Fear is gripping the US stock market and one FTSE 100 fund is feeling the heat. I’m talking about Scottish Mortgage Investment Trust (LSE:SMT), which manages a portfolio of global growth stocks from public and private markets. It has significant exposure to American technology companies.
With the S&P 500 entering correction territory last week, the Scottish Mortgage share price has unsurprisingly taken a nasty dip. As a shareholder, I’m debating whether it’s worth adding to my position following the recent sell-off.
Here are my thoughts.
A long-term investment
Scottish Mortgage’s mission is to “maximise returns over the long term“. Monthly share price fluctuations are par for the course for all FTSE 100 stocks, but volatility can be especially pronounced for this investment trust.
To understand why the stock’s suffered recently and where it could go next, it’s helpful to look at its top portfolio holdings.
| Stock | Portfolio percentage | Monthly performance |
|---|---|---|
| SpaceX | 7.2% | N/A |
| MercadoLibre | 6% | -9% |
| Amazon | 5.8% | -10% |
| Meta Platforms | 5% | -14% |
| TSMC | 3.7% | -12% |
Currently, the fund’s largest position is SpaceX, Elon Musk’s rocket company. Since it’s an unlisted stock, there’s no share price data available. Private equity accounts for around 26% of the portfolio today, which brings significant growth opportunities for investors that they can’t access elsewhere in the FTSE 100 index. Early gains are often the best.
However, unlisted shares are difficult to value, more susceptible to failure, and tend to be considerably more illiquid than their public counterparts since there’s no established market to buy and sell them. Prospective investors in Scottish Mortgage shares should note the greater risks they’re adopting and the faith they’re putting in the management team’s judgment.
The other top positions — MercadoLibre, Amazon, Meta Platforms, and TSMC — are all large-cap growth stocks caught up in the sell-off. Scottish Mortgage’s share price has fallen broadly in line with the declines experienced by this group. Notably, there’s still a 10% discount for the trust’s shares relative to the portfolio’s net asset value (NAV), although that gap has narrowed considerably in recent months.
More pain to come?
Arguably, Scottish Mortgage is a stock that thrives in a fair-weather environment. When bullish sentiment’s running high and investors are piling cash into growth stocks, the fund’s likely to benefit. Conversely, when uncertainty looms and risk appetites dwindle, the trust lacks the defensive qualities that many other FTSE 100 shares have.
Although US stocks have rebounded a little in recent days, I’m not sure we’re out of the woods. With an unpredictable president in the White House and the US economy possibly on the edge of recession, there’s a strong chance Scottish Mortgage shares could fall further.
That doesn’t concern me too much. I plan to hold my shares for many years and remain optimistic about the fund’s long-term growth prospects, even if the short-term outlook’s hazy.
Nevertheless, I’m not rushing to buy more shares just yet. My average trade price was lower than today’s level of £9.64 and I’m comfortable with my present exposure. Should the share price continue to fall into deeper value territory, I might be tempted to buy more.
For potential investors who don’t own the stock, I think it’s worth considering. But a high risk tolerance is essential.
