Scottish Mortgage Investment Trust (LSE:SMT) was one of my top picks to buy in March. In what has been a volatile few months, the current depressed share price in the Baillie Gifford technology fund has created a buying opportunity in my opinion.
I already own Scottish Mortgage Investment Trust in my Stocks and Shares ISA, but I tend to keep some cash available to take advantage of new investment ideas as they arise. I believe this could be one of those opportunities.
My favourite technology fund
At 112 years old, Scottish Mortgage Investment Trust is considered to be Baillie Gifford’s flagship investment trust. Its joint fund managers, James Anderson and Tom Slater, have built a reputation for identifying the best growth opportunities in expanding markets. They have a long-term outlook and look to invest in great leaders that are operating businesses with huge business opportunities.
I first invested in this predominantly technology-based fund a few years ago. At the time, the fund’s investment in Tesla raised some eyebrows. It was seen as risky, unprofitable, and overvalued by many. However, Scottish Mortgage was an early backer of Tesla, first investing in 2013 when its share price was around $6.
Patience paid off for Scottish Mortgage. After several years of lacklustre share price performance, Tesla’s shares climbed a phenomenal 743% in 2020. As the company grew, so did its proportion in the fund. In fact, in recent months, the fund has had to sell some Tesla shares to bring its weighting down.
More than a one-hit-wonder
Scottish Mortgage Investment Trust’s philosophy of investing in potentially world-changing markets is being proved right, in my opinion. As a long-term investor, I’d be happy to buy some more shares today.
Far from being a one-hit-wonder, I believe the fund has several interesting investments, some of which are currently private enterprises. Part of the benefit of investing in Scottish Mortgage Investment Trust is that it allows me to be exposed to some unlisted companies that I wouldn’t be able to invest directly in as an individual investor.
For instance, in 2020, Scottish Mortgage added the unlisted Swedish battery maker Northvolt to its portfolio. Founded in 2016 by former Tesla executive Peter Carlsson, Northvolt aims to develop the world’s greenest battery and establish one of Europe’s largest battery factories.
The Risks
After a phenomenal 110% gain in 2020 that was led significantly by the fund’s investment in electric vehicle stocks Tesla and NIO, some might argue that these gains could be difficult to replicate again.
Risks in investing in Scottish Mortgage Investment Trust could also be the technology sector in general. One of the reasons for its recent near 30% decline came from a rotation from the technology sector to sectors more linked to economic recovery.
Vaccine progress, a $1.9tn U.S. fiscal stimulus package and further signs of economic recovery helped push up bond yields. This in turn negatively impacted technology stocks. Further gains in bond yields could cap gains in technology shares in the near term.