Scottish Mortgage Investment Trust (LSE: SMT) has been a volatile investment in recent years. In 2020 and 2021, its share price shot up as disruptive growth stocks surged. In 2022 however, it slumped as interest rate hikes hurt these kinds of stocks.
I hold shares in Scottish Mortgage in my Stocks and Shares ISA so I’ve experienced this rollercoaster ride first hand. Should I continue to back it for my ISA today? Let’s discuss.
Investment strategy
Scottish Mortgage has an interesting investment strategy. Essentially, its aim is to maximise total returns over the long term by investing in the world’s most exceptional public and private growth companies.
Many of the companies it invests in are at the forefront of structural change. Its managers are of the belief that a small number of them will drive the trust’s returns.
As a long-term investor with a multi-decade investment horizon and a higher tolerance for risk, I’m very comfortable with this strategy. So I think it’s a good fit for my portfolio with the right weighting (more on this below).
Top 10 holdings
As for the trust’s holdings, I like what I see today. At the end of February, the top 10 holdings were:
| Stock | Weighting |
| ASML | 8.2% |
| Nvidia | 7.9% |
| Amazon | 5.3% |
| Mercadolibre | 5.0% |
| Moderna | 4.7% |
| SpaceX | 4.0% |
| PDD Holdings | 3.8% |
| Tesla | 3.5% |
| Ferrari | 3.2% |
| Northvolt | 2.7% |
All of these companies have significant long-term potential, to my mind. I’m particularly excited about the chip stocks – ASML and Nvidia. These two businesses are at the heart of the artificial intelligence (AI) revolution.
There are some unlisted businesses on the list. But I’m comfortable with that. Elon Musk’s space company SpaceX – a major player in the satellite broadband space – is another company I’m really excited about.
It’s worth noting that interest rate cuts – which most investors expect to see in the next 12 months – should be supportive for these kinds of disruptive growth companies. Lower rates may boost the valuations of companies in the trust as well as the Scottish Mortgage share price itself.
Right-sizing my holding
I do expect Scottish Mortgage shares to be volatile going forward however. On its website, it says: “Investing in companies at the forefront of structural change means share price peaks and troughs are inevitable, for both the companies we own and the trust itself”.
It adds: “The returns we aim to produce for shareholders will appeal to many, but the road travelled in achieving them may not”.
So investors need to expect a bumpy ride here. Given the trust’s volatility, I will be keeping my position size quite small. At the start of Q2, Scottish Mortgage represented about 2.5% of my overall investment portfolio. Looking ahead, I may increase my weighting a little. But not by much.
By keeping my weighting small relative to my overall portfolio, I won’t be burnt badly if the trust experiences another crash.
