The Motley Fool

Is the Scottish Mortgage Investment Trust a bargain?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images.

Is the Scottish Mortgage Investment Trust (LSE: SMT) a good buy today? This is a question I have been asking myself recently after the shares declined more than 20% from their all-time high, reached in the middle of February.

At one point at the beginning of March, the stock had fallen 30% in just two weeks.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

These numbers might look bad, but they need to be put into perspective. Over the past 12 months, shares in the investment trust have returned 54%, even after including the recent decline. 

I think it’s pretty clear why the stock has performed so badly over the past few weeks. Investors have been shunning US technology companies recently due to valuation concerns. As Scottish Mortgage has a significant allocation towards US tech stock, this has impacted the firm’s portfolio. 

However, there are a couple of reasons why I’m not too worried about the recent decline in US tech stock valuations.

Scottish Mortgage Investment Trust diversification 

The Scottish Mortgage Investment Trust recently announced that it had sold 80% of its holding in Tesla over the past 12 months. This was once its second-largest holding. The manager has also been divesting other Silicon Valley tech socks and reinvesting the proceeds elsewhere. 

It is particularly interested in China. The trust’s top holding is now Tencent, multinational technology conglomerate holding company. Another top holding is food delivery enterprise Meituan.

As the group has been increasing its exposure to China, it has sold its shares in FacebookGoogle’s parent company Alphabet and cut its stake in Amazon.

According to my calculations, the Scottish Mortgage Investment Trust’s portfolio now has a 22% weighting to Chinese equities and a 37% weighting to US stocks. These exclude private investments, which constitute a small, but not unimportant part of the portfolio. 

Difficult to value 

Unfortunately, while the company does have exposure to some of the world’s fastest-growing and most recognisable technology businesses, it isn’t easy to value. Early-stage private technology businesses and even public businesses can also be incredibly volatile and difficult to own.

So, even though the trust has put in a staggering performance over the past 12 months, there’s no guarantee this will continue. Competition is growing in the technology sector, which may hold back growth at some of the sector’s largest enterprises. 

Therefore, the Scottish Mortgage Investment Trust may not be suitable for all investors. 

However, I think technology is playing an increasing role in our lives. The trust has an excellent track record of picking enterprises in the sector.

As such, while I am well aware that it may not always be right, I would buy the investment company to invest in the global technology sector in general.

It might not be undervalued today, but I think many companies in its portfolio will be worth substantially more in 10 to 20 years. So on that basis, it does look cheap. 

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Rupert Hargreaves owns no share mentioned. 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. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (C shares), Amazon, Facebook, 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.