Scottish Mortgage Investment Trust (LSE:SMT) has been a top stock for retail investors throughout the past year. And the FTSE 100 favourite appeared at the top of Hargreaves Lansdown’s top 20 most purchased stocks list last week. The SMT share price soared 107% throughout 2020. But as it’s now down 18% from its 52-week high, I think Hargreaves Lansdown investors are buying the dip.
Why invest in SMT shares?
So, should I buy SMT shares? Let’s look at the investment case.
It has a £16bn market cap, 0.3% dividend yield and earnings per share are 0.6p. The SMT share price is up 62% from its 52-week low. SMT aims to beat the FTSE All-World Index over a five-year rolling period. And it has done this consistently.
I think the primary reason the Scottish Mortgage Investment Trust is so attractive is because it contains some of the world’s most popular stocks. Its top holdings include Tesla, Amazon, Alibaba, Tencent and Moderna. But it has cut its stake in Tesla by 80% in the past year and now counts China’s Tencent as its biggest holding.
As these are international stocks and many UK investors are reluctant to send their funds abroad, SMT offers a simple way to access these investments. It’s certainly the reason I’d look to invest in the trust.
An actively managed investment
A team actively manages SMT, meaning it has respected and experienced wealth managers picking the stocks. The returns have been significant in recent years, so there’s a powerful incentive for them to continue to deliver. This means putting my faith in the team in charge. But for time-starved investors with no interest in trying to assess the market, SMT has its appeal.
James Anderson, a co-manager of the trust is stepping down in April next year after 20 years and a phenomenal run in steering SMT to the success it is today. He’s a strong advocate for finding the next big opportunity. The fact he’s leaving could discourage investors from buying SMT shares, but his co-manager shares his vision, so I imagine it will continue in the same vein.
SMT’s holdings include some riskier investments presenting disruptive growth opportunities. This means they’re exposed to share price volatility. As a long-term investor my preferred way to invest is via ‘pound cost averaging’. This means investing a regular sum on a monthly basis. I’m not trying to time the market, so some months I’ll pay more than others for shares, but overall, the price I pay should average out.
With uncertainty in the markets, the SMT share price could have further to fall. Buying in gradually means I can hopefully average a decent entry point that results in financial gains over the long term.
Fears of inflation are shaking financial markets globally. Yet I prefer to look at the bigger picture with a five-year time horizon in mind. Ups and downs are a normal part of the stock market cycle. But tuning out the noise and thinking long term makes choosing stocks to invest in much simpler. Plus, it prevents me from panic-selling when things are bad.
This stock comes with risks to investors, including inflation, Covid-19 and it may not match its previous success. Nevertheless, I think its holdings are attractive, and I’d consider buying SMT shares for my Stocks and Shares ISA.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Kirsteen owns shares of Amazon. The Motley Fool UK owns shares of and has recommended Alibaba Group Holding Ltd., Amazon, and Tesla. The Motley Fool UK has recommended Moderna Inc 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.