The Scottish Mortgage Investment Trust (LSE: SMT) is a growth share with enormous potential. It’s up 33% over the last year and 70% over two, but it can be hugely volatile too.
It was hit hard in 2022 when post-pandemic enthusiasm for tech stocks swung into a sharp reverse. The Scottish Mortgage share price fell in half that year. I took advantage and bought it for my Self-Invested Personal Pension (SIPP) in 2023. I’m up around 65% since then.
Blue-chip rocket
Today, the trust’s top 10 holdings include big tech names such as Amazon, Taiwan Semiconductor Manufacturing Company, Meta Platforms and Nvidia, alongside smaller quoted and unquoted companies and private equity holdings.
The trust’s largest single holding, at 7.8% of its £15bn portfolio, is Elon Musk’s privately-owned Space Exploration Technologies, or SpaceX. For investors, that brings risks and potential rewards in spades.
SpaceX is expected to float eventually, potentially sending its valuation soaring. Scottish Mortgage manager Tom Slater is excited by the opportunity, and has just argued that the opportunity has grown and he’d like to increase the trust’s stake.
I’m quite excited and it does add to the speculative appeal of holding the trust. However, given the controversies surrounding Musk and the patchy performance of Tesla and X (formerly Twitter), there are risks. SpaceX is a thrilling and potentially massive opportunity, but it’s not a guaranteed winner. Investors considering buying Scottish Mortgage today need to take this into account.
AI bubble trouble
Of course, it’s not the only risk in the portfolio. While global US stock markets have been breaking record highs, many are worried about a potential artificial intelligence (AI) bubble. Tech valuations look dizzying, although I think comparisons to the dotcom boom and bust are overdone. Big tech’s making big money today, which it wasn’t back then, and expectations for the upcoming third-quarter earning season are pretty upbeat. Although it won’t take much in the way of disappointment to knock them back.
Some investors may worry that Scottish Mortgage is slightly overrated after its recent run. I recently compared its performance to another tech-focused FTSE 100 investment trust, Polar Capital Technology, and found it trailed Scottish Mortgage over pretty much every timeframe in the last five years. Exposure to SpaceX adds another layer of unpredictability.
Take the long-term view
Today’s a risky time to invest new money into the technology sector. On the other hand, shunning big tech has been a losing bet for years. I think Scottish Mortgage is worth considering today, as is Polar Capital. But I would suggest feeding money into these two trusts, given bubble concerns, rather than going big. Take advantage of any dips or even a bigger sell-off.
Also, investors should only buy with the intention of holding for the long term, by which I mean a minimum of five years and, ideally, a lot longer. Then buckle up and wait to see if SpaceX shoots to the moon.
