Scottish Mortgage Investment Trust (LSE: SMT) was one of 2020’s standout stocks. Its year-on-year share price rose a staggering 106%, heavily outperforming other popular investment trusts.
However, the stock’s value dipped from the all-time high of 1,415p in early 2021 in line with the global tech sell-off. The share price has since recovered over 20%, currently sitting at 1,247p. Though this past performance is not indicative of future returns, there are several of reasons I believe the Scottish Mortgage Investment Trust share price can keep rising.
Scottish Mortgage has a hugely diversified portfolio with over £19bn assets under management. Notable top ten holdings include Tencent (5.8%), NIO (3.2%), and Moderna (4.7%), all of which have provided stellar returns in the past year. Exposure to such high-growth stocks is a real highlight for me. Although the fund is dominated by tech, the top holdings still grant investors diverse access into multiple industries in one investment. This diversity vastly reduces the risk of banking on just one stock.
Though the heavy focus on growth companies may lead to increased volatility, it also positions the trust’s shares for longer-term returns. Scottish Mortgage also demonstrated its active management by selling over 7% of its Tesla stock earlier this year before the tech sell-off. This gives me confidence in its management of any short-term volatility.
Tech dominant risks
The tech sell-off was the main reason that the Scottish Mortgage Investment Trust share price fell earlier this year. As I covered in a previous article, the sell-off was primarily due to rising inflationary concerns fuelled by the expectations that central banks will reduce their fiscal stimulus measures post-Covid. In addition to this, the global semiconductor shortage has slowed the growth of many electric vehicle companies. Two of Scottish Mortgages holdings, NIO and Tesla – which make up a whopping 8.2% of the portfolio – have experienced problems in production as a result of this.
The above factors seem to have turned investors appetite sour on tech stocks, driving down share prices of some industries’ frontrunners. While these shares are beginning to recover in value, the tech-heavy make-up of its portfolio could pose a risk to the Scottish Mortgage Investment Trust share price in the future.
In addition to this, fund manager James Anderson has announced he will be stepping down in 2022, after four decades with Baillie Gifford. Having led the trust for so long, his departure could lead to questions around future performance.
Scottish Mortgage Investment Trust share price: where next?
I think the trust is poised for some great long-term growth, with a key stake in some promising emerging growth companies. However, the inflationary uncertainty of the foreseeable future certainly poses a risk to the short-term Scottish Mortgage Investment Trust share price as its portfolio is so heavily reliant on tech growth stocks. This could lead to some more volatility in the future.
However, as a current owner, I am bullish about the future of the trust. I think the Scottish Mortgage share price offers more room for growth and could see a steady rise throughout the remainder of the year. Therefore, I would add more of this stock to my portfolio today.
Dylan Hood owns shares in Scottish Mortgage Investment Trust, NIO, and Tesla. The Motley Fool UK owns shares of and has recommended NIO Inc. and Tesla. The Motley Fool UK has recommended Moderna Inc. 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.