The FTSE 100 has climbed a little over 7% in 2024. As returns go, that’s not exactly shabby. But it does pale in comparison to several of its members.
One example is growth-focused Scottish Mortgage Investment Trust (LSE: SMT). As I type, the tech-focused fund has delivered three times the gain of the index. Most of this outperformance has come in the last couple of months too.
As good as this is, I’m beginning to wonder whether the time has come for me to sell one of my biggest Stocks and Shares ISA holdings.
Reasons to be wary
My chief concern is just how bullish investors across the pond seem to be following the outcome of November’s election.
Donald Trump’s win — and the likelihood that he will do everything in his power to protect and boost the profits of US-listed stocks — have pushed up valuations to eye-watering levels. Many of these are owned by the Baillie Gifford-managed trust and include the usual suspects: Nvidia, Amazon, Tesla and Meta Platforms.
There’s no doubt that these companies have executed brilliantly to date. But that brilliance now looks to be firmly reflected in their shares (and then some).
It seems I’m not the only one to wonder if the ‘Trump bounce’ may have got out of hand. Earlier this month, analysts at investment bank Stifel downgraded Scottish Mortgage on fears that “many of these growth company stories are now starting to be priced for a perfect environment”.
The presence of 49 private companies in the portfolio is another risk to consider. These are hard to value at the best of times, making them anathema to investors at the worst of times. Will 2025 be an example of the latter?
Long-term winner
On a more positive note, I reckon those unlisted holdings are also one of the trust’s key attractions. By ‘getting in early’, owners of Scottish Mortgage could do very well indeed if/when businesses like Elon Musk’s SpaceX go public. Let’s not forget that the fund was an early backer of his aforementioned electric car company. And that turned out to be a pretty good call!
The trust is also nicely diversified by geography with ‘just’ 55% of its portfolio invested in North America. Granted, that still won’t make for a comfortable ride if (and that’s a big ‘if’) we get the mother of all market crashes in 2025. But having exposure to future growth stars in Europe and Asia might cushion the trust to some extent if the world’s biggest economy begins to stutter.
As a long-term-focused Fool, I can’t overlook the trust’s track record either. No doubt the last three years have been painful. Even so, Scottish Mortgage is still up a very respectable 85% in five years.
In sharp contrast, the FTSE 100 has climbed a paltry 13% since December 2019.
I’m hunting for value
Taking the above into account, I’ve decided to continue monitoring things for now. If I get the sense that expectations have become detached from reality and earnings reports from those tech titans threaten to disappoint, I’ll reconsider banking some profit.
In the meantime, I plan to look for high-quality stocks in comparatively ‘cheap’ parts of the world. Our very own UK market seems like a great place to start.
