There are only a few investment trusts listed on the FTSE 100 and it seems that ChatGPT’s top investment trust to buy on the index is also my own. Scottish Mortgage Investment Trust (LSE:SMT) is a Baillie Gifford-managed entity investing predominantly in US tech. Its long-run performance is impressive.
What ChatGPT said
I asked ChatGPT to give me a summary of its thesis for investing in Scottish Mortgage, and here’s what it said: “The Scottish Mortgage Investment Trust is a top choice due to its exceptional long-term growth, driven by investments in high-growth global companies, particularly in tech, healthcare, and renewable energy.”
It goes on to highlight that the firm has achieved significant success by investing in innovation and disruptive sectors. Noting companies like Tesla and Amazon, ChatGPT said that the trust’s exposure to high-growth companies is arguably unmatched on the index. The artificial intelligence (AI) platform also praised Scottish Mortgage’s relatively low fees and historically strong performance.
Broadly, I agree with the bullishness. Low fees and a great track record for an actively managed fund. However, ChatGPT’s information did prove to be a little outdated in some cases.
An impressive track record
Many Britons see Scottish Mortgage as their main exposure to the fast-moving technology sector. However, there’s more to it than that. It’s an actively managed portfolio and the fund managers have an impressive record of picking the next big winners.
For example, Scottish Mortgage first took a position in Amazon back in 2004, long before the e-commerce giant became the global powerhouse it is today. This early investment capitalised on Amazon’s disruptive potential in retail and cloud computing, which has since delivered significant returns.
Similarly, the trust invested in Tesla in 2013, well before the electric vehicle (EV) revolution gained mainstream traction. Tesla’s stock price surged over the following decade, making it one of Scottish Mortgage’s most successful holdings and contributing substantially to its portfolio performance. Management appears to have lowered the fund’s stake recently, potentially capitalising on the stock’s pre-Christmas surge.
In recent years, Scottish Mortgage has also made strategic investments in private companies, including SpaceX. The trust first invested in Elon Musk’s rocket company in 2018, recognising its potential to revolutionise space exploration and satellite technology.
SpaceX has since become Scottish Mortgage’s largest holdings, with its valuation soaring to $350bn in 2024, up from $255bn in 2023 and $27bn in 2018. This investment has provided a significant boost to the trust’s net asset value (NAV).
Of course, past performance isn’t a guarantee of future success, but it’s good to see.
Not without its risks
Scottish Mortgage’s use of gearing (borrowing to invest) amplifies both gains and losses. While it can enhance returns in rising markets, it increases losses during downturns. Additionally, its significant exposure to unlisted private companies (27% of the portfolio) adds liquidity and valuation risks, making it more volatile and sensitive to market conditions. Nonetheless, it’s an investment I continue to pursue, having recently added to my position. There’s plenty of reason to believe it will perform over the long run.
