Scottish Inv Trust News | The Twelfth Magpie

Scottish Mortgage shares are down 36%: should I buy now?

Dylan Hood — Tue, 30 Aug 2022 07:32:00 +0000

Scottish Mortgage Investment Trust (LSE: SMT) shares have fallen a whopping 36% so far in 2022. The main reason for the drop is rising inflation and subsequent interest rate hikes, which have weighed on stock market valuations. Over a 12-month period, the situation looks even bleaker, with the shares falling just under 40% in value. With inflation still on the rise, is now the time to buy this stock? Let’s find out.

A rocky road

Red hot inflation has been a key market trend in 2022. With UK inflation reaching 10.1% in July and predicted to rise to over 18% by January, the situation looks pretty grim. Interest rates have been hiked to 1.75% in the UK in an effort to curb rising prices. This is putting severe pressure on growth stock valuations, which is very bad news for Scottish Mortgage. This is because the trust’s holdings are primarily focused on exactly this type of asset.

For example, the trust’s top three holdings are Moderna (8.3%), Tesla (6.7%), and ASML (6.6%). All of these stocks fit into the high-growth stock category and have exhibited high volatility so far in 2022. As interest rates continue to rise, and markets become increasingly uncertain, Scottish Mortgage shares could be in for an ongoing bumpy ride.

Another reason why the shares have suffered is pressure from Chinese regulatory authorities on US-listed Chinese companies. This has sparked the threat of potential delisting, which has vastly reduced investor confidence. Companies like NIO (which makes up 2.9% of Scottish Mortgages portfolio) have seen their shares tank on the potential of being delisted from the NYSE.

Reasons I like the stock

So why do I like the trust? For starters, at 829p, the shares are much cheaper than they were a year ago. In addition to the lower price, I adopt a longer-term outlook when looking at shares. Baillie Giffords’s flagship trust looks to “add value over five-year time frames, preferably much longer”. So, maybe I should discount the upcoming short-term volatility and look further into the future. Although past returns are no indication of future performance, Scottish Mortgage’s 606% 10-year return – compared to a 231% return for its benchmark the FTSE All World Index – highlights the stellar management of the trust.

In addition to this, being an investment trust, it allows me access to a bundle of assets in different industries, all under one investment. This is great for reducing my portfolio’s risk level. It also allows me access to non-listed companies, like Elon Musk’s SpaceX, in which Scottish Mortgage owns a £430m stake.

Am I buying?

I think that in the short term, Scottish Mortgage shares could face more volatility. However, here at The Motley Fool, we’re long-term investors. I think that under £9, the investment trust shares could land me some healthy returns over a broader time horizon – say 10 years. For that reason, I’m seriously considering adding this stock to my portfolio at today’s price.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended ASML Holding and Tesla. 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.

Are Scottish Mortgage shares a bargain at 822p?

Dylan Hood — Tue, 23 Aug 2022 08:27:55 +0000

2022 has been a tough year for growth stocks. It’s only natural that investment trusts that target growth stocks have taken a beating too. Scottish Mortgage Investment Trust (LSE: SMT) is a prime example of this. The high-growth trust performed well in 2020 and 2021 but has fallen over 36% so far in 2022. Widening this timespan to 12 months, and the shares have fallen an equally disappointing 39%. So, currently sat at 822p, is the stock a bargain buy? Or should I steer clear of Baillie Gifford’s flagship investment trust? Let’s investigate.

The story so far

To understand why the stock has fallen, we must cast our minds back to the height of the Covid-19 pandemic. In an effort to remedy the economic shutdown, central banks across the world poured billions into economies to keep them afloat. At the same time, the virus disrupted supply chains. This meant there was less supply, but people had more money (on a macro scale) to spend on the same goods. The result of this – rising prices.

Fast forward to 2022, and inflation has been reaching sky-high levels. To make things worse, the tragic Russia-Ukraine crisis has sent energy prices soaring, adding to inflationary pressures. Now central banks are faced with a new task: to slow down rising prices. They do this by increasing interest rates.

When interest rates increase, investors withdraw their money from higher-risk, speculative assets like growth stocks, and put them into safer assets. This is because they can earn a better risk-free rate. Interest rates in the UK and US have been on the rise recently, the former sitting at 1.75%.

Scottish Mortgage’s main holdings are exactly the type of stocks that are being negatively affected by this kind of market. For example, its top two holdings Moderna (8.3%) and Tesla (6.7%) have fallen 39% and 28% so far in 2022. Many analysts are predicting inflation to keep rising, which likely means that rates will too. If this does happen, it would be bad news for Scottish Mortgage shares.

