Scottish Mortgage Investment Trust: here’s why I’ve been buying more

As a holder of shares in Scottish Mortgage Investment Trust (LSE: SMT), I won’t pretend that the last few weeks have been pleasant. Rather than ruminate on lost gains, I’ve decided to make lemonade out of lemons and increase my holding. Allow me to explain why.  

Why has SMT fallen?

As I type, the share price of the FTSE 100-listed fund has tumbled almost 13% since 2022 started. It’s not hard to see why. Concerns over earlier-than-expected hikes to interest rates in the US have pushed investors to dump frothy growth stocks in favour of more reasonably-valued companies.

Unfortunately, SMT’s portfolio is chock-full of the former. Shares in pharma giant Moderna, semi-conductor supplier ASML and electric vehicle poster boy Tesla are down 29%, 11% and 17% respectively.

There’s a possibility things could get worse before they get better as we enter the end game of the pandemic. Airlines, hotels and holiday firms will be back in demand. That’s regardless of whether they’re fundamentally good businesses or not. Rising interest rates will do the same for banking shares. 

Another reason why some investors may be cautious about SMT’s outlook is that James Anderson’s departure date (30 April) is approaching. Having done so well for holders during his tenure, the loss of SMT’s co-manager is bound to make some jittery. 

Staying bullish

For me, the question as to whether Scottish Mortgage Investment Trust is a good investment now depends less on the fund itself and more on the investor considering it.

The fact is, SMT’s managers have already proven themselves to be canny stock-pickers. At the time of writing, the FTSE 100 member’s share price is up 228% in the last five years. Contrast this with the 13% return generated by its index (excluding dividends).

I think that more than justifies the former’s 0.34% ongoing charge. It’s also worth highlighting that co-manager Tom Slater is staying on after Anderson leaves. 

Yes, past performance is no indication of future performance. But nor should it be ignored. If I believe that tapping into disruptive companies as early as possible can lead to stellar returns (hint: I do), then continuing to throw my money at Baillie Gifford’s highly-successful flagship fund still makes sense. This is especially as it gives me access to private businesses I’d otherwise struggle to own. 

No, the question I’ve been asking over the past few weeks is whether buying now makes sense given my investing horizon. Since I believe (hope) the latter consists of several decades rather than a few months, I’ve come to the conclusion that it does.

That’s it. No fancy calculations. No dwelling on paying a premium or discount to the net asset value. No obsessing over inflation. Reckless? I actually think this strategy is pretty rational, although I would say that! 

Long term buy-and-hold

I fully intend to keep investing in SMT. That’s even if the share price continues to be volatile. Things get a lot less stressful when I remember that what happens in 2022 really doesn’t matter. Traders may feel differently, of course. 

Sure, it’s wise to remain appropriately diversified. However, I’m more confident that my holding will generate better returns than cheaper (poorer) constituents of the FTSE 100 over the long term. The same goes for this recently-battered but high-quality FTSE 250 stock.

Value is back in fashion, but fashion is notoriously fickle.