Thanks to its tech-heavy focus, the performance of FTSE 100 member Scottish Mortgage Investment Trust (LSE: SMT) over the last few years has been nothing short of superb. Anyone buying in 2015 would be sitting on a gain of around 300%. Even those who had only invested in March would have doubled their money!
There’s no sign of demand slowing either. Last week, SMT was the most popular buy from clients on share-dealing platform Hargreaves Lansdown.
This is not to say that the tech-focused fund is without risk. Today, I’m wondering whether I should buy and asking how big the risk is following two seismic events — Joe Biden’s election victory and the coronavirus vaccine breakthrough made by pharma giant Pfizer.
Dark clouds ahead?
Although it’s still too early to say how markets really feel about Biden’s victory, it’s sensible to suppose there will be both winners and losers from this outcome. Big tech could be in the latter, especially when it comes to paying tax.
Joe Biden has previously said that he plans to go back on his predecessor’s tax cuts. Indeed, a 7% increase in corporate income tax to 28% is on the new President’s to-do list.
This could be something of an issue for Scottish Mortgage. After all, its second-biggest holding — Amazon — takes up almost 8% of assets.
This might not be the end of it. The growing monopoly of tech titans could lead President-elect Biden to enforce greater regulation and the break-up of these companies.
Of course, I simply can’t know what happens next for sure. There is a chance that Biden may not be successful in getting some (or many) of his campaign pledges through. The positive news on the Pfizer vaccine could also be undermined by rocketing infection and death rates and/or logistical problems getting it to the people that need it most.
Rather than speculate, I think it’s more conducive to look at valuations. What I do know is that the US market remains expensive. Indeed, the huge rebound in the tech-heavy NASDAQ since March has pushed the share prices of some of the usual suspects into the trillions of dollars.
This, coupled with the arrival of the promising vaccine, may become temporarily problematic for SMT’s portfolio. After all, a pivot from investors into battered leisure and airline stocks could mean that the share prices of SMT’s constituents hardly move or even fall.
What I’m doing
Personally, I’m not worried about how Biden and Pfizer may impact SMT (which, for the record, I hold).
For one, the trust isn’t as highly invested in the US as other popular trusts/funds. According to Hargreaves Lansdown, only 44% of the stocks held are listed in the US. I find this more reassuring than if I were invested in a fund solely focused on the American market. The fact that Scottish Mortgage Investment Trust’s portfolio also includes 47 private companies is also comforting.
So, rather than sell and miss further gains, I’m more inclined to check I’m suitably diversified elsewhere. Recognising that only 8% of SMT is exposed to the sector, I’ve recently bought iShares Healthcare Innovation ETF, for example. This may help if/when SMT’s share price takes a breather.
In investing, it pays to know what you don’t know. By spreading money around, I hope to take events — positive or negative — in their stride.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers owns shares in Scottish Mortgage Investment Trust and iSharesHealthcare Innovation UCITS ETF. The Motley Fool UK owns shares of and has recommended Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on 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.