The Scottish Mortgage Investment Trust (SMT) share price is flying! Time to buy?

As the Scottish Mortgage Investment Trust (LON:SMT) sets a new high, Paul Summers asks whether he should continue buying.

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The Scottish Mortgage Investment Trust (LSE: SMT) share price hit 1487p earlier today. That’s a new record high for the highly popular FTSE 100 constituent. 

Should I consider adding to my position? Let’s start by looking at just why the tech-focused fund is flying.

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Why is SMT hot?

One reason is its exposure to electric vehicle maker Tesla. Shares in the latter rose above the $1,000 per share boundary yesterday, following the announcement of a deal with rental car firm Hertz. This gives Elon Musk’s company a market capitalisation of over $1tn.

To its credit, SMT has been a holder of TSLA for some time. Taking up a little less than 5% of assets, it still ranks fourth in its list of top 10 positions held today, hence the uplift in the Trust’s valuation.

But it’s not just down to TSLA. Shares in biotech giant Moderna have also been rocketing, following the approval of its booster vaccine for Covid-19. All told, the company’s valuation has climbed 400% in just the last 12 months. It’s also SMT’s largest position, making up just under 10% of the portfolio.

Time to buy more?

There are a few reasons why I’m invested in SMT. Aside from the fact that markets can continue rising regardless of fundamentals, the Baillie Gifford fund gives me access to a group of highly disruptive companies, some of which remain private. As a growth-focused investor, albeit one who won’t turn down a dividend if it’s offered, SMT is a great fit for my overall strategy.

The stock-picking skills of (soon-to-depart) James Anderson and Tom Slater can’t really be questioned either. After all, Scottish Mortgage Investment Trust’s share price has climbed 335% in just five years. In just the last 12 months, it’s up by 46%. By contrast, the FTSE 100 index is 4% and 25% higher respectively. Although not the best comparison, I don’t think any investor will complain too much about paying the (actually very low) 0.34% ongoing charge for this kind of outperformance.

Reasons to hold off

Despite the above, I can’t help but feel somewhat jittery about SMT setting another record high. The trouble is that momentum can’t be sustained indefinitely. In fact, the higher the share price goes, the greater the fall might conceivably be when markets inevitably swoon.

It’s not hard to find potential catalysts. Rising inflation is impacting businesses and supply chains remain disrupted. Covid-19 infections are also showing signs of rebounding. On top of this, valuations continue to look frothy across the pond (the S&P 500 recently set another record high).

Ominously, the Schiller P/E — a valuation metric that takes into account earnings over the last 10 years rather than just one — hasn’t been this high since the dot-com boom.

My verdict

As a Foolish investor focused on growing my capital over decades rather than a year or two, there may be little value in watching the current SMT share price. I’m inclined to agree, at least to a point. Timing the market consistently is very hard, if not impossible.

That said, the multiple headwinds faced by investors right now lead me to suspect that only small additions to my SMT position make sense right now. As far as the risk/reward trade-off is concerned, I believe the odds are less in my favour with each passing day.

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Paul Summers owns shares in Scottish Mortgage Investment Trust. The Motley Fool UK owns shares of and has recommended Tesla. The Motley Fool UK has recommended Moderna 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.

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