In the last 12 months up to 31st July, Scottish Mortgage Investment Trust (LSE:SMT)’s NAV has risen 59.6% compared to just 26.3% for the FTSE All World Index. At the same time, Scottish Mortgage Investment Trust has traded at a discount to net asset value (NAV) on the final day of 10 of the last 12 months. This happened only eight times in the previous 48 months. So why aren’t investors more bullish on this FTSE 100 investment trust?
Scottish Mortgage Investment Trust has hefty investments in Chinese companies (between 15 and 20% of the portfolio) including Tencent, NIO, Alibaba and Meituan. Xi Jinping and the Chinese government are unpredictable, and an overnight press release could cause a sudden 50% drop in the market cap of some of these giants. This is too big a gamble for many investors.
Additionally, Scottish Mortgage Investment Trust has generated huge returns for investors in the past by investing in companies like Airbnb, Spotify and Meituan when they were private, reaping the rewards of a successful IPO. Following the controversy and fallout of DiDi Global’s IPO, Ant International and ByteDance (private Chinese companies in the SMT portfolio) will be thinking twice about going public. Indeed, they’ve both felt the wrath of Beijing already, and these market conditions could mean Scottish Mortgage Investment Trust and its investors lose out.
Star stock-picker James Anderson has been manager of Scottish Mortgage Investment Trust since 2000 and has been responsible for much of the huge returns for investors, but announced his retirement this year. Anderson has given his full support to Manager Tom Slater and current Deputy Manager Lawrence Burns as his successors. However, with returns of 899.4% in the last 10 years, I’m watching closely to see if this performance can continue following Anderson’s departure.
The stomach for growth investing
Scottish Mortgage Investment Trust has held Tesla since 2013, in which time the stock has dropped by 30% of more than 10 occasions before skyrocketing close to 700% since the March 2020 lows.
Growth investing isn’t for the faint-hearted and as an SMT investor, I brace myself for volatility and practice patience. Scottish Mortgage Investment Trust owns companies it believes in for more than 10 years on average, and builds long-term relationships with management aiming to generate market-beating returns in the long run.
Scottish Mortgage Investment Trust is now looking for the wealth generators of tomorrow. Catharine Flood, the corporate strategy director for Scottish Mortgage, said: “Today we no longer invest in Alphabet or Facebook, and Illumina and Moderna are our two largest holdings”.
Interestingly, Moderna is the best performing stock in the S&P 500 year to date. With investments in the industries of tomorrow such as blockchain, electric vehicles, quantum computing, genomics and even a 1.2% holding in private company SpaceX, I believe this investment trust may still be on a path “to the moon” and beyond.
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Nathan Marks owns shares in Scottish Mortgage Investment Trust. The Motley Fool UK owns shares in Alphabet. 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.