Back in 2020, Scottish Mortgage Investment Trust (LSE:SMT) doubled in value. For a FTSE 100 stock, the performance of Scottish Mortgage shares over that time frame was incredible. Yet with the stock up a more modest 6% over the course of the past year, is it possible for 2024 to bring another roaring rally?
Looking for similarities
In order to assess how likely a sharp increase could be, it’s important to understand what drove the performance back in 2020.
One of the key drivers was the allocation of the fund managers to tech stocks. This included the likes of Tesla and Amazon. In 2020, both of these companies did very well, which helped to lift the overall value of the trust significantly.
When we fast forward to present day, the trust still has 4.8% of funds allocated to Amazon, with 4.5% in Tesla. Both are in the top 10 holdings overall. So in order to see the value double next year, we’d need to see such tech stocks leading the charge.
I don’t think this is out of the question, thanks to the launch of the Tesla cybertruck and the continuing growth of Amazon Web Services (AWS). However, I don’t see either stock doubling in value. This will make it very hard for Scottish Mortgage overall to outperform.
Investor sentiment
Back in 2020, sentiment from investors helped to propel the stock market in general higher. This came after the initial shock of the pandemic had passed, with some people having larger amounts of disposable cash to invest due to the lockdowns.
It’s highly unlikely that 2024 will see a repeat of 2020 from that angle. However, I do believe that sentiment will be better than this year, which could help to lift the shares.
This is because I think the Bank of England and the US Federal Reserve will cut interest rates. This should act to lower borrowing costs, helping businesses. It should also make investors cheer, easing financial pressures.
Given that the share price of the trust should reflect of the value of all the stocks held within it, a boost to the market overall will increase the value of the stock. Yet even though I think the stock could increase by over 10% next year, 100% is unlikely.
The element of surprise
One factor that could help it towards doubling is potential new additions to the portfolio. The management team has the ability to buy new stocks when they spot a good opportunity.
So there’s nothing to prevent the managers buying an asset that really outperforms that can help to boost the overall trust value. This could happen and is something that no one can accurately predict.
Ultimately, I think the scene is set for the Scottish Mortgage trust to do well next year. I don’t believe it will double in value, but it could still offer strong returns for investors. Therefore, it’s a stock to consider for 2024.
