Scottish Investment 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 Investment Trust share price dip?

Dylan Hood — Sat, 18 Dec 2021 12:48:23 +0000

The Scottish Mortgage Investment Trust (LSE: SMT) share price soared over 105% throughout 2020. And 2021 has also proved an encouraging year, with shares in the tech-heavy investment trust creeping up almost 10% year to date.

However, in the past 30 days, they have fallen over 11%. This is largely due to the Omicron variant posing an increasingly global threat. So, is now a good time to add the shares to my portfolio? Let’s take a closer look.

What is Scottish Mortgage Investment Trust?

In a nutshell, an investment trust is a publicly-traded company that aims to make money through investing raised capital in other companies. This can be appealing to potential investors as it allows them access to multiple shares under one diversified investment.

Scottish Mortgage is one of the best-known and best-performing trusts on the market. Its tech-heavy weighting has allowed the fund to grow at a momentous rate over the past few years. For example, over the latest three years, it has delivered 383% returns for investors. Although the fund has been able to capitalise on a bullish tech market, it has also demonstrated exceptional management. Take May 2021 — the fund announced it had slashed 80% of its Tesla position, banking high profits before the Tesla share price sank.

My macroeconomic concerns

The biggest concern I have for the Scottish Mortgage Investment Trust share price is linked to the broader macroeconomy. The Bank of England announced yesterday that it is increasing interest rates to 0.25%. This decision has come after months of increasing inflation, peaking at 5.1% in November in the UK. A similar story has been seen in the US, where prices have climbed even higher, rising 6.8% in the past year.

This could be bad news for equity markets. That is because as interest rates rise, people can gain a higher return on their savings, which carries substantially less risk than buying company shares. Therefore they sell stocks and shares prices fall as a consequence.

This issue is especially worrying for Scottish Mortgage Investment Trust as it has such large exposure to high-growth tech stocks. These stocks are usually hit hardest by interest rates hikes. This is for two reasons. Firstly, they are usually more volatile than the wider market and investors tend to steer clear of them during uncertain markets environments. Secondly, they often carry high amounts of debt that can be magnified by increasing interest.

In addition to this, the Omicron variant has magnified market uncertainty. The possibility of more lockdowns and travel restrictions is a huge threat to the global market. This is the main reason for the recent drop in the share price, I feel.

These factors combined have left Scottish Mortgage with a much riskier investment outlook in my opinion.

The Verdict

Don’t get me wrong, the trust has proved itself to be a top fund for high growth. This has been down to bullish markets and excellent management. However, for me, the current economic outlook is too risky to invest in it. As interest rates rise, I think we will see a pullback in many of the high-growth stocks the fund is exposed to. As such, I won’t be buying the share price dip.

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Dylan Hood has no position in any of the shares mentioned in this article. 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.

Reckon these 2 investment trusts will fund your pension? You’d better read this

Harvey Jones — Mon, 10 Dec 2018 14:35:50 +0000

Don’t be fooled by the name. Scottish Investment Trust (LSE: SCIN) is an £867m international fund that invests all over the world, although it is based in Edinburgh.

Victorian values

This specialist global trust was formed in 1887 to give investors an efficient way to invest around the world, which gives you an enduring platform on which to build your retirement portfolio. It is around 35% invested in North America, 25% in the UK, 15% in Europe, 10% in Japan and 5% in the rest of Asia Pacific.

That looks a balanced spread and recent performance has been solid with a return of 55% over five years, against just 3.5% on the FTSE 100. However, this is below the average for its sector, investment trust global, which rose 72% over the same period.

The Scottish play

Scottish IT has just published its annual results to 31 October and rewarded loyal investors with the 35th consecutive year of regular dividend increases, up 6% this year to 21.2p, plus an additional special dividend of 4p. The current yield is only 2.52% but as you can see, management policy is progressive.

Over the year it delivered a 1.9% share price total return. Although it does not have an official benchmark, the international MSCI All Country World Index beat it, growing 3.4%. If that disappoints you, then consider these global trusts instead.

Scottish IT trust adopts a contrarian, high-conviction approach to global stock markets, focusing on stocks that are out of favour with mainstream investors, believing they offer the greatest potential for long-term gains. Value investors, in other words. This may explain recent relative underperformance, as growth stocks have held sway. However, the cycle may now be moving back in favour of value, and this could help you play the shift. It currently trades at a 9% discount to underlying net asset value. Here are another two more trusts worth looking at.

Ride this train

Lindsell Train Investment Trust (LSE: LTI) is in the same global IT sector and is up a thumping 270% over the past five years, helping to establish co-managers Nick Train and Michael Lindsell as two of the hottest properties in UK fund management.

They are much better known for their blockbuster unit trusts such as the £5.6bn LF Lindsell Train UK Equity Fund (up 67% over five years) and £5.6bn Lindsell Train Global Equity (up 144%), but as you can see, their investment trust has done even better.

Premium price

The trust is a relative minnow with a net asset value of just £810m and I wondered why, but then I noticed that it trades at a massive 44% premium to the underlying net asset value of its portfolio. Most trusts trade at discounts of up to 10%-15% of perfectly good funds, a handful trade at a premium, typically 2%-3%. I’ve never seen one anywhere near as big as this one.

This is a real testament to the popularity of its managers but I would avoid this trust as a result. Maybe you should check out the Lindsell Train range of open-ended unit trusts instead, where premiums and discounts are not an issue, and performance has been superb.

