Scottish Mortgage (LSE: SMT) remains the UK’s best selling investment trust, latest AJ Bell figures show, yet it’s had a horrible year.
The trust won its spurs during the post-financial crisis bull run, after taking a big bet on US tech and disruptive start-ups. At one point, three-quarters of its portfolio was invested in the US, with almost a tenth devoted to just one stock, Elon Musk’s Tesla. It also went big on tech giants like Amazon and Tencent.
It’s not a mortgage company
I repeatedly highlighted Scottish Mortgage’s success and increasingly, the risks it posed, too. The wheels came off last year when inflation and interest rates rocketed, and US tech crashed. The Nasdaq fell by a third in 2022, but Scottish Mortgage did worse. Its net asset value halved in 2022.
Measured over 12 months, its share price has now fallen 35.82%. If I had invested £10,000 on 20 March last year, I would have just £6,418 today. I would have suffered a paper loss of £3,582, plus trading fees.
Scottish Mortgage yields 0.55% a year, which would have handed me around £50 worth of dividends, but it wouldn’t have make up for my outsized losses.
Longer-term investors have done much better though. If I’d invested £10,000 five years ago, I’d now have almost £15,000. Had I invested a decade ago, my money would have grown by 298% and my £10k would be worth a cool £39,817.
This tells me two things. First, we should never judge investment performance over just one year, especially a year as volatile as 2022. Second, the real rewards from investing are generated over the longer run. Despite the last disastrous year, long-term investors are still well ahead.
Can the trust make a comeback?
The big question is: would I buy Scottish Mortgage today? I have been pondering that for weeks, but now I’ve come to a decision and the answer is no. The collapse of Silicon Valley Bank made up my mind for me.
The US bank made money by lending to tech start-ups, but was sunk by today’s high interest rates. I suspect Scottish Mortgage’s favoured hunting ground will be barren territory for some time, as the dominoes totter and fall.
Today, I prefer to invest my money in high-yielding FTSE 100 stocks. By reinvesting my regular dividends, I should benefit from ongoing volatility, by picking up more stock when my prices are down. Scottish Mortgage doesn’t offer that option.
Its share price collapse could, of course, make today a tempting entry point. The trust now trades at a discount of 17.88% to the underlying value of the assets its holds. That’s way cheaper than its long-term average discount of just 1.5%.
Management has trimmed exposure to the US, which is now roughly half of its fund, and reduced its tech exposure too. That reset may set it on a more positive course. Plus the best time to buy shares is before they take off, rather than afterwards.
Give it a full decade and I reckon Scottish Mortgage will come back. But today, I think there are better places to invest my money.
