Since I first looked at Scottish Mortgage Investment Trust (LSE: SMT) back in May, the stock is up over 15%. SMIT gained large amounts of recognition in 2020 when, despite the pandemic, the trust was up over 100% in a year. This resilient performance sparked investor interest, and since the turn of 2020 SMIT has continued with its impressive performance. With the investment trust’s share price up nearly 15% year-to-date, here I’m going to explain why I’m adding more shares to my portfolio this month.
I have mentioned on numerous occasions in the past about the diverse exposure that this investment trust offers, but here I want to look specifically at SMIT’s Chinese equity allocation. As of July, nearly 20% of its portfolio was invested in Chinese securities. As the fastest-growing economy in the world, for me, this is a huge pull factor when buying the trust. The pandemic has in part fuelled tech-industry growth as we became more reliant on technology for everyday life, and China now hosts a vast array of opportunities in this sector. I can only see the growth of tech stocks accelerating. And as these mature, a rise in this investment trust’s share price is likely, I feel. As the US is also a base for many tech firms, the fact SMIT has near 40% of its portfolio invested in the US is another reason why I deem it a must-buy for me.
However, this also comes with issues. The Chinese market has been volatile of late. This may scare investors off from buying SMIT. With its top holdings including Tencent, Alibaba, and NIO, this makes it susceptible to the recent pressure applied by regulators. While this may pose an issue for some, for me it doesn’t. Fund managers James Anderson and Tom Slater employ a long-term investment strategy. The aim of the fund is to beat the FTSE All-World Index over a five-year period. Potential short-term issues shouldn’t be a major concern, I believe – and SMIT’s track record proves this to me.
Scottish Mortgage is losing a key figure in April next year, as Anderson recently announced his intention to step down. Having run the fund for 22 years, his experience could be a huge loss. He’s generated huge returns over the years, most notably playing a role when deciding to invest in Tesla back in 2013. At the time, the stock was trading for just $6!
Although I have highlighted issues, I still deem this trust as a strong player in my portfolio. Anderson’s departure will be a blow, but the fund is still in the capable hands of current co-manager Tom Slater, along with Lawrence Burns who will become deputy manager.
The Chinese crackdown may also be a concern. Yet potential short-term volatility may not be an issue over a longer timeframe. SMIT has seen a 350+% return for investors over the past five years. For comparison, the FTSE 100 Index is up 5%. I think the focus on China will bear fruit in years to come as the country’s economy continues to grow. And, therefore, I think now is a great time for me to add more shares of this investment trust to my portfolio.
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Charlie Keough owns shares of Scottish Mortgage Investment Trust and NIO. The Motley Fool UK owns shares of and has recommended Alibaba Group Holding Ltd. and NIO Inc. 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.