FTSE 100 member Scottish Mortgage Investment Trust (LSE: SMT) was the most popular buy among clients of online share dealing platform Hargreaves Lansdown last week. As a holder of the tech-focused fund already, I’m not about to complain. In fact, I already hold this share and the momentum seen in its share price over the last year has left me asking whether I should be buying more.
SMT: FTSE 100 star
Since markets hit rock bottom in March 2020, SMT’s shares have climbed almost 200% in value. Over the last five years, the trust has increased a little over 480%. By comparison, the FTSE 100 index has put on 32% since the coronavirus pandemic gripped markets.
It’s also put on a paltry 11% since February 2016. For me, this is yet more evidence that it’s possible for active investors to handsomely outperform the market. The only snag is that it’s vital to pick the right stocks at the right time. That takes skill. But it also takes a fair bit of luck, at least in my opinion.
Of course, SMT’s form isn’t surprising when you take a look at what it owns. Its five biggest holdings at the end of January were internet giant Tencent, biotech firm Illumina, online mega-giant Amazon and electric car makers Tesla and Nio. All have soared in value over the last year as investors have sought relative safety in pandemic-proof companies and those likely to benefit from the green energy revolution.
So, should I buy more?
There is no shortage of reasons to continue investing in SMT as I see it. Aside from the performance it’s delivered to date, the 0.36% fee charged by managers James Anderson and Tom Slater is seriously low for an active fund. In fact, it’s not all that different from what investors can expect to pay for global index tracker.
This effectively means that more gains stay in the pockets of investors relative to other funds. On top of its holdings in the aforementioned high-growth giants, Scottish Mortgage also gives me access to promising private companies that aren’t even listed.
This isn’t to say the company will remain an investing slam dunk. It’s hard to disagree with the idea that some markets, sectors and stocks that SMT invests in look frothy. Almost 40% of the trust is invested in the US market, for example. That might not be as much as other, equally popular actively managed funds such as Fundsmith Equity (70%).
Even so, the latter holds a very different portfolio. What’s more, almost half of SMT is also taken up with Consumer Cyclical stocks, making it arguably less diversified than some in the market would probably like.
Long-term holders only
For me, SMT remains a great FTSE 100 investment and one I’ll continue adding to on a sporadic basis. However, a lot of this conviction rests on my strategy of holding stocks and funds for the long term. What’s suitable for me may not be suitable for the next person with a more limited timeline.
Indeed, if I were only looking to make quick profits — which is about as far away from Foolish investing as you can get — I’d tread carefully.
SMT enjoyed a stellar 2020. With a market-cap approaching £20bn however, there’s a chance it could struggle to replicate this performance in 2021.
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. The Motley Fool UK owns shares of and has recommended Amazon, Illumina, and Tesla and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 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.