The rotation from growth to value stocks by investors over the last few months has hit the Scottish Mortgage Investment Trust‘s (LSE: SMT) share price. On Friday, it closed at 1,195p. That’s 15% off the all-time high it hit earlier in 2021.
Aside from the valuations of holdings such as Tesla taking a (long overdue) tumble, SMT has faced another recent setback in the announcement that co-manager James Anderson will be retiring.
As a long-term investor, however, I’ve been buying more of the investment trust in May. Here’s why.
Disruption…on the cheap
While the departure of Anderson is a shame, it’s not a complete surprise. A 21 year-stint (22 by the time he actually leaves) is a long time to manage the same fund. The need for fresh blood and new investment ideas is both inevitable and healthy. Notwithstanding this, I’m reassured that Scottish Mortgage Investment Trust’s other manager, Tom Slater, is staying put. This should make the eventual succession process a lot smoother.
SMT’s low ongoing charge (0.36%) also remains a big pull for me. This is a very cheap way of getting access to some of the most disruptive growth stocks in the world. It’s even on par with many passively-managed exchange-traded funds. Personally, I’m a big fan of having both active and passive elements to my portfolio so long as the fees charged by the latter can be justified. I don’t think this has ever been a problem when it comes to the Scottish Mortgage Investment Trust. It’s climbed 359% in value over the last five years.
Sure, there’s no guarantee that the share price won’t continue to wobble. Concerns over inflation mean that risky, ‘blue sky’ stocks might remain out of favour. Many investors will also be looking to capitalise on reopening opportunities as vaccination programmes make an impact. Previously out-of-favour sectors such airlines, pub chains and high street retailers are back on buy lists.
On this front, I’m taking a balanced approach. Some of my money is invested in stocks that I think could benefit from a return to normality. But sell my holding in a trust that could still provide great returns for many years to come? Absolutely not!
Also on my shopping list
SMT isn’t the only investment trust I’ve been buying in May. I’ve also been adding to my already-sizeable stake in Smithson Investment Trust (LSE: SSON).
Like Scottish Mortgage, Smithson’s share price has been a bit volatile in recent months. Since its aim is only to invest in high-quality small and mid-cap firms, that’s not really surprising. Most of these rarely trade on cheap valuations. One can’t ignore the possibility that some early investors may be keen to bank profits. Since launch in October 2018 to the end of April 2021, Smithson achieved a quite brilliant annualised return of 25.4%.
This is not to say that there’s aren’t a few things to bear in mind. While the ongoing charge of 0.9% certainly isn’t the highest in the market, it’s still high. Regardless of how manager Simon Barnard performs from here, that fee will always be due. One also needs to bear in mind that relatively youthful Barnard doesn’t have a long track record.
This, however, is a risk I’m comfortable with. With its premium to net asset value dropping in recent weeks, I’m taking advantage while I can.