A long-term play

Here at The Motley Fool, we are long-term investors. That means picking quality stocks and holding them for up to 10 years. Scottish Mortgage operates with the same thesis. It looks to “add value over five-year time frames, preferably much longer” and explicitly states that it doesn’t “add much more than anyone else in the short term”. So, perhaps I should be discounting the current volatility, and be operating with more of a long-term view, trusting the fund’s management.

I only have to check on the trust’s previous returns to see this management in action. Over the last five years it has returned 118%, and over the last 10 years, a whopping 606%. This vastly outperforms the FTSE All World Index, which is the stock’s benchmark.

Am I buying?

I’m not buying just yet though. I think in today’s macro climate, a growth-focused trust is too risky for me. However, I will be keeping this stock on my watch list as I think it could have the potential to yield some big returns over a 10-year span.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. 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.

Should I buy the Scottish Mortgage share price slump?

Dylan Hood — Sat, 12 Feb 2022 17:24:41 +0000

The Scottish Mortgage (LSE: SMT) share price had a knockout 2020, soaring over 106% during the year. This brought with it much attention from the market and helped the shares climb higher in 2021, peaking at an all-time high of 1,543p in November. However, since the start of 2022, the share price has fallen over 15%. Could this slump mark the next great buying opportunity for my portfolio? Or should I be staying away from SMT? Let’s take a closer look.

Why is the Scottish Mortgage share price falling?

The primary driver behind the falling Scottish Mortgage share price is tied to the current state of the UK economy. In 2020, the Bank of England cut interest rates to just 0.1% in an effort to stimulate the struggling economy. This monetary policy served its purpose. However, a faster-growing economy, coupled with massive supply shortages of the pandemic, meant that prices have been steadily rising. The result of all of this is inflation. For example, the UK Consumer Price Index (the measure of prices of goods in the economy) rose 5.4% year-on-year in December 2021.

So how does this affect the Scottish Mortgage share price? Well, inflation is tackled by central banks raising interest rates to restrict the economy. In a nutshell, this means people can receive higher returns on their savings and hence are less likely to invest in stocks. During these times, high-growth stocks are usually hit the hardest.

Looking at the Scottish Mortgages portfolio, it’s heavily comprised of just this type of stock. For example, its top 10 holdings include NIO (2.5%), NVIDIA (3%), and Illumina (5.5%), which are all high-growth stocks. As inflation continues to climb around the globe, the Scottish Mortgage share price could be at an increased risk as high-growth stocks decline.

Long-term growth

That being said, here at The Motley Fool, we are interested in long-term results. Regardless of the short-term headwinds Scottish Mortgage is facing, I still think it could prove a strong long-term addition to my portfolio.

For example, as my fellow Fool Charlie Keough points out, over the past five years, Scottish Mortgage shares have climbed over 220%. Comparing this to the 5% growth in the FTSE 100, the investment trust’s long-term management becomes evident.

In addition to this, the nature of an investment trust allows me to pool my money into a variety of assets all under one investment. Down the line, this could significantly help reduce volatility and provides exposure to many different sectors and geographies.

Should I buy now?

Rising interest rates are a threat that Scottish Mortgage must contend with over the coming months. However, the trust isn’t designed to deliver short-term gains. As such, I would be willing to discount the short-term volatility of the shares.

What’s more, the current lower price could provide me with a discounted entry point. Therefore, I would consider adding the shares to my portfolio for long-term growth.

The post Should I buy the Scottish Mortgage share price slump? appeared first on The Twelfth Magpie.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Should I buy Scottish Mortgage Investment Trust shares today?

Dylan Hood — Mon, 30 Aug 2021 06:07:04 +0000

Scottish Mortgage Investment Trust (LSE: SMT) shares had a knockout 2020 and have continued to deliver solid returns throughout 2021. The shares have risen over 8% since I last covered them in June. However, new challenges now lie ahead for SMT. I’m going to have a closer look to see whether I should add more shares to my portfolio today.

Chinese equity volatility

One thing I like about investment trusts is the breadth of stocks you get access to under one investment. SMT is no different here, offering a broad-reaching tech-dominant portfolio. However, some of SMT’s top Chinese holdings, including Tencent (4.2%), NIO (3.5%), and Alibaba (3.3%), have been recent causes for concern.

Regulatory crackdowns on several companies and industries have stifled growth. For example, Alibaba was fined a $2.8bn for anti-competitive practices and also saw the IPO of its financial affiliate Ant Financials halted. A similar case occurred with Tencent. It faced a hefty anti-competition fine and had its exclusive music listening rights withdrawn. This could be a problem moving forward for SMT shares as these companies make up such a large proportion of its portfolio.

