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Scottish Mortgage Investment Trust: bull vs bear

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Bullish: Paul Summers

Scottish Mortgage Investment Trust (LSE: SMT) is a core holding in my Stocks and Shares ISA. As such, it’ll come as no surprise that I’m very bullish on the FTSE 100 member.

Perhaps the biggest argument in favour of owning SMT right now is its incredible track record. Sure, past performance is no guide to the future. However, a 330% gain over the last five years simply can’t be ignored. For perspective, the FTSE 100 is up just 1% in the same period.

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This return is all the better when it’s considered that SMT has an ongoing charge of just 0.34%. That’s seriously low for an actively managed, concentrated fund that bears little resemblance to its benchmark index. What’s more, Scottish Mortgage has the option of holding up to 30% of assets in private companies that I’d otherwise struggle to gain access to. There’s always the potential for one of these to become the next Amazon, Google or Facebook of its specific industry.

The departure of co-manager James Anderson may worry some investors given his stellar track record. However, knowing that Tom Slater is staying put gives me some reassurance that there will be no sudden shift in strategy. 

With £20bn in assets, it’s clear that SMT won’t double in value overnight. As a cheap, fuss-free way of accessing high-quality, innovative growth companies from around the world, however, I’m happy to remain invested for decades. I also fully intend to continue adding to my position in times of wider market trouble.

Paul Summers owns shares in Scottish Mortgage Investment Trust


Bearish: Christopher Ruane

It’s not that easy to find bears on Scottish Mortgage Investment Trust. With its 46% share price surge in the past year, that’s understandable.

But I think the spectacular bull run in the trust could end in coming months. At its heart, the company is a diversified bet on a number of tech names. So if the tech bull run reverses, the impact will be felt on the Scottish Mortgage share price. With yesterday being the tech-heavy NASDAQ’s worst day since March, there are signs that the incredible tech bull market of recent years may be testing its limits.

Not only is the trust highly exposed to tech, it is particularly strong in Chinese tech. Indeed, that helped explain its strong performance in recent years. Its top ten holdings include Chinese tech giants Tencent, NIO, Meituan and Alibaba. But Chinese tech stocks have suffered lately from strict regulatory tightening. Alibaba’s New York listing is down 45% over the past year. That bodes poorly for the trust.

The trust has a good track record of talented stock-picking. That stock-picking skill may survive the planned retirement of the current fund manager next year. But the share price performance will ultimately largely follow that of its assets. With its current tech bias, I think the trust could turn out to be overexposed in the case of a sudden market downturn. That might not happen – but there are enough warning signs to stop me buying Scottish Mortgage for my portfolio right now.

Christopher Ruane has no position in any of the companies mentioned.

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The Motley Fool UK has no position in any of the shares 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.

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