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Why I’d back the Scottish Mortgage Investment Trust

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The Scottish Mortgage Investment Trust (LSE: SMT) is one of the best-performing investment trusts in the UK. Over the past five years, it has returned nearly 370%. Over the past year, it has gained 116%.

However, over the past few weeks, investors have been selling shares in the trust due to concerns about valuations in the US tech sector. But I believe this could be an excellent opportunity to snap up its shares at a discount. That’s why I’d buy the company today.

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Scottish Mortgage Investment Trust outlook

As noted above, the market has been selling shares in Scottish Mortgage due to valuation concerns. These concerns may have some merit. Many US tech shares look incredibly expensive at current levels after achieving one of the best performances on record last year. 

Nevertheless, while some US tech shares look expensive, it’s impossible to tell what the future holds for these companies.

Indeed, at the beginning of last year, it seemed to me that many companies looked expensive, but I had no way of telling how a global pandemic would have reshaped the global economy.

This is the most considerable risk all investors face. Trying to predict the future is impossible. Therefore, it’s impossible to tell whether or not these companies are expensive.

Instead, I think the best approach is to view the Scottish Mortgage Investment Trust through a long-term lens. Some of the companies in the trust’s portfolio might be overvalued, but others may not be. Some corporations may prosper over the next few years. Others may not. However overall, the global economy should continue to grow, and the tech sector should benefit from this. 

As such, I think the Scottish Mortgage Investment Trust is a great way to invest in the booming global technology sector. The trust allows investors to buy a portfolio of global technology champions at the click of a button without having to worry about overseas transaction fees, exchange rates or other problems. It holds positions in European, US and Asian tech champions such as Delivery Hero, Tencent Holdings and Meituan

It also owns a private company portfolio, which would be virtually impossible for individual investors to acquire themselves.

Buying for the long haul

As well as the risk of uncertainty, the most significant risk facing the Scottish Mortgage share price today is the company’s concentrated portfolio. Around 25% of its assets are invested in just four holdings. Such a high level of concentration could make the shares incredibly volatile. This is something I’ll have to keep in mind as we advance. It could also lead to significant losses for the trust — and its shareholders — if one of these top four holdings collapses. 

Still, this is a risk all fund investors face. So, it’s a risk I’m happy to deal with. And, as I noted above, I’m focused on the Scottish Mortgage Investment Trust’s long-term potential. Not its short-term share price movements. That’s why I’d buy the investment company for 2021.

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Rupert Hargreaves has no position in any of the shares mentioned. 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.

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