For much of the past decade, Scottish Mortgage Investment Trust (LSE:SMT) only ever seemed to go up. It rode skyrocketing tech stocks to the moon and at one point Scottish Mortgage shares were up a staggering 1,200% in just 10 years.
Then they started to plummet late last year. Shares have now lost half their value within 12 months!
Yet it’s important to remember that this has happened before, both during the dot-com crash of 2000 and the 2008 financial crisis. Scottish Mortgage recovered both times and I’m confident it’ll regain its footing once again.
Optimists in a time of pessimism
The aim of the trust is to identify the small handful of companies that will be very big long-term winners. That means trying to peer into the future to foresee which changes are likely to go mainstream. Then they identify companies likely to benefit from such change.
For example, 10 years ago the managers of Scottish Mortgage identified electric vehicles (EVs) as a major emerging trend. This led them to a small quirky company called Tesla, which was attempting to build the world’s first desirable EV brand. They first bought Tesla stock at around $6 in 2013. The holding became so large at the end of 2020 that they had to start trimming it back. The stock then was over $700!
Tesla is the definition of a giant long-term winner. But it takes optimism and patience to stick by companies with uncertain futures during difficult times. And we’re certainly in pessimistic times at the moment!
Scottish Mortgage Investment Trust’s top 10 holdings (as of August 2022)
| Company | % of fund | ||
| 1 Moderna | 7.1% | ||
| 2 Tesla | 6.5% | ||
| 3 ASML | 5.5% | ||
| 4 Illumina | 4.3% | ||
| 5 Tencent | 3.7% | ||
| 6 Meituan | 3.6% | ||
| 7 Space Exploration Technologies (SpaceX) | 3.0% | ||
| 8 Amazon | 3.0% | ||
| 9 Northvolt | 2.9% | ||
| 10 NIO | 2.6% | ||
| TOTAL | 42.1% |
China risk
The trust has significant holdings in Chinese companies such as Alibaba and Tencent. The investment case for owning these companies has always been to see them emulate the stock market valuations of Western tech giants such as Apple and Amazon.
However, there’s been a massive crackdown on large tech companies by authorities in Beijing over the last two years. Shares in Alibaba have since fallen 75%. The e-commerce giant recently posted negative quarterly revenue growth for the first time ever.
None of this suggests Alibaba is going to reach a trillion-dollar valuation anytime soon (if ever). Yet it remains in the trust’s portfolio, which leaves me wondering whether this is extreme patience or merely blind faith.
Exciting opportunities elsewhere
Most of Scottish Mortgage’s investments remain in companies outside of China. One that excites me as a long-term investor is SpaceX, the rocket pioneer owned by Elon Musk. It remains a private company but is now one of the trust’s top holdings.
I’m a firm believer that we’ll see space tourism and exploration grow enormously over the coming decades. And I expect SpaceX to be the top dog in this new 21st-century space economy. The company has proven its worth with its re-usable rockets and has become NASA’s preferred collaborator, receiving billions of dollars in contracts.
Owning Scottish Mortgage shares gives me exposure to some of the biggest trends of the next few decades. So I won’t be selling my shares this October. I’m more likely to add to my position than sell.