My Scottish Mortgage (LSE: SMT) shares have been on a tear lately. This is ironic, because on 24 October, I expressed severe doubts about continuing to hold the popular FTSE 100 tech-focused investment trust and almost sold it.
More than half of Scottish Mortgage’s portfolio is invested in the US, with tech titans Amazon, Nvidia, Tesla and Meta Platforms all featured in its holdings.
Ahead of the US presidential election, some were anxious about the outlook for tech and the US. As I wrote: “Consultancy Longview Economics has warned the next few months could be bumpy as the Federal Reserve struggles to deliver a soft landing and a knife-edge presidential election looms.”
Can this trust continue to soar?
As we now know, there was nothing knife-edge about the vote in relation to the Electoral College. After Donald Trump’s win, the US stock market went gangbusters, and so did my Scottish Mortgage shares.
The process actually started in September, curiously, with the stock up 23.69% since then. Confirmation of Trump’s win accelerated the process. As a benchmark, the Scottish Mortgage share price is up 32.69% over 12 months. Personally, I’m up 37.12%.
I buy stocks and investment trusts with a long-term view. I don’t usually look to bank a quick profit and move on. That’s not The Motley Fool way. Yet I’ve always been a bit uneasy about my decision to buy Scottish Mortgage in May and August last year.
As a rule, I either buy individual stocks or exchange traded funds (ETFs), rather than relying on a fund manager to match the market. Scottish Mortgage is the exception.
Yet I’d noted that it was trailing my S&P 500 tracker and tech tracker, Legal & General Global Technology Index Trust, over both one and five years. And it still is, although the gap has closed.
I may simplify my life and sell this
So I was interested to see investment banking firm Stifel has downgraded Scottish Mortgage, warning that many growth stocks in its portfolio are “priced for a perfect environment”. It sees froth in there. While the share price has boomed 36%, the underlying value of its net assets climbed just 28%.
Stifel warned of “significant company specific risk”, with the top 10 holdings making up half the fund. Scottish Mortgage also holds privately quoted companies, and has struggled to make successful exits lately (an issue across the private equity sector). That’s been a drag on performance, Stifel said.
Holding investment trusts brings other complications, such as the whole discount/premium issue. Today, Scottish Mortgage is on a discount of 8.35% to net asset value. Plus it’s highly leveraged, with net gearing of 12.95%.
On the other hand, the so-called Trump trade may still have further to run, and Scottish Mortgage does hold Elon Musk’s SpaceX, which isn’t traded publicly. It makes up 4.4% of the portfolio.
I’m not going to make a rash commitment to sell today. But I’ll be watching it like a hawk. The Trump trade won’t last forever and as we saw in the 2022 tech sell-off, when Scottish Mortgage falls, it falls hard.
