Last year, Scottish Mortgage Investment Trust (LSE:SMT) shares soared by over 130% amidst the pandemic. However, the recent US tech stock price plunge has seen the value of SMT shares drop over 20% this month. Whilst this may damage shareholders’ confidence in future performance, I am using it as an opportunity to grab more shares at a cheaper price for my portfolio.
Part of the reason for last year’s stellar performance is the large exposure Scottish Mortgage Investment Trust has to US tech stocks. Some of its largest holdings include Tesla and Amazon, whose share values skyrocketed 695% and 75% respectively during the pandemic. Whilst this has provided short-term gains for investors, the trust’s portfolio also comprises of a number of smaller, more scalable stocks, for example NIO, a Chinese electric car manufacturer with exciting upside potential.
However, whilst this exposure is largely accountable for SMT’s success, it is also closely linked to its recent dip in share price. The major US tech sell-off that has occurred in recent weeks is primarily due to inflationary concerns. Rising bond yields in the UK have seen the 10-year yield reach 0.8%, with a similar story in the US. This is an indication of future interest rates, which pose a threat to the future of growth stocks who often operate in debt.
In addition to this, with post-pandemic normality on the horizon, focus could be shifting away from pandemic performing tech stocks and back onto recovering sectors such as the travel industry. After all, people are less likely to stay at home watching Netflix or to have their shopping delivered via online retailers such as Ocado, both of which make up 2.8% (£519m) of Scottish Mortgage Investment Trust’s current portfolio.
A good chunk of the trust’s assets is invested in early-phase tech stocks, optimised for long-term growth compared to short-term gains. This is imperative to keep in mind when worrying about short-term dips. Scottish Mortgage Investment Trust manager, Baillie Gifford, demonstrated its active management by selling and banking profit on over 7% of its Tesla stock earlier this year prior to the tech dip. This gives me huge confidence in the trust’s management, a quality I look for in all my investments.
My outlook for SMT’s future
I believe the real appeal of shares in Scottish Mortgage Investment Trust lie within its actively managed and diversified portfolio. It offers investors a chance to hold indirect positions in many successful US companies as well as newer, more scalable stocks, likely to provide bigger growth in the future.
Though the trust has suffered a dip in share price due to the US tech sell-off, I’m using this as an opportunity to buy more shares. Though the tech sector may drop further due to post-Covid inflation concerns, I am confident in the investment professionals at Baillie Gifford who are constantly streamlining Scottish Mortgage Investment Trust to optimise future returns.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dylan Hood owns share in Scottish Mortgage Investment Trust. The Motley Fool UK has no position in any of the shares mentioned. 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.