Warren Buffett, possibly the most successful investor of all time, once said: “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes“. Those investing in Scottish Mortgage Investment Trust (LSE:SMT) shares a decade ago have definitely benefited from this approach.
Ignoring fees and dividends, a £5,000 investment in 2013 would now be worth £22,350. Over the same period, the FTSE 100 has increased by ‘only’ 23%.
Looking at a more recent timeframe, the stock has performed less well, however. For example, over the past two years the share price has declined by 45%.
But, this doesn’t concern the trust’s manager, Baillie Gifford. Writing in 2022, it said: “We believe the long time horizon with which we approach investing is the source of much of our distinctiveness and edge.“
What does it do?
Scottish Mortgage is a fund that aims to invest in the “world’s most exceptional growth companies“.
In terms of risk, its own manager rates it six out of seven. This relatively high risk assessment reflects the innovative products and services provided by the companies in the portfolio. It also takes into account the fact that not all are listed on a recognised stock exchange. This means it could be difficult for the fund to dispose of some of its holdings.
Although there’s an emphasis on technology companies, the fund also has significant exposure to the consumer goods and healthcare sectors. At the end of last year, its top 10 investments accounted for 43.7% of all assets held.
| Holding | Business | Stock price % change (last 12 months) | % of total fund assets |
| Moderna | Vaccines | +1.9 | 10.6 |
| ASML | Semiconductors | +0.9 | 6.7 |
| Illumina | Biotechnology | -40.5 | 4.1 |
| Space Exploration Technologies | Space exploration (Elon Musk) | Unquoted | 3.6 |
| Northvolt | Lithium-ion batteries | Unquoted | 3.6 |
| Meituan | Chinese shopping platform | -20.6 | 3.5 |
| Tesla | Electric vehicles | -44.2 | 3.2 |
| MercadoLibre | Online marketplace in Latin America | +4.0 | 3.1 |
| Kering | Luxury goods | -15.9 | 2.8 |
| Tencent | Technology and entertainment | -15.4 | 2.5 |
Growth, growth and more growth
The fund is heavily focused on growth. If I’m hoping for a steady passive income stream, I need to look elsewhere.
However, it does pay a small dividend. It’s claimed that each year — with the exception of 1933 when the Depression was at its peak — it has always maintained or increased its dividend.
Although the fund levies an annual management charge (currently 0.32%), the present level of dividend (a yield of 0.5%) is more than enough to cover the cost of owning the stock.
Should I buy?
With positions in 101 companies, I like that fact that it’s possible to achieve a high degree of portfolio diversification through the ownership of just one stock.
I’m also impressed with the quality of the companies. There seems to be a good mix of household names and market disruptors.
Now also appears to be a good time to buy.
Each trading day, the directors release an estimate of the net asset value (NAV) per share of the fund. This is currently around 10% higher than its share price, implying that the stock is undervalued. Although valuing shareholdings in unquoted companies can be subjective, most of the fund’s investments are easily valued by reference to their stock prices.
For all of these reasons, the next time I’ve some spare cash, I’m going to consider buying some Scottish Mortgage Investment Trust shares, with a view to holding them for at least 10 years.
