Rocket company SpaceX has developed the ability to send something a long way up, before bringing it down again. That also describes the share price of SpaceX shareholder Scottish Mortgage Investment Trust (LSE: SMT).
While the shares are 43% higher than they were five years ago, they have still lost over half their value over the past couple of years.
Could there be better times ahead?
Tech focus
One of the reasons commonly given for the worsening Scottish Mortgage share price over the past several years is the investment trust’s tech-heavy portfolio.
But while the tech sector has lost some of its shine, key players continue to perform strongly. Shares like Apple and Alphabet are within 5% of their 52-week highs.
Scottish Mortgage’s focus has been wider than the leading handful of tech giants. Not all tech companies have seen their valuations recover in line with the big boys. If tech does well in 2024, that could boost the share price.
But if it continues to struggle to gain momentum, for example because of a weak economy sending investors into more defensive sectors, that could continue to dog its performance.
Not just about tech
Tech is only one part of Scottish Mortgage’s portfolio, though, even if it is a significant one.
The trust’s three biggest holdings currently are Amazon and chipmakers ASML and Nvidia. But other top 20 holdings include biotech names like Moderna and luxury goods company Kering.
So although I think the outsized tech focus means that sector’s performance will help determine what happens to the share price next year, other types of business also have a role to play.
In fact, that is one of the things I like about Scottish Mortgage and investment trusts more generally. By buying their shares I can gain exposure to a diversified range of shares without needing to buy them directly myself.
In the case of Scottish Mortgage, buying even one share would give me exposure to dozens of companies picked by its professional managers. That includes unlisted companies like SpaceX that I would otherwise probably be unable to buy shares in as a small private investor.
Looking ahead to 2024
One of the issues with the investment trust approach is that the share price is largely dependent on the performance of its underlying investments.
It seems the City is cooler than it was on the Edinburgh-based trust. That could explain why the share price represents a 14% discount to its net asset value.
I like the trust’s investment strategy, based on early stage involvement in businesses operating in areas expected to see substantial growth in customer demand.
But will the shares bounce back to their highs of several years ago?
For that to happen I think we would need to see a bull market pushing up tech shares significantly. Whether or not that happens in 2024, as a long-term investor I like the Scottish Mortgage strategy and if I had spare cash would be happy to add the shares to my portfolio.
