Baillie Gifford’s flagship investment product, Scottish Mortgage Investment Trust (LSE: SMT) is one of the most popular investment trusts in the UK. Here, I’ll explain why I own the FTSE 100-listed trust in my own Stocks & Shares ISA.
One of the main reasons I own SMT is that I see it as a good way to diversify my ISA portfolio, which is heavily weighted towards FTSE 100 dividend-paying companies. As a global equity product (it has nothing to do with mortgages), this trust gives me something very different. Not only does it invest on a global basis (it has significant exposure to the US and China), but it also has a focus on growth companies, with fund managers James Anderson and Tom Slater selecting stocks for the portfolio on the basis of their future growth prospects. Fees, at 0.37% per year, are very reasonable.
I also like the fact that the trust has a strong focus on technology companies. Technology is having a profound impact on the world right now and from a long-term investing perspective, I believe that it’s important to have exposure to the sector. Yet the FTSE 100 is lacking in this regard as there are only a few tech stocks within the index.
With names such as Amazon.com, Alphabet (Google), Tencent Holdings, and Alibaba in the portfolio, Scottish Mortgage has exposure to some of the largest tech players in the world. However, it also has exposure to smaller technology companies that UK investors may not be familiar with, such as Intuitive Surgical, which develops robotic surgery products, and Shopify, a Canadian e-commerce company that has over 800,000 businesses on its platform. Overall, I see the trust as a unique play on the technology sector.
The performance has also been excellent in the recent past. According to its most recent factsheet dated 31 July, the trust’s NAV increased 165% over the five years to the end of July, and 519% for the 10 years to the end of July. By contrast, the FTSE All World Index (GBP) delivered a return of 94% and 245% over five and 10 years respectively. As a result of this top performance, the trust has been awarded a five-star rating from research group Morningstar.
Of course, like any fund or investment trust, there are risks to consider with the Scottish Mortgage Investment Trust. For a start, the heavy exposure to the technology sector means there is sector-risk. If the technology sector was to underperform, the trust’s performance would most likely suffer. The portfolio also has large allocations to a number of stocks. For example, Amazon makes up around 9% of the portfolio. This adds stock-specific risk. Additionally, the trust holds a number of unlisted investments. These could be hard to value accurately.
However, overall, I think the Scottish Mortgage Investment Trust has considerable investment appeal as part of a diversified portfolio. With its unique exposure to disruptive technology companies, I’m backing it to continue outperforming in the years ahead.
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Edward Sheldon owns shares in Scottish Mortgage Investment Trust and Alphabet. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (C shares) and Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.