Scottish Mortgage Investment Trust (LSE: SMT) shares caught the attention of many investors during the pandemic. In a year when the stock market was very weak, Scottish Mortgage bucked the trend. During the year, it rose by a whopping 100%.
However, investors who purchased the stock back then hoping to see that fine form continue would be disappointed right now. Although it reached an all-time high in November 2021, since then its share price has dropped by over 50%.
More recently, it’s fallen 6% in the last 12 months. Yet a 10% rally in the last six months has me questioning whether by not buying today, I’d be missing out. And I think the answer is yes.
Diversification
As a retail investor looking to make my investing journey as simple as possible, the diversification the investment trust offers me is a major attraction. It has around 100 companies in its portfolio, with the Baillie Gifford-run fund holding a stake in companies such as Amazon, Nvidia, Tesla, and Moderna. This means that through a single investment, I gain exposure to a host of businesses, in turn offsetting risk. For me, that’s ideal.
On top of that, Scottish Mortgage offers me the opportunity to invest in unlisted shares. The most noticeable of these is Elon Musk’s SpaceX, which has been in the news lately following the latest launch of its Starship spacecraft. It also includes TikTok’s parent company ByteDance.
What I also like about the trust is that it looks cheap, trading at a 14% discount to its net asset value. What this essentially means is that I gain access to high-quality companies cheaper than their market rates.
Growth stocks
Its focus on growth stocks is something of a double-edged sword. When inflation and interest rates rise, as is the case now, these stocks are the first to suffer as investors dump them for ‘safer’ alternatives. This is because these companies use large amounts of debt to fuel growth. And with interest rates forecast to remain elevated until late 2024, this debt will become more expensive to service. As such, Scottish Mortgage may continue to suffer in the months ahead.
Despite this, I like to think long term. And I see its large focus on growth stocks as having high potential for handsome gains. The same can be said for its large weighting to China. While it may suffer in the near term, I think ample opportunities will exist in the region as it continues to grow and develop.
Am I missing out?
So, would I be missing out if I passed on buying Scottish Mortgage shares today? I’d say that I would.
Granted, the months ahead may be rocky. And this isn’t helped by factors such as its focus on growth stocks and China. But I can look beyond that. And at its current price, I see an the opportunity . Its diversification is also a bonus. If I had some cash, I’d be keen to snap up some shares.
