The Scottish Mortgage (LSE: SMT) share price is on a tear at the moment. This year, it’s climbed about 15%, versus a 4% gain for the FTSE 100 index.
I’m not surprised by this outperformance. At the start of this year, I bought a ton of Scottish Mortgage shares for my Self-Invested Personal Pension (SIPP), expecting the share price to rip in 2024.
Exposure to the digital revolution
The world today is in the midst of a powerful digital revolution and the Scottish Mortgage Investment Trust provides exposure to it. A growth-focused investment trust, it has positions in stocks such as Amazon, Nvidia, ASML, Meta Platforms, and Tesla – all of which are at the heart of the revolution.
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These companies operate in (and dominate) industries like artificial intelligence (AI), cloud computing, computer chips, online shopping, self-driving cars, and social media.
Today, these industries are all growing at a rapid rate as the world becomes increasingly digital, and this is creating a lot of opportunities for long-term investors like myself.
The FTSE 100, by contrast, hardly has any exposure to technology (the latest factsheet says that the tech sector represents just 1.2% of the index!).
Currently, the Footsie’s dominated by banks, oil companies, tobacco companies, and consumer goods businesses – all ‘old economy’ stocks. Unfortunately, there’s not a lot of growth within these types of industries any more.
Of course, the FTSE 100 does have some great individual businesses that are exposed to the digital revolution. London Stock Exchange Group and Sage are two examples here (both of which I have shares in).
But as a whole, it’s a sluggish index. And anyone invested in a fund that’s tracking it isn’t getting much exposure to the digital revolution.
Exciting outlook
Looking ahead, I remain as bullish on Scottish Mortgage shares as I was at the start of this year. Zooming in on the holdings, there’s a lot of growth potential.
Amazon – the second largest holding at 31 October – is a great example. In the years ahead, it’s likely to generate substantial revenue and profit growth as the online shopping, digital advertising, and cloud computing markets grow.
Another stock I’m excited about is ASML. It makes sophisticated equipment for chip manufacturers, allowing them to print complex designs onto silicon wafers. And it’s likely to get some big orders in the years ahead as demand for complex AI chips rises.
Then we have Tesla. It’s aiming to get self-driving cars and taxis on the road so we could see some huge growth here.
I’ll point out that I expect the Scottish Mortgage share price to be volatile in the years ahead, given its focus on tech stocks. If the stock market experiences a pullback, it could fall more than the broader market (and significantly more than the FTSE 100 index).
One more specific risk is interest rates. If rates were to rise due to inflation, the valuations of tech companies may fall like they did in 2022 (because the present value of their future earnings would be worth less).
Taking a five-10-year view however, I’m very bullish on this investment trust. I expect it to generate strong returns for my SIPP as the world becomes increasingly digital.
