When I last covered Scottish Mortgage Investment Trust (LSE: SMT) in January, I said there were better trusts for my portfolio from a risk/return perspective. What concerned me about SMT was that around 9% of the trust was invested in Tesla stock.
Interestingly, SMT’s latest portfolio data shows that the FTSE 100-listed trust has actually cut its stake in TSLA significantly this year. So, does this change my view on the investment trust?
Scottish Mortgage has been selling Tesla stock
The latest data shows that at 31 January, Tesla was the fourth-largest holding in the Scottish Mortgage portfolio with a weighting of 5.1%. That’s a big change from a month earlier. At 31 December 2020, TSLA was the largest position in the trust’s portfolio with a 8.9% weighting. Meanwhile, back in November, Tesla was about 12% of the portfolio. Clearly, SMT has sold a large amount of Tesla stock recently.
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Huge profits from TSLA
I think taking some profits on Tesla stock was a sensible move. Scottish Mortgage began buying Tesla heavily in 2013 when the share price was around $6. Today, the share price is above $800. So the stock has been an absolutely phenomenal investment. According to The Guardian, SMT has made a gain of around $30bn from TSLA.
Now that Tesla has a $780bn market capitalisation, the risk/reward profile of the stock is very different to what it was back in 2013. At its current market-cap, the company has a forward-looking price-to-earnings (P/E) ratio of about 195. Meanwhile, the company is valued at more than $1.6m per car sold last year. Taking some profits off the table seems prudent, to my mind.
By reducing the size of the Tesla’s weighting from 8.9% to 5.1%, SMT has reduced its overall portfolio risk significantly. However, it can still benefit meaningfully if Tesla stock does continue to rise.
My view on Scottish Mortgage now
Now that Tesla is only around 5% of the overall portfolio, I’m more comfortable investing in Scottish Mortgage Investment Trust. That said, I do still see it as a higher-risk growth trust. At 31 January, the top six holdings in the trust’s portfolio were:
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Source: Scottish Mortgage Investment Trust.
It’s worth pointing out that nearly 10% of the portfolio was invested in Tesla and NIO (which is sometimes called the ‘Tesla of China’). It’s also worth noting the trust has a high weighting to stocks that can be quite volatile at times, such as Tencent and Alibaba.
I have a small position in Scottish Mortgage and I think the trust can continue to play a role in my portfolio as a high-growth investment. However, I don’t see it as a ‘core’ holding – it’s too risky for that, in my view. I think a lower-risk growth fund like Fundsmith or a well-diversified growth trust like Monks is better suited to that.
For me, SMT is more of a speculative long-term growth holding. I’m going to keep it less than 5% of my overall portfolio.
