The rise of US retail and tech giant Amazon.com has dominated headlines for the past few years. It seems as if every day the tech giant either enters a new industry or is blamed for putting another struggling retailer out of business.
Unfortunately, for UK investors it’s hard to profit from Amazon’s meteoric rise. Shares in the company only trade in the US in dollars, which opens investors up to foreign exchange risks as well as higher costs from having to deal in a different country, in a different currency and hold non-sterling denominated shares.
However, there is one investment trust that has made its reputation by investing overseas and has been a fan of Amazon for many years. To complement its Amazon holdings, the trust also owns the likes of Facebook, Google’s parent company Alphabet and Chinese internet giants Alibaba and Baidu. Put simply, this trust is a play on all things internet and offers exposure to assets UK investors would not usually be able to access without opening a US dollar investment account.
International diversification
The investment trust in question is the Scottish Mortgage Investment Trust (LSE: SMT). With a market value of £5.5bn, Scottish Mortgage has recently been promoted to the FTSE 100. Year-to-date, shares in the trust are up around 23.4% as it has profited from the US tech sector’s continued positive performance.
Over the longer term, returns are even more impressive with the trust adding 51% during the past two years excluding dividends. Over the previous five years, it returned 207%, compared to the FTSE 100’s return of 30%.
The divergence in returns between Scottish Mortgage and the FTSE 100 shows how important it is to diversify outside the UK to profit from global investment themes. At the end of the first quarter, the trust’s largest holding was Amazon with a weighting of 9%. This position was closely followed by Tesla with a weighting of 7.7%. China’s Tencent Holdings accounts for 6.1% of assets under management.
Key themes
These holdings provide exposure to some of the largest investment themes in the world today. That is, the rise of China as a global superpower with over one billion consumers, the shift away from polluting hydrocarbon powered vehicles towards cleaner electric vehicles, and the dominance of online shopping.
There are few companies listed in the UK that are direct plays on these themes, and those that are, do not compare in terms of size and scale. This is why Scottish Mortgage would make a great addition to any portfolio. The trust offers exposure to the fast-growing US tech space and China’s economy through a well-diversified portfolio that would be difficult to replicate for most investors. With a total expense ratio of 0.45%, the trust is also relatively cheap. And a dividend yield of 0.76% is on offer for income investors although, considering the holdings, Scottish Mortgage is mainly geared towards capital growth.
