Last year was one to forget for investors in Scottish Mortgage Investment Trust (LSE: SMT). The share price tanked 46% as the market sold off high-growth stocks in favour of less riskier assets. It meant Scottish Mortgage shares ended 2022 among the worst performers in the FTSE 100.
However, I think there are three catalysts that could spark a rebound in 2023.
Interest rates
Over half of the Scottish mortgage portfolio is allocated to high-growth US stocks. Rising interest rates have had a disproportionate effect on the valuations of such companies.
That’s because growth stocks generally get hit harder than value stocks by rising interest rates because their (potential) cash flows are further into the future.
Due to persistent high inflation, many analysts expect the US Federal Reserve (Fed) to continue raising interest rates in the first half of this year. The benchmark rate today stands between 4.25% and 4.5%. While that’s a 15-year high, it’s actually around the long-term average.
However, there’s evidence that US inflation may have peaked. If that’s the case, this may lead the Fed to hold rates (or even reduce them slightly). This could cause a sharp rebound in many of the growth stocks held by Scottish Mortgage.
China
Currently, nearly 13% of the trust’s portfolio is made up of Chinese assets. However, the managers have said that said its investments in China will be decided by whether the companies are aligned with government policy objctives.
This follows a major crackdown since 2020 on domestic tech companies by the authorities in Beijing. In response to this, the trust has sold Alibaba and slashed its holding in Tencent.
Top 10 Holdings (as at 30th November)
| Holdings | Country | % of total assets |
| 1. Moderna | USA | 9.9 |
| 2. ASML | Europe | 6.8 |
| 3. Tesla | USA | 4.9 |
| 4. Illumina | USA | 4.1 |
| 5. Northvolt | Europe | 3.6 |
| 6. MercadoLibre | Latin America | 3.2 |
| 7. Space Exploration Technologies (SpaceX) | USA | 3.2 |
| 8. Meituan | China | 3.1 |
| 9. Kering | Europe | 3.0 |
| 10. Amazon | USA | 2.4 |
The table shows that only one of the current top 10 holdings is based in China (food delivery giant Meituan). Even so, Chinese stocks account for well over £1bn of assets. So collectively they remain important to the trust’s performance moving forward.
Some analysts now think that the worst of the regulatory crackdown in China may be over. This could make Chinese stocks more appealing, sending their share prices up and helping Scottish Mortgage in the process.
Moderna readouts
The final potential catalyst concerns Moderna, the trust’s largest holding. Co-manager Tom Slater has said: “Moderna has a technology platform that could fundamentally change healthcare over the next decade.”
The company uses messenger RNA to instruct the body’s cells to produce proteins that can prevent or fight disease. Data readouts from some of its active clinical trials are due this year. If any of these are positive, then the stock could get a big boost.
Of course, were the results to be underwhelming, then the stock could take a hit. However, Moderna recently reported positive data from its phase 2b study for a personalised cancer vaccine. The stock skyrocketed more than 20% after this news. Something similar could happen again.
I’ll be buying more shares this year.
