Over the next five years, I expect the FTSE 100 index to return around 6%-7% a year on average (including dividends). That’s roughly in line with the return the index has delivered over the last 20 years.
Now, 6%-7%’s a solid return. However, taking a five-year view, I see far more potential in certain global equity products.
A product for the digital revolution
One such product is Scottish Mortgage Investment Trust (LSE: SMT). It’s a growth-focused investment trust that offers exposure to themes like artificial intelligence (AI), cloud computing, FinTech, and e-commerce.
Managed by tech experts at Scottish fund manager Baillie Gifford, the trust has a great long-term track record. Over the last 10 years, its share price has risen about 340%, which translates to a return of about 16% a year.
Holdings with potential
Holdings in indexes and funds change over time. But when I look at the top holdings here versus those in the Footsie, and think about where the world’s heading, I just see so much more investment potential in this product.
In the table below, I’ve put the top five holdings for both Scottish Mortgage and the FTSE 100 as of the end of August.
| Scottish Mortgage | FTSE 100 |
| SpaceX | AstraZeneca |
| MercadoLibre | HSBC |
| Amazon | Shell |
| TSMC | Unilever |
| Meta Platforms | Rolls-Royce |
Looking at Scottish Mortgage’s top holdings, I see a ton of long-term growth potential.
SpaceX is the largest space satellite company in the world. When it goes public, I expect its valuation to soar.
MercadoLibre is the largest online shopping business in Latin America. Last year, its revenue grew 38%.
Amazon is a leader in e-commerce, cloud computing, AI, and digital advertising. I expect this company to get much bigger in the years ahead (it’s one of my largest individual stock holdings).
TSMC is the largest semiconductor manufacturer in the world. It looks set to play a major role in the tech revolution since all electronic devices need chips.
Finally, Meta’s a leader in the social media space. And it has big plans when it comes to AI.
Looking at the top five Footsie constituents, they’re not bad companies. I just don’t see the same amount of growth potential taking a five-year view.
It’s worth noting that Scottish Mortgage is also invested in tons of other high-growth companies. Examples include Snowflake, ASML, and Roblox.
Given its holdings, I believe it’s far more well suited to the direction the world’s heading in (ie more digital). So I expect it to outperform the FTSE 100 by a wide margin over the next five years.
The risks
Of course, it may not outperform the index. The thing about disruptive tech stocks is that they tend to race up as investors get excited about the future and then pull back sharply every now and then. We saw this in 2022.
If we get another major downturn in tech in the years ahead, the trust may not end up outperforming the index.
Putting Scottish Mortgage up against the Footsie however, my money’s on the investment trust. It’s one of my largest fund holdings and I think it’s worth considering as a long-term investment.
