Should I buy SMT shares with a spare £1,000?

A stock market recovery may be in progress, so could SMT shares help me protect my portfolio against global instability?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Scottish Mortgage Investment Trust (LSE:SMT) is an investment vehicle of asset manager Baillie Gifford. Listed on the FTSE 100 index, it provides investors with exposure to the technology sector. With holdings in Tesla MotorsAlibaba Group, and Tencent Holdings, SMT shares have been volatile lately. What are the reasons for this volatility? Should I add this stock to my long-term portfolio using a spare £1,000? Let’s take a closer look.    

SMT shares and the recent market sell-off

In terms of financial results, SMT generally performed well during the pandemic. In 2020, for instance, profit before tax was £24m. For 2021, this declined to £10m. It should be noted, however, that past performance is not necessarily indicative of future performance.

More recently, SMT shares have not been immune from the sell-off in the technology sector and the stock market more generally. 

In November 2021, shares in the FTSE 100 stock were trading at highs above the 1,500p level. It now trades about 1,030p, down 10% in the past year. 

This means that in the past six months, the value of SMT shares has fallen by roughly 30%. There are a few reasons for this.

Challenges ahead

Interest rates in the UK and US have been rising after the pandemic. This has resulted in some investors opting to simply save money at higher rates instead of buying stocks. High growth and emerging market shares can be hit especially hard because they are seen as riskier investments.  

The recent Russian invasion of Ukraine also caused panic in the market. This resulted in 15.5% fall in SMT shares. While the value of technology stocks declined, gold and silver enjoyed gains as they are seen as safe havens during the crisis.

There have also been further waves of the pandemic throughout China. As part of its ‘zero Covid’ policy, China has once again been locking down cities. These cities include the financial and technology hubs Shanghai and Shenzhen. 

SMT has a number of large holdings in Chinese companies. These include Alibaba and gaming giant Tencent

The lockdown measures have spooked investors and has raised fears that the underlying value of SMT’s Chinese holdings will fall as operations in China face a potential slowdown.

Just two weeks ago, however, the Chinese government promised financial support for suffering technology markets. This gives me confidence that any China-related lockdowns may be short-term in nature and will subside over time. It is also possible that any future variants could lead to a fall in SMT shares.

Overall, SMT would provide me with exposure to the biggest technology companies and help me further diversify my portfolio. Currently, there appear to be too many threats in the market. I want to see issues like the pandemic and the war in Ukraine subside before I spend my spare £1,000 on SMT shares.  

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Andrew Woods has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »