Scottish Mortgage Investment Trust (LSE:SMT) shares are the cornerstone of my portfolio. They are also present in my Self-Invested Personal Pension (SIPP), as well as my daughter’s Junior ISA and her SIPP.
As such, it’s fairly clear that I’m backing this investment trust to outperform the market and deliver strong returns. This will help my portfolio grow over time.
While many investors will elect to have tracker funds as a core part of their portfolios, I’ve chosen to invest in several diversified trusts and investment opportunities, like Scottish Mortgage, but also its sister trust The Monks Investment Trust and US conglomerate Berkshire Hathaway.
What’s so great about it?
Scottish Mortgage stands out for its high-conviction, benchmark-agnostic approach, constructed to capture transformative growth stories. The managers Tom Slater and Lawrence Burns focus on identifying and holding only companies they believe can multiply in value. These positions are often held for a significant period of time.
This strategy results in a diversified but exciting portfolio. At the end of April, the trust held positions in 44 listed stocks, accounting to 73.8% of assets. The portfolio also contained 51 private companies, providing rare access to late-stage innovators like SpaceX, ByteDance, and Stripe.
A key differentiator is the trust’s willingness to back companies before they go public, harnessing asymmetric upside potential from disruptive trends like artificial intelligence (AI), digitalisation, and next-generation transport. Top holdings also include listed names such as MercadoLibre, Amazon, Meta, Spotify, TSMC, and Ferrari.
The trust’s edge typically lies in long-term thinking. It’s willing to embrace volatility as the cost for investing in the next big winners. Investors should understand that while the trust may encounter setbacks, especially during market rotations away from growth, its philosophy and structure provide an exceptional vehicle for capturing multi-year, global innovation.
It doesn’t always perform
Many investors will still remember the trust’s plummeting share price in 2021/22. And while the Scottish Mortgage share price has very rarely halved in value over a short period of time (only 2008 and 2021, to my knowledge), it will live long in the memory of many investors. After all, investment trusts are supposed to be less volatile.
Traditionally, Scottish Mortgage shares have performed better during periods of low interest rates and subdued inflation. However, the recovery in the last two years has been driven by developments in artificial intelligence (AI) despite a higher-interest rate environment.
It’s also worth remembering that Scottish Mortgage borrows money to invest. This magnifies gains when the market moves up but also magnifies losses when it goes into reverse. This is an enduring risk, but one I’m clearly happy to take.
In summary, it’s an investment I believe deserves further consideration because it has the capacity to deliver outsized returns and beat the market. What more could an investor ask for?
