Scottish Mortgage Investment Trust: is now a good time to invest?

Scottish Mortgage Investment Trust’s share price is up about 70% in 2020. Is now a good time to invest? Edward Sheldon looks at the investment case.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The last time I covered Baillee Gifford’s flagship investment trust, Scottish Mortgage Investment Trust (LSE: SMT) was on 20 June. At the time, the trust had been having a great run. It was up 30%+ year to date. However, I said that it wasn’t too late to invest.

In hindsight, that was a good call. Since that article, SMT’s share price has risen another 25% or so. That’s a fantastic performance, especially when you consider that the FTSE 100 index is down nearly 10% in that time.

Is Scottish Mortgage still a good investment today though? Stock market volatility is rising, and some of the major tech stocks that Scottish Mortgage has large positions in, such as Tesla and Amazon, are losing their momentum a little bit. Tesla, for example, is down more than 20% since its September highs. Meanwhile, Amazon is down about 15% since early September. What does this mean for SMT? 

Scottish Mortgage’s share price has pulled back

The share price has pulled back a little in the last few weeks, as a result of the weakness we’ve seen across the technology sector. In mid-October, SMT’s share price was close to 1,100p. Today however, it’s near 1,020p.

I think this pullback could be a good buying opportunity for long-term investors. Of course, there’s a chance the share price could keep falling in the near term. Due to the high level of uncertainty related to Covid-19 and the US election, share prices in the technology sector could remain volatile for a while. However, given the strong growth in the sector, I’d expect technology stocks to continue rising sooner or later. So, investing in SMT now could be a smart move, in my view.

Attractive long-term prospects

Looking at the Scottish Mortgage portfolio, I believe the long-term prospects remain attractive.

Not only does the trust hold plenty of well-known tech giants such as Amazon, Alphabet, and Nvidia, but it also holds lots of up-and-coming tech stars such as HelloFresh, Zalando, and Transferwise. On top of this, it has plenty of exposure to Asian technology powerhouses such as Alibaba, Tencent, and Ant Financial.

Given that the world is in the midst of a technology revolution, I see plenty of potential for growth in the long run.

Top 10 holdings at 30 September 
Tesla Inc 
Amazon.com 
Alibaba 
Tencent 
Illumina 
ASML 
Meituan Dianping 
Kering 
Delivery Hero
NIO

Risks

There are plenty of risks to consider, of course.

One risk is the trust’s heavy focus on the technology sector. Many tech stocks trade at high valuations currently. If this sector underperforms, SMT’s share price is likely to fall.

The large position in Tesla is also worth mentioning. The trust has been reducing its position in the electric vehicle maker recently, but its position is still substantial.

Overall though, the long-term risk/reward proposition looks attractive, to my mind. So, I’d be looking to take advantage of near-term share price weakness and investing while the Scottish Mortgage Investment Trust share price is well below its 52-week highs.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon owns shares in Scottish Mortgage Investment Trust, Amazon, and Alphabet. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Alibaba Group Holding Ltd., Alphabet (C shares), Amazon, NVIDIA, and Tesla and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How I’d use an empty Stocks and Shares ISA to aim for a £1,000 monthly passive income

Here's how using a Stocks and Shares ISA really could help those of us who plan to invest for an…

Read more »

Investing Articles

This FTSE stock is up 20% and set for its best day ever! Time to buy?

This Fool takes a look at the half-year results from Burberry (LON:BRBY) to see if the struggling FTSE stock might…

Read more »

Investing Articles

This latest FTSE 100 dip could be an unmissable opportunity to pick up cut-price stocks

The FTSE 100 has pulled back with the government’s policy choices creating some negative sentiment. But this gives us a…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

As the WH Smith share price falls 4% on annual results, is it still worth considering?

WH Smith took a hit after this morning’s results left shareholders unimpressed. With the share price down 4%, Mark Hartley…

Read more »

Investing Articles

The Aviva share price just jumped 4.5% but still yields 7.02%! Time to buy?

A positive set of results has put fresh life into the Aviva share price. Harvey Jones says it offers bags…

Read more »

Investing Articles

Can a €500m buyback kickstart the Vodafone share price?

The Vodafone share price has been a loser for investors in recent years, and the dividend has been cut. We…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Growth Shares

3 mistakes I now avoid when choosing which growth stocks to buy

Jon Smith runs through some of the lessons he's learnt the hard way over the years about what to look…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Should I follow Warren Buffett and sell my favourite shares?

Billionaire US investor Warren Buffett has been selling tons of Apple shares and other stocks of businesses he thinks are…

Read more »