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Scottish Mortgage Investment Trust (LSE:SMT) shares are a popular way to gain exposure to fast-moving technology stocks and unlisted companies such as SpaceX. And as a result, the value of Scottish Mortgage shares largely reflects the value of the investments it makes.
Over the past two years, Scottish Mortgage shares have jumped 37.6%. That’s a very strong return regardless of the fact that the Nasdaq index has actually outperformed Scottish Mortgage over the period.
Anyway, this means that £10,000 invested in Scottish Mortgage shares two years ago is now worth £13,760. Most investors would struggle to beat those returns.
What’s behind the growth?
The surge of Scottish Mortgage shares over the past two years can be attributed to its strategic investments in high-growth companies. The trust holds stakes in major players including SpaceX, Amazon, MercadoLibre, Meta Platforms, and Nvidia.
These companies, leading in sectors such as space exploration, e-commerce, social media, and semiconductors, have seen tremendous growth especially from artificial intelligence (AI). The growing adoption of technology and innovation across industries has driven historically significant returns. This has attracted investors looking for exposure to these transformative sectors.
The growth in the value of these holdings has led to an increase in the Net Asset Value (NAV) of Scottish Mortgage. The NAV tells investors roughly how much the stock should be worth. Interestingly, around two years’ ago the share price was roughly 20% discounted versus the NAV. It suggests investors were wary of Scottish Mortgage stock. Now, the discount to the NAV is just 8%, indicating sentiment’s improved.
A winning portfolio
Scottish Mortgage’s portfolio has underperformed the Nasda and other major benchmarks over the past two years. However, it has a diversified portfolio which does provide some shelter from the volatility we’re seeing in areas like technology. This shelter’s provided by the investments in stocks like Ferrari and Kering, although the portfolio is still clearly geared towards tech.
There’s also a preference for founder-run companies, with some of its biggest holdings including Space, Meta, Amazon, Nvidia, Shopify and Spotify.
It’s also the case that Scottish Mortgage’s fund managers have an excellent track record for picking the next big winners. The Baillie Gifford-run trust has invested in companies including Tesla and Amazon before many people had even heard of them. In fact, the first investment in Amazon was made in 2004.
Is there a catch?
While the company’s diverse portfolio reduces risk, its use of leverage can be seen as risky. Scottish Mortgage uses gearing, or borrowing, to enhance returns by investing more than its net assets. This strategy amplifies potential gains, especially in high-growth sectors. However, it also increases risk, as losses can be magnified if investments underperform. This can be especially concerning when stocks go into reverse. In fact, many of its biggest holdings are in reverse right now.
Worthy of consideration?
Scottish Mortgage is a well-managed investment trust, providing exposure to technology stocks and its shares are listed in the UK. The latter’s important because it means the stock’s denominated in pounds. And as I buy Scottish Mortgage shares for the ultra long run, this is important as I don’t want currency fluctuations undermining growth.
In short, I believe this is a stock worthy of consideration for any long-run investor.
