I bought shares in Scottish Mortgage Investment Trust (LSE:SMT) for my SIPP when they were trading at around 700p two months ago. Naturally, I’m delighted with the 17% gain. But, as with any investment like this, I wish I had put more money in.
It had been my intention to buy Scottish Mortgage shares for my Stocks and Shares ISA, but the stock is now trading nearly 20% above its nadir.
So will it go higher, and should I buy more stock?
What is Scottish Mortgage?
Scottish Mortgage is a publicly traded investment trust that has significant exposure to American, Chinese and unlisted shares. However, many of its top holdings are now household names, including Moderna and Tesla.Â
But it’s a weighting towards growth that has seen it fall from highs reached last year. In January, a tech sell-off emerged after US Treasury yields surged. This hurt more expensive growth and technology stocks that are valued on future growth expectations.
The fund’s share price over the past 12 months reflects the falling value of the shares it holds. As growth stocks tanked, so did Scottish Mortgage.
Outlook for the fund
Following the growth sell-off, valuations across the sector became considerably more attractive. And in May, we saw an uptick in share prices.
So are growth stocks overvalued or undervalued right now? Obviously that depends on the stocks in question. But, broadly speaking, growth stocks aren’t clearly overvalued like they were last year.
This is clear when we look at the fund and many of the listed stocks it holds. Illumina, which is one of the trust’s biggest holdings, is down 57% over the past year. And other holdings performed similarly.
However, this isn’t indicative of growth going forward. In fact, I’m relatively bullish on Scottish Mortgage. Not because of the stocks it holds within its top 10 now, but because of its track record of finding the next big winner.
Scottish Mortgage’s star stock-pickers bought shares in companies such as Moderna and Tesla before most people had even heard of them. Now they’re worth billions — nearly trillions in Tesla’s case.
The next big winner is possibly a company I know very little about, until star stock-pickers come into their own.
Looking further down the list of holdings, Scottish Mortgage owns stocks like Denali Therapeutics. The biotech is developing a broad portfolio of drugs aimed at directly addressing the causes and risk factors of neurodegenerative diseases. Maybe this will be the next big winner.
Would I buy at 840p?
As I write, Scottish Mortgage shares have just ticked up to 840p. So would I buy more stock for my ISA? Actually yes, but it’s not because I’m expecting huge growth from its top 10 holdings. It’s because I trust the fund managers’ ability pick the next generation of big winners.
I also appreciate that the near-term environment, characterised by higher interest rates that push up the cost of growth, aren’t great for Scottish Mortgage’s portfolio. But that’s why I’d buy and hold for the long run.