managers may be planning to steer clear, at least for now.
Still, ARM’s reputation in its niche, not to mention the contribution it could make to the advancement of AI, makes me very bullish on its medium-to-long-term outlook.
3. Track record
The final reason I’m rushing to channel any spare cash into this investment trust is based on past performance.
For the avoidance of doubt, I’m fully aware that where a share has been is not an indication of where it will go next.
Even so, I don’t think it’s wise to dismiss the past as being utterly irrelevant. Yes, the pandemic-related tech rally was unsustainable. The stock was arguably overbought when it hit 1,500p in November 2021.
But does a couple of bad years mean SMT’s preceding success was down to pure luck? I don’t think that’s the case. Slater and (ex-manager) James Anderson kept faith with Tesla when others doubted Elon Musk. The former also backed Amazon in the ashes of the dotcom bust.
Will innovative growth stocks always be out of fashion? Again, I doubt it.
Actually, I reckon Scottish Mortgage shares are one of the best ways of tapping into the next bull market while keeping my own risk tolerance in check and staying suitably diversified.
