Exposure to tech stocks: Scottish Mortgage Investment Trust vs Allianz Technology Trust

Are you looking for investing exposure to tech stocks in your portfolio? Ben Watson looks at two top performing UK trusts.

| 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.

Male and Female Architects Wearing Augmented Reality Headsets Work with 3D City Model. High Tech Office Professional People Use Virtual Reality Modeling Software Application.

Image source: Getty Images

Stellar. In my opinion this is the only word to describe the performance of Scottish Mortgage Trust (LSE: SMT) in 2020. Up 80% in the past six months, the tech stock trust has generated a return to leave investors smiling.

Examining the underlying top holdings of the trust, the reason for the gains become clear. Underpinning the portfolio are giants of the tech stock genre. Tesla, Amazon, Netflix and Spotify are all featured in the top 10 holdings ,and have substantially increased in valuation since the low water mark of April this year.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Overall, my thoughts on the trust are positive. There are low annual charges and it is currently trading at a narrow discount. The management philosophy of James Anderson and Tom Slater is ‘the best potential, durable growth opportunities for the future’, an ethos that will chime with many Fool readers. Earlier this year, Paul Summers cited the stock as a long-term holding for retirement.

I would ,however, sound one gentle note of caution. In the case of SMT, the concern is the proportion of total holdings tied up in a relatively narrow spread of tech stocks.

Digging deeper

For any investment trust or fund that I hold, I like to keep abreast of its major components as they can signpost future movements in price. As an early investor into the short-lived Woodford Equity Income fund, I became concerned in 2018 when the top 10 holdings revealed only a singular defensive dividend-paying stock, namely, Imperial Brands. Such stocks should be the bedrock of that fund style, but the remainder were high risk or unquoted companies. As a result, I sold my holding and avoided the later chaos as the Woodford fund was suspended.

Applying this logic to Scottish Mortgage, my concern is that Tesla and Amazon account for 23% of the entire trust. Ultimately, the performance of these companies will hold huge sway over share price movements. This isn’t to say that they won’t continue to grow or that I don’t like the investment as a whole, merely something to be aware of when making decisions.

The Foolish alternative

I like the look of Allianz Technology Trust (LSE: ATT). For those wishing to gain exposure to tech stocks, it contains similar holdings to Scottish Mortgage, but in smaller overall proportions. Edward Sheldon examined its tech stock credentials earlier this year.

Led by its position in tech giant Apple, it has performed strongly against its benchmark index (Dow Jones World Technology) over the longer term, and is well positioned to continue this through its exposure to companies that have benefitted from the coronavirus pandemic shift to home working and increased online activity. The management team looks to invest in potential high-growth mid-cap companies, seeking leaders in sectors that are driving change through innovation or lower costs.

The trust charges both a management and performance fee, but these are offset by strong returns in the years where the performance fee is levied.

Foolish final thoughts

It is clear to me that the tech stock sector will be a huge driver of growth over the next 10 years, and therefore any investor would benefit from some exposure within their portfolio. Either of these two trusts offer that exposure and are well placed to benefit from that growth.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Ben Watson holds no position in any share mentioned. The Motley Fool UK has no position in any stock mentioned. 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.

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 considered, so you should consider taking independent financial advice.

More on Investing Articles

Female florist with Down's syndrome working in small business
Investing Articles

2 promising penny stocks to buy on the dip

As stock markets continue to correct, I am hunting for oversold penny stocks that I think could help turbocharge my…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

I wouldn’t buy Bitcoin today. FTSE value stocks look much better value to me

Now looks like a promising time to buy UK value stocks, while Bitcoin still looks far too risky for me.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

The Rolls-Royce share price is below 85p. Here’s what I’m doing!

The Rolls-Royce share price has suffered this year. Trading for below 85p, this Fool decides whether this is an opportunity…

Read more »

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

4 dividend stocks to buy as inflation soars!

I'm hunting for the best dividend stock to invest in as global inflation soars. Here are several high-dividend-yield shares that…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

UK shares to buy now: 3 big fallers I’d snap up

Our writer thinks this trio of strong business performers could be attractive UK shares to buy now for his portfolio.

Read more »

Lady researching stocks
Investing Articles

Could a falling stock market help me get rich?

When the stock market falls, what does it mean for our writer's portfolio? Here's why it could be an opportunity.

Read more »

Hand holding pound notes
Investing Articles

Should I buy these two 12%-yielding dividend shares for my Stocks and Shares ISA?

Do these double-digit dividend yielders offer our author the right balance of risk and reward for his Stocks and Shares…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 reasons to buy Lloyds shares at 43p

Our writer outlines three factors that make him bullish on Lloyds shares, as well as one noteworthy risk facing the…

Read more »