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Scottish Mortgage Investment Trust is the No. 1 HL buy. Time to join?

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The Scottish Mortgage Investment Trust (LSE:SMT) is hot property right now. It sits atop the Hargreaves Lansdown list of both the most bought and most viewed shares. The FTSE 100 fund is investment manager Bailie Gifford’s flagship, and for good reason. 

In the last five years it has produced a 400%+ return for investors. So a £10,000 investment in SMT in 2016 would be worth around £40,200 today. That’s a healthy bump. 

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Leading trends

The Scottish Mortgage Investment Trust is perhaps most famous for buying heavily in Tesla stock. And then slashing its stake in Elon Musk’s electric car giant before tech shares nosedived earlier this year. So the fund managers’ timing has been impeccable so far.  

I do like the fact that the managers move quickly, and don’t rest on their laurels. 

In April 2021, SMT confirmed it had invested £72m in the UK’ largest cryptocurrency company, Blockchain.com.

That investment amounts to less than half a percent of the fund’s £17.5bn holdings. But it is a statement of intent from Scottish Mortgage Investment Trust that it won’t be left behind while tech advances. 

SMT invests for the long term, which will appeal to buy and hold value investorsA famous quote from them is that: “We look to add value over five year time frames, preferably much longer. We don’t see that we can add much more than anyone else in the short term.”

The downside

Co-manager James Anderson will step away next year, according to press reports. So questions are growing as to whether SMT can continue picking winners with such frequency. The other co-manager, Tom Slater, and deputy manager Lawrence Burns will stay on, however, so it’s not a total changing of the guard.  

SMT’s exposure to relatively volatile stocks like NIO may also draw concerns. The Chinese electric carmaker is up more than 500% in the past 12 months. But it also lost half its value between February 2021 and May 2021. And NIO comprises 3.2% of the total fund’s holdings. More cautious investors may want to swerve SMT based on this alone. 

And while much focus remains on the fund’s top 10 holdings, there are some questionable choices further down the list. Elon Musk’s SpaceX and You & Mr Jones, two private companies, make up nearly 2% of the fund. Private firms are harder to value than listed businesses, so as an SMT shareholder it can be tricky to work out if I’m getting value for money.  

On a personal note I’m really not a fan of the mercurial Dogecoin investor Mr Musk. I hotly dispute his genius and think he’s a loose cannon. So for me, hefty investments in his unprofitable companies just turn me off. 

Buying cheaply

At time of writing, the Scottish Mortgage Investment Trust is available to buy at a 3% discount to NAV. That’s a calculation of the net asset value of all the companies it has stakes in. 

The average discount, taken across the last 12 months, is less than 0.8%. Given this tidy markdown, now seems a decent time for me to consider buying SMT shares.

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Tom Rodgers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended NIO Inc. and Tesla. 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.

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