Rising yields/inflation worries

Another concern for SMT is the impact that rising bond yields have on the wider growth stock market. The tech sell-off at the start of 2021 was fuelled by inflationary worries indicated by sharply rising bond yields. SMT’s portfolio is heavily comprised of early-stage growth stocks. These types of stocks are hit the heaviest by inflation as they often operate in debt and a rise in interest rates could prove catastrophic. Inflation also erodes the value of these companies’ future projected earnings. Moving forward, this is something I will definitely be keeping my eye on for Scottish Mortgage Investment Trust shares.

Scottish Mortgage Investment Trust shares: long-term outlook

The reason SMT is heavily invested in early-stage companies is its long-term outlook. As my fellow Fool, Charlie Keough, points out SMT’s aim is to “maximise its total return to shareholders over the long term”. Statements like this indicate the firm is likely looking past shorter-term problems such as Chinese crackdowns. In addition to this, China is the world’s fastest-growing economy. Having such a large stake in this growth should pay off for Scottish Mortgage Investment Trust shares in the future.

In addition to this, Scottish Mortgage Investment Trust shares are up 6%, 14%, and 40% over the past month, six months, and one year, respectively. This shows that no matter the problems SMT has been faced with, it has been able to manage them effectively.

I have been an investor in Scottish Mortgage Investment Trust for some time. However, I would wait before adding any more to my portfolio. I would like to see how Chinese equities perform in the coming months and how SMT manages its portfolio in reaction

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Dylan Hood owns shares of Scottish Mortgage Investment Trust and NIO. The Motley Fool UK owns shares of and has recommended Alibaba Group Holding Ltd. and NIO 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.

Retirement saving: 2 top investment trusts for your SIPP

Rupert Hargreaves — Mon, 25 Jun 2018 10:00:16 +0000

Investment trusts have been around in one form or another for centuries. Many of the trusts around today have been making money for investors for over 100 years.

In my opinion, this long-term focus makes them perfect assets to hold in your retirement portfolio. So today, I’m looking at two that I believe would fit well into any investors’ SIPP.

Small-cap focus

Small-cap stocks have huge growth potential and can really turbocharge your portfolio’s performance. However, picking small-caps can be a tricky business. That’s why the Dunedin Smaller Companies Investment Trust (LSE: DNDL) is my first retirement portfolio pick.

Over the past five years, Dunedin’s net asset value (NAV) has increased by 91%, outperforming the FTSE SmallCap Index by 7% over the same period. However, despite this return, the stock trades at a substantial 15.6% discount to net asset value. So the actual share price return over this period has lagged NAV growth.

To try and correct this anomaly, Dunedin’s management has decided the best course of action is to merge with the Standard Life UK Smaller Companies Trust. Managed by star fund manager Harry Nimmo, this firm has a much higher profile and, as a result, trades at a discount to NAV of only 4%.

By combining the two, investors should benefit from economies of scale, and Dunedin’s shareholders should immediately benefit from an uplift in its share price as the discount to NAV re-rates. The current management fee for the Standard Life trust is 1.1% and, over the past five years, Nimmo and team have produced an average annual return for investors of 14.4%.

So all in all, the Dunedin Investment trust offers exposure to both small-cap growth stocks and a should see a re-rating of its shares in the months ahead as the merger with Standard Life completes.

Contrarian play

Another investment trust I believe could be a fantastic addition to any retirement portfolio is the Scottish Investment Trust (LSE: SCIN).

This trust focuses on finding contrarian value investments, an approach that is designed to yield market-beating performance in all environments.

Established in 1887, this firm has now been investing money for shareholders for more than 130 years, and has increased its regular dividend investors every year for the past 34 years, earning it the Association of Investment Companies’ ‘Dividend Hero’ status. At the time of writing the shares support a dividend yield of 2.4%.

Long-term outlook

The managers of the Scottish Investment Trust are not overly concerned about short-term performance. They have a long-term focus, which makes this company a perfect pick for retirement portfolios.

What’s more, the managers are unconstrained by borders and can invest in markets around the world — wherever they can find value. For example, right now a chunk of the portfolio is invested in Japanese banks. Around a third is invested in the UK and another third in North America.

By using this approach, over the past decade the trust has smashed its benchmark, returning 218% compared to 195% for the MSCI UK All-Cap Index. It’s this track record of performance, coupled with the firm’s low annual management fee of 0.5% and long-term focus, that leaves me excited about the Scottish Investment Trust’s future potential.

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Rupert Hargreaves owns shares in the Scottish Inv Trust. The Motley Fool UK has no position in any of the shares mentioned. 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.