Scottish Mortgage Investment Trust (LSE: SMT) shares have had a rough ride, falling 47.4% in the last year. That is quite a fall from grace, for what was until recently a FTSE 100 stock market darling.
At its peak, it had delivered a staggering 500% return over five years. It did this primarily by piggy-backing on the boom in US technology stocks, with electric car maker Tesla its biggest holding.
Scottish Mortgage shares are struggling
Clearly, Scottish Mortgage didn’t mind taking a few risks, although I wonder whether lead manager James Anderson saw the writing on the wall. He stepped down in April, after 22 years at the helm. At its peak, his trust was worth £18.5bn. Today its market value is £10.9bn.
If Anderson had retired one year earlier he might have escaped any blame for his share in the Scottish Mortgage carnage. I had become increasingly uneasy in recent years, as it looked like Anderson was taking too big a gamble on the frothy US market. That is the main reason why I resisted buying it.
Let’s say I had bought it exactly 10 years ago today. What would I have now? A decade ago, Scottish Mortgage shares traded at around 142p. At time of writing they stand at 742p, despite the stock meltdown.
If I had invested £1,000 on 26 October 2012, I would have bought 704 shares. Today those shares will be worth £5,223. That’s an increase of 422%. Not bad, although roughly a year ago, I would have been sitting on a much bigger gain.
Scottish Mortgage shares peaked at 1,528p recently as 5 November last year. At that point, my 704 shares would have been worth £10,757.
In practice, they’d have been worth even more, assuming I reinvested my dividends to buy more stock. With an annual yield of just 0.47% Scottish Mortgage isn’t exactly a dividend aristocrat, but every little helps.
SMT is too risky for me today
Despite the difficulties of the last 12 months, I would still be sitting on a decent gain, and probably wouldn’t sell Scottish Mortgage shares if I held them. Instead, I would hold back and wait for the recovery.
What should I do as a newbie? Should I buy them or are there better opportunities out there? During the summer bear market rally, Scottish Mortgage shares immediately picked up. I would expect them to do so again, when we see a more enduring recovery.
The trust remains an aggressive play on US technology, with Tesla its second biggest holding at 6.80% of the portfolio, just behind vaccine maker Moderna at 6.90%. Other top 10 holdings include biotech firm Illumina and battery business Northvolt, as well as Space Exploration Technologies, Amazon, and Tencent.
Clearly, this remains a high risk, high conviction fund. It boomed during the era of cheap money, as investors chased growth at any price, but those days are over. Today, my focus is now on buying dividend shares that have been undervalued by the market for too long. I prefer them to riskier growth stocks, given current economic certainties. That’s why I wouldn’t buy Scottish Mortgage today.
