It’s a fact that stocks go in and out of fashion over the years. This is mostly based on the performance of the company, with even the most promising of firms sometimes falling out of investor favour over time.
I’ve spotted one FTSE 100 stock that used to be the talk of the town back in 2020 that I think could be on the edge of making a comeback.
A gem from 2020
I’m referring to the Scottish Mortgage Investment Trust (LSE:SMT). The trust is a collection of stocks that’s picked by the fund manager, Baillie Gifford. Impressively, the stock is up 25% over the past year.
Before we get on to what’s been happening recently, let’s rewind back to 2020. During the calendar year, the stock doubled in price. Although it’s not impossible for a large cap share to do this, it’s pretty rare. The rally it went on caused a huge amount of interest from retail investors.
One of the main reasons why it did so well was thanks to the large holdings of some growth stocks during this period. For example, it had decent exposure to both Tesla and Amazon. These US companies massively outperformed during the start of the pandemic, helping to lift the overall net asset value (NAV) of the trust.
Further, during a period of high market uncertainty as a result of the pandemic, retail investors were happy to give some money to the professionals. After all, buying the stock is effectively handing my money to the fund managers to invest as they deem fit.
Only human after all
As we got towards the end of 2021, the trust started to fall in value. It has spent most of the time since then in the doldrums. It’s down 33% over the past three years. Of course, no one can call the market perfectly all the time.
A key risk going forward will be the potential for human error in stock picking. If I feel that I can do better, I should invest in what I want. Yet this risk is known and so I don’t feel anyone should get angry if the trust underperforms.
Also, the fund will naturally do well if the stock market does well. So I think that it’ll continue to fall in and out of fashion as the cycle of the stock market plays out.
Invested in the right places
Thanks to the current holdings, the trust has gained in value over the past year. The largest current holding is Nvidia, with 8% of the portfolio. This share alone is up 203% over the past year!
When I think about the direction from here, I believe the trust can do well. The portfolio is geared towards artificial intelligence (AI), fintech, and pharmaceuticals. Each of these areas should do well in my view.
My prediction is that the trust will be a hot stock in the coming year based on the current holdings. Even though I have exposure to these sectors already, I think I’m going to purchase a small amount of SMT shares.
