It would be reckless to own just a single FTSE 100 stock in my portfolio. It would basically be saying that I’m happy to back one management team and one business model in all circumstances.
What if there were a string of profit warnings? An accounting wobble? Or perhaps a competitor suddenly emerges and stealing away market share. Any one of these could wipe 40% to 50% off a share price.
Then there’s sector concentration risk, with the fate of some FTSE 100 firms tied to cycles (banks to interest rates, miners to commodity prices, etc). A sizeable dividend cut could destroy both income and capital in one hit.
This is obviously why diversification is crucial – it protects wealth as well as builds it.
Having said all that, I found it fun to run a thought experiment to imagine which FTSE 100 stock I would own if I had to choose just one for the next 25 years.
Which would I go for?
Criteria
Let me start by considering some key things I would require from this only child in my portfolio. Number one, I want the company to be very established and operating in an industry that’s guaranteed to be around for the next few decades.
Next, I want strong, trustworthy management that’s focused on the long term. Given that I’m going to hold the stock for 25 years, it’s important that the company isn’t obsessed with just the next quarter or two. We need to be aligned.
I prefer the business to have some level of optionality. In other words, a few different ways it can win, as well as a solid past history of outperformance.
Finally, it goes without saying that I want strong growth potential. Oh, and I wouldn’t mind a solid track record of dividend growth.
This one ticks my boxes
I admit, that’s quite a specific laundry list of requirements. Does such a stock even exist in the FTSE 100?
Step forward Scottish Mortgage Investment Trust (LSE:SMT). Launched in 1909 amid the rubber boom fuelled by skyrocketing demand for car tyres, this investment trust is certainly very established.
And the 10-year annualised return is 18.1%, which is exceptional outperformance.
Management is also very capable, with a mandate to find the best growth companies in the world. As such, the portfolio contains exciting names like Amazon, SpaceX, MercadoLibre, Nvidia, Stripe, Anthropic, Databricks, BYD, Shopify, and many more.
Admittedly, the 0.36% dividend yield is nothing to write home about. But Scottish Mortgage has increased its annual dividend for 43 consecutive years. So, while primarily focused on capital growth, it ticks this box too.
The future
Of course, Scottish Mortgage isn’t perfect (no stock is). A prolonged downturn in Nasdaq growth shares would lead to a sticky patch, while there’s always a risk the managers lose their mojo and back the wrong horses, resulting in underperformance.
Looking ahead though, I’m expecting plenty of growth opportunities over the next 25 years. The trust’s portfolio holdings are pioneering some of the largest growth markets of the future, including artificial intelligence, space exploration, robotics, and electric vehicles.
Thankfully, this is just a thought experiment. So long-term investors could consider adding Scottish Mortgage to a portfolio that has a good mix of different shares in it.
