This FTSE 250 investment trust has smashed Scottish Mortgage in 2023. Should I switch?

Paul Summers takes a closer look at a FTSE 250-listed investment trust that’s run circles around its better-known peer this year. Will it remain on top in 2024?

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Shares in Scottish Mortgage have sprung back to life in recent weeks and might just deliver a double-digit return in 2024. As a holder of the FTSE 100 constituent, I certainly wouldn’t have expected this result earlier in the year.

But there’s a snag. This performance pales in comparison to another growth-focused investment trust from the FTSE 250.

Should I stick or twist?

Top performer

The fund in question is Polar Capital Technology Trust (LSE: PCT). Launched as far back as 1996, it looks to tap into this ongoing megatrend and invests in companies of many different sizes from around the world.

Having lost height in 2022 as inflation soared and interest rates galloped higher, the trust has enjoyed a far more stellar 2023. As I type, we’re looking at a share price rise approaching 50%, bringing its market-cap to over £3bn. That’s enough to place it among the best-performing stocks in the FTSE 250 this year.

Initially, this seems like a stellar achievement considering that this fund is composed of 100 positions. But this becomes less surprising when we take a closer look at what it owns.

Over 12% of the trust is invested in Microsoft, for example. Apple, Nvidia and Alphabet occupy second, third and fourth spots respectively in terms of position size (each around 6-7%). All have enjoyed remarkable recoveries in the last 12 months.

Could this concentration now become the trust’s biggest risk? It’s certainly crossed my mind.

Overexposed

We know that the so-called Magnificent Seven — all of the above plus Tesla, Meta and Amazon — have been largely responsible for driving the gains seen in the US market in 2023. Knowing this, it’s not hard to imagine a scenario in which their popularity — and the popularity of the tech sector as a whole — moderates in 2024.

This is where the top-tier investment trust starts to look more attractive to me. Interestingly, only one of the Polar’s top four holdings — Nvidia — also features in the top 10 of Scottish Mortgage. The latter’s biggest positions are reserved for semiconductor giant ASML and financial tech firm MercadoLibre.

On top of this, the £11bn trust has holdings in companies as diverse as Ferrari and Moderna, not to mention significant exposure to private businesses that could become the titans of tomorrow.

A lower management fee of 0.34% is another plus. As we regularly highlight at Fool UK, keeping charges as low is as important for long-term investors as picking the right stocks or funds to match our risk tolerance. Investment gains compound. The same goes for costs.

My verdict

From a strictly returns-based perspective, I would have far preferred to have held Polar Capital’s trust this year. But I’m content to stick with Scottish Mortgage for 2024. I hope its greater deviation from the main US index might provide better downside protection going forward.

Ultimately, no one knows for sure how the share prices of either will perform next year. This is why, in addition to having exposure to companies attempting to disrupt entire parts of the market, I also plan to stay invested in stocks where demand for their products and services is relatively stable.

Wanting to back winners is understandable, but I also like to sleep well.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Paul Summers owns shares in Scottish Mortgage Investment Trust. The Motley Fool UK has recommended ASML, Alphabet, Amazon, Apple, MercadoLibre, Meta Platforms, Microsoft, Nvidia, and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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