Scottish Mortgage Investment Trust (LSE: SMT) shares have posted a promising performance this year. However, they’re still some way off their 2021 highs.
The stock boomed during 2020, when, despite the pandemic, it returned over 105%. In 2021, its share price topped £15. Since then, however, it’s been on a steady decline.
But after recovering some of its gains, am I looking at an opportunity to snap up some shares before their price takes off again? Or should I be steering clear of Baillie Gifford’s flagship fund?
Diversification
In my opinion, one of the key aspects of investing successfully is to keep it simple. That’s why I like Scottish Mortgage. By buying a share in the trust, I gain exposure to 99 companies across a diverse set of industries.
Diversification is key to offsetting risk. By diversifying, I reduce my reliance on one industry or company. For example, through Scottish Mortgage, I get access to pharmaceutical giant Moderna. In the meantime, I also get exposure to exciting unlisted shares such as Elon Musk’s SpaceX.
What draws me to the trust even more is that right now it’s trading at around a 12% discount to its net asset value. What this essentially means is that I’m able to purchase the companies it owns cheaper than their market rate. This suggests that every 88p I invest is worth £1. That’s a deal I like the look of.
Finally, the approach that Scottish Mortgage manager Tom Slater and deputy manager Lawrence Burns take aligns strongly with mine. That’s investing for the long run. The purpose of the fund is to find “the world’s most exceptional growth companies” and hold them for years. And while past performance is not an indication of future returns, it has a strong track record of successfully doing this. Its third-largest holding is NVIDIA, which has had an impressive year. The trust also bought Tesla back in 2013 for just $6 a share.
The risks
Of course, investing in growth stocks comes with risks. First of all, these types of companies are volatile. Not every investment can be as fruitful as Scottish Mortgage’s Tesla bet. On top of that, with interest rates high these companies tend to be less favoured by investors. That’s because they’re often leveraged with high levels of debt to fuel growth. With higher rates, this becomes more difficult to pay.
Its large weighting to China could also prove to be an issue. The nation has ongoing geopolitical tensions with the West, especially the US. Any complications between the nations could see the Scottish Mortgage share price suffer.
I’d still buy
Nevertheless, I’d still buy some shares today if I had spare cash. The short term may be choppy. However, in the long run, I see the trust delivering. China is home to some of the most exciting companies. And as its economy continues to grow, I expect more exciting opportunities to arise.
I think Scottish Mortgage, trading at a discount, has the potential to regain its form in the times ahead.
