I had mixed feelings when I added Scottish Mortgage (LSE: SMT) shares to my SIPP in 2023. The FTSE 100 investment trust rode the boom in US tech stocks such as Amazon and Tesla under inspirational manager James Anderson, then took a massive hit when tech sold off in 2022.
The share price crashed by half that year, a steeper fall than most funds in the sector. Anderson retired after almost 40 years at the firm, leaving successor Tom Slater with a lot to live up to. However, I like buying top stocks after they’ve taken a (hopefully temporary) beating, and took the plunge.
Last week marked a personal milestone, as my total return hit 102%, doubling my initial stake. I’m not the only one having fun. The Scottish Mortgage share price has jumped 67% over 12 months and 120% over three years. Over five years the gain is a more modest 16%, which shows how brutal 2022 was.
FTSE 100 play on US tech
Today, one big story drives the bull case. The trust’s largest holding is SpaceX, the privately owned space and satellite business founded by Elon Musk in 2002. SpaceX pioneers reusable rockets, launches satellites and runs the Starlink internet network. It also has dizzying ambitions, including orbital data centres, a permanent Moon base and ultimately, even a human colony on Mars. It’s not often investors get all that from a FTSE 100 stock.
At the start of this month, SpaceX reportedly filed the paperwork on its long-awaited initial public offering (IPO), targeting a stunning $1.75trn valuation, potentially the largest listing ever. Investors are itching to put their money into it, but why wait? They can gain exposure via Scottish Mortgage today.
The investment trust got in early. After a recent upwards valuation, SpaceX now accounts for close to 20% of its total assets under management. Second-biggest holding Taiwan Semiconductor Manufacturing Company is far behind at just 6.6%.
Scottish Mortgage also has exposure to big US names such as ASML Holding, Amazon, Nvidia and Meta Platforms, alongside smaller quoted and private firms. Thanks to SpaceX, there’s now a lot of concentration risk here. That’s working in its favour today. The shares have jumped 18.8% in the last month, despite wider geopolitical concerns. A £15,000 investment one month ago is now worth around £17,820, a quickfire gain of £2,820.
SpaceX is thrilling
As a rule, I avoid IPOs. They generate huge excitement, but valuations can tumble afterwards. Musk is also spinning a ridiculous number of plates, and X and Tesla have both struggled. I’m still thrilled with my decision to buy Scottish Mortgage, and feel a little smug having exposure to SpaceX. For the record, Scottish Mortgage also has a stake in AI disruptor Anthropic, which is constantly in the headlines these days.
I think they shares are worth considering but anyone buying Scottish Mortgage must accept there could be plenty of volatility either side of the IPO. The trust isn’t cheap either. Today, it trades at a 4.1% premium to net asset value, despite recent share buybacks aimed at reducing that. That’s the price of success, I suppose. This remains a high-risk, high-reward play, but there’s room for one or two of those in a portfolio. Provided there’s balance elsewhere.
