The Scottish Mortgage Investment Trust (LSE: SMT) share price performance is quite stunning. The £9bn fund has thrashed the FTSE 100 for ages, and crushed almost every rival active manager. Yes, even Terry Smith.
Happily, I’m a long-term fan. I have highlighted its outperformance again and again. The Scottish Mortgage Investment Trust is a confirmed winner.
We all know that past performance is no guarantee of future returns. Would I buy it today? Should you?
Stock market crash survivor
Over the last five years, Scottish Mortgage returned an incredible 260%. That is quite stunning, especially given recent turbulence. I’m a big fan of FTSE 100 shares, and low-cost index trackers. Despite this, they cannot keep up. The HSBC FTSE 100 Index unit trust tracker, for example, is up just 13% over the last five years.
The Scottish Mortgage Investment Trust share price outperformance even overshadows Terry Smith’s hugely popular Fundsmith Equity. That unit trust is up ‘just’ 145% over five years. Yet manager James Anderson isn’t half as famous as Terry Smith. He should be.
Scottish Mortgage is exactly the type of fund I would like to see inside a million-pound portfolio, but how has it got to this point?
This is a global fund that invests in a concentrated portfolio of equities, typically between 50 and 100. Management is free to invest with no fixed limits on geography, industry or sector.
The trust aims to achieve a greater return than the FTSE All-World Index and it certainly has. The FTSE All-World index grew just 40% over the last five years. No wonder investors are rushing to get exposure to the Scottish Mortgage Investment Trust share price.
A word of warning: it is heavily invested in the US, which has been the developed world’s top-performing market for more than a decade. Another 20% of the fund is in China, and 17% in Europe.
This means that if the US crashes, the Scottish Mortgage share price will also suffer. So you need to take a view on how the world’s biggest economy will fare as it faces Covid-19 and a heated Presidential election on 3 November.
It is also a tech-heavy fund. Its top holding is electric car maker Tesla, which makes up a beefy 11.3% of its portfolio. The second biggest holding is online retailer Amazon at 10.3%. Other tech stocks in the top 10 include Chinese companies Tencent Holdings and Alibaba Group, and Netflix.
I’d buy the Scottish Mortgage Investment Trust
Your decision to invest should rest on how long you think the US tech story has to run. The bull run is long in the tooth, so tread carefully. It should also depend on how much exposure you already have. If you’re underweight in technology, this could look tempting if you don’t mind coming late to the party.
If most of your portfolio is in FTSE 100 shares, this could be a great way to get diversification. Just 1.3% of the fund invests in the UK.
The Scottish Mortgage Investment Trust share price trades at a slight premium to the value of its underlying assets, but only 2.6%. I expected higher, given its popularity. Charges totalled just 0.36% a year, making it cheap for an actively managed fund.
No fund outperforms forever. That will also apply to Scottish Mortgage. I still believe it merits a place in your portfolio, depending on what else you have in there.
