Scottish Mortgage Investment Trust (LSE: SMT) hasn’t performed well. This year, its share price has gone nowhere, despite the fact that tech stocks have enjoyed a massive rally.
Is it time to get out of the trust and put my money into other growth investments? Or should I hold on in the hope of an improvement in performance? Let’s discuss.
Why is Scottish Mortgage going nowhere?
I must say, I’m a little surprised by the trust’s underperformance in 2023, given the rally in tech.
With stocks like chip manufacturing equipment maker ASML, electric vehicle powerhouse Tesla, chip designer Nvidia, and Amazon – all of which are up a lot this year – in the trust’s top 10 holdings at the end of June (and making up over 20% of the portfolio), I would have thought that performance would have been better.
So what’s gone wrong? Well, taking a look under the bonnet, there are a few things going on here.
For a start, while the trust has had plenty of winners this year, it has also had a few howlers. Biotechnology company Moderna – the second largest holding at 30 June – and Chinese e-commerce stock Meituan – the 12th largest holding – are two examples here. This year, they’re both down significantly.
Second, recent strength in sterling will have hurt performance. The latest factsheet shows that 56% of the trust was invested in US stocks at the end of June. With the pound rising from 1.21 against the US dollar at the start of the year to 1.31 last month, the value of US holdings will have declined in GBP terms.
Third, the trust’s discount to its net asset value (NAV) has widened. Currently, it stands at about -17.8%. That’s a large discount and suggests that a lot of investors have lost patience and bailed out of the trust. This will have put pressure on its share price.
What I’m going to do now
Scottish Mortgage is only a small holding for me as I’ve always seen it as a higher-risk, speculative investment.
Given the size of my position, I’m going to hold on to it for now.
I like the fact that it provides me with exposure to disruptive growth companies. I also like the fact that it gives me some exposure to unlisted businesses.
That said, I’m a little concerned about the recent performance. I am starting to wonder if there are better growth funds for my money.
Would I be better off putting the money into the Blue Whale Growth or Sanlam Global Artificial Intelligence funds, for example? Both of these products (which are a bit more focused on high-quality growth companies) have delivered double-digit returns this year.
Or would I be better off buying some high-quality growth stocks myself? Right now, I’m seeing a lot of attractive investment opportunities.
This is something I’m going to think about in the coming months, with a view to making a decision before the end of the year.
