If you buy shares in FTSE 100-listed Scottish Mortgage Investment Trust (LSE: SMT), you can pick up Tesla stock at the same time. Scottish Mortgage is a UK-based investment manager with a tech-focused portfolio that includes a 10% holding in Tesla.
Shares in Scottish Mortgage have returned 63% over the last year, comfortably beating the FTSE 100’s return of -18%. Active investment managers aim to beat a benchmark, and in Scottish Mortgage’s case, it’s the FTSE All-World Index. Over five years, the FTSE All-World index has returned 70%, while Scottish Mortgage has grown its holdings by 104%.
So can Scottish Mortgage continue to beat the benchmarks? Well, that depends on how the stocks in its portfolio do, so let’s dive into that.
Hitching a ride on Tesla
As of May this year, Scottish Mortgage held 89 securities in its portfolio. Ten stocks make up over half the portfolio’s value, and all but two of those – Tesla, the largest holding, and Kering – are tech companies. The portfolio is not as heavily reliant on the US as some might say. Four of the top 10 holdings are US-based, and the rest are from China and Europe. However, it would be accurate to say that Scottish Mortgage’s share price and the performance of the global tech sector will move in the same direction. The good news is that tech has done well and is forecasted to continue to do well.
Investors in Scottish Mortgage also get a big exposure to non-listed companies: 46 of those 89 companies were unlisted. Now, this might ring alarm bells for regular readers of the Fool UK. After all, wasn’t investing in small and unlisted companies part of the Woodford scandal?
Part of the problem with Neil Woodford’s fund was its structure. When investors wanted their money back, the fund had sell shares to raise the cash. That is difficult with small and unlisted companies. Scottish Mortgage shares trade directly on the London Stock Exchange. If investors want out they sell their shares, the fund doesn’t have to do anything.
There is also the question of style and expertise. Neil Woodford made his name catering to income-hungry investors, then changed the way he invested. Scottish Mortgage’s manager, James Anderson, has built his portfolio around a belief that the Internet, battery technology and gene sequencing will be the winners over time. Such a thesis requires branching out into unlisted stocks.
FTSE 100 tech stock
An investor in Scottish Mortgage needs to be able to hold their shares for at least five years. They should also be comfortable with moderate-high levels of risk because of those unlisted holdings and because the fund can and does use leverage.
So long as an investor is comfortable with that, they will be buying a FTSE 100 share that indirectly gets them exposure to a tech-focused international portfolio. If you are an investor focused on UK-listed companies, this should be a diversifying addition to your portfolio. The FTSE 100 is lacking in tech companies and hot growth stocks that have driven other indexes higher and higher. Scottish Mortgage trust shares can give you access to such stocks, including Tesla, from the comfort of the FTSE 100, without the need for dealing with the stress of international share dealing yourself.
