Scottish Mortgage Investment Trust (LSE: SMT) is probably the most misleading name in the investment world. It has nothing to do with property loans in Scotland. Instead, Scottish Mortgage shares offer investors the chance to benefit from the growth of some of the world’s most dynamic companies.
We’re talking about artificial intelligence (AI) darling Nvidia, e-commerce heavyweights Amazon and Shopify, and music streamer Spotify. The portfolio also holds exciting private companies like rocket pioneer SpaceX.
So far, so good. Why then would I even consider selling this FTSE 100 stock?
Flying growth stocks
For starters, let’s look at those racy stocks above to see how they’ve performed over the last year.
| 1-year share price performance | |
| Nvidia | 281% |
| Amazon | 93% |
| Shopify | 83% |
| Spotify | 108% |
As mentioned, SpaceX is still an unlisted company, so we don’t have a real-time value. However, a secondary share sale in the private market in December valued the company at $180bn. That’s up from $100bn in late 2021.
This makes SpaceX the world’s second-most valuable unlisted firm after TikTok owner ByteDance (another Scottish Mortgage holding). It now accounts for 4.3% of assets. So this is good to see.
Furthermore, both the benchmark S&P 500 and tech-driven Nasdaq indexes have just soared to new record highs. It’s a similar story for many European stocks, a smattering of which can be found in the portfolio.
Given all this, you’d be forgiven for thinking the trust’s share price would also be flying towards fresh peaks. But no, it’s flat this year and still remains nearly 50% off its all-time high set in late 2021.
Worrying underperformance
Over one and three years, the trust is badly underperforming its benchmark (the FTSE All World Index).
| 1 year | 3 years | 5 years | 10 years | |
| Share price | 3.9% | -37.6% | 63.8% | 301.9% |
| Net Asset Value (NAV) | -1.7% | -31.6% | 87.3% | 346.8% |
| Benchmark | 11.3% | 30.7% | 71.5% | 205.1% |
Admittedly, Scottish Mortgage does ask to be judged on performance over five and 10-year periods. It’s focused solely on the long term. Over these lengthier timeframes, the trust is doing its job admirably.
However, it’s still frustrating as a shareholder because I would have expected better when markets are at record highs and some of the larger holdings (notably Nvidia and ASML) have been on fire.
So what’s going on here?
Well, consider this handful of long-held stocks: Kering, which owns brands like Gucci and Bottega Veneta; global food delivery firm Delivery Hero; and Tencent, owner of the Chinese super-app WeChat.
While these sound solid investments to me in theory, their five-year returns suggest otherwise:
- Kering (-16%)
- Delivery Hero (-29%)
- Tencent (-25%)
Meanwhile, unprofitable stocks like Ginkgo Bioworks (down 88% since IPO) and Affirm (down 66%) have been smashed to smithereens. Shares of German meal-kit firm HelloFresh plunged 45% last week after a shock profit warning.
So there’s been a long tail of laggards holding the portfolio back. Has Scottish Mortgage lost its magic touch?
I’m not bailing
Around 11% of assets are still invested in China. This is risky because regulators there continue to target firms that achieve huge scale and importance.
In China, it seems winners attract scrutiny not celebration. If so, fine. But doesn’t this cap their ultimate growth potential? And isn’t that at odds with Scottish Mortgage’s sky’s-the-limit investing philosophy.
I still have faith in the managers. But I’m not convinced I should buy any more shares for now.