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harveyj 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.

2 bargain investment trusts I’d buy and hold for 10 years

Peter Stephens — Mon, 11 Dec 2017 11:51:10 +0000

The outlook for share prices may be somewhat uncertain at the present time. Stock markets across the globe have enjoyed a major bull run in the last few years which has been backed by improving global economic growth. Now though, there are various political risks such as Brexit, US uncertainty and the prospect of tighter monetary policy across the developed world.

However, here are two investment trusts which appear to be well-managed and that could therefore offer high total returns in the long run. They could continue to deliver impressive investment performances for their investors.

Strong performance

Reporting on Monday was The Scottish Investment Trust (LSE: SCIN). The company was able to deliver a mix of capital growth and income during the year to 31 October 2017. Its share price total return was 12.8%, while its net asset value per share increased by 11%. It was also able to deliver a dividend growth rate of 11.1% plus an additional special dividend of 5p. This could prove useful if inflation remains stubbornly high, although the company’s dividend yield of 1.6% remains at just over half of the rate of inflation.

Looking ahead, the company appears to be relatively cheap. It trades at a discount of 8% to its net asset value. This suggests that there could be upside potential, while the company’s holdings also seem to be undervalued themselves. This is at least partly because of the investment style adopted by the Trust. It focuses on investing in unfashionable companies which have generally been overlooked by most investors. This could provide a wide margin of safety that could translate into capital appreciation.

With a total of 54 holdings, the portfolio is now more concentrated than it was a year ago. Back then it had 70 holdings, and this suggests that there could be even less correlation between the Scottish Investment Trust and the wider stock market. Therefore, as well as relatively high returns, it could also be a means of diversifying away from the performance of the wider index.

Income potential

Also offering an upbeat outlook at the present time is the Murray Income Trust (LSE: MUT). It has a dividend yield of 4.6%, which is over 50% higher than the current rate of inflation. This should help its investors to overcome the threat of higher inflation, while a discount of 7% to its net asset value could mean that it offers a wide margin of safety. With stock markets being generally high, this could be appealing to a range of investors.

Among the Murray Income Trust’s top 10 holdings are defensive shares such as GlaxoSmithKline and British American Tobacco. This suggests that the trust’s outlook may be relatively stable. However, there are also growth opportunities through other top 10 holdings such as Prudential and Unilever. As such, it could be argued that the company offers a mix of defensive growth prospects. With its focus on UK equities, investors may continue to benefit from a weak pound in future.

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Peter Stephens owns shares in GlaxoSmithKline, Prudential, Unilever and British American Tobacco. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. 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.

These 3 global investment trusts could help you retire early

Harvey Jones — Thu, 13 Jul 2017 10:52:44 +0000

If you want an investment with pedigree, you will struggle to do better than a global investment trust. Many were launched back in Victorian times, and these behemoths continue to combine low charges with market-beating capital growth and dividend income progression. These three investment trusts will be there when you retire, and for years afterwards.

Home and away banker

Few are more venerable than the £962m Bankers Investment Trust (LSE: BNKR), founded in 1888 and now managed by Janus Henderson Investors, which published results for the half-year ended 30 April this morning. Its diversified international portfolio has delivered a total return of 120% over five years, against 100% for its global benchmark, according to Trustnet.com. The board has also increased its dividend for 50 consecutive years – that’s right, 50 – and it currently yields a steady 2.2%.

Today’s results show net asset value (NAV) up 7% over six months, pretty much in line with the FTSE All-Share at 7.1%, and an even more impressive 31.3% over 12 months, outpacing the All-Share’s 20.1%. It has been helped by the post-Brexit plunge in the pound, which lifted the value of its global portfolio when translated into sterling.

Go West

Bankers’ increased weighting to North America has helped performance, although it has been scaling back its exposure on valuation concerns and fears about the impact of US interest rate hikes on investor sentiment. It is shifting asset allocation towards continental Europe and Asia, where valuation and yields are at a relative discount.

Its European holdings grew strongly over the period, rising 9.7%, followed by China at 9.3%, impressive given that the local index fell 4.4%. Japanese and Pacific exposure floundered. The board is projecting 6% dividend growth this year, helped by its international holdings, special dividends from UK companies and the positive translation of overseas dividends into sterling. Currently, it trades at a 5.5% discount to NAV and the annual charge is just 0.45%. You can buy this trust and largely forget about it, until you need retirement income.

North of the border

The £1.8bn Caledonia Investments (LSE: CLDN) is another golden oldie, tracing its history back to the shipping empire established by Sir Charles Cayzer in 1878. Today, the Cayzer family still owns just under half of the share capital. It is up 120% over five years and 28% over 12 months, Trustnet shows, and also boasts the proud record of increasing its dividend for 50 consecutive years. Currently, the yield is 1.93% and is trading at an even wider discount of 16.81% to NAV. However, it does have a relatively high ongoing charge of 1.14%.

The £843m Scottish Investment Trust (LSE: SCIN), founded in 1887 has offered 33 years of consecutive dividend growth and currently yields 1.67%. Its five-year total return is a robust 97%, and 26% over 12 months. The trust currently trades at a discount of 8.33% to NAV, with ongoing charges of just 0.59% a year.

Global reach

Bankers and Scottish have large UK and US exposures, which combined, account for roughly half of each trust’s global exposure, but this falls to just 10% for Caledonia. Together these three trusts could give you all the diversification you need.

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Harvey Jones has no position in any 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.