Today, I’m asking whether I should also be taking a position in another investment trust.

A worthy rival?

Like its better-known rival, Allianz Technology Trust (LSE: ATT) is all about finding the best growth stocks management can find in the disruptive tech space. It’s certainly picked a good location to conduct its search. Allianz’s team is based in San Francisco — close to Silicon Valley.

Performance-wise, this relatively concentrated trust (47 holdings) has done well. Despite falling by a third in value in 2022, the shares have still managed to more than double since October 2017.

For me, this underlines the importance of looking at the long-term performance of any potential investment rather than making a judgement based on just a few weeks or months. It’s what being a Fool is all about.

Having said this, the five-year performance for Scottish Mortgage shares is not as impressive. Here, we see a capital gain of a little over 70%. Moreover, SMT has fallen more than its peer in 2022 (down 41%).

So should I be prioritising the Allianz trust over my position in Scottish Mortgage, especially as the former now trades at a 12% discount to the value of its investments?

Time to hold both?

Well, holding both would give me access to two management teams and their stock-picking prowess. With a market-cap still under £1bn compared to SMT’s £11bn, it can also be argued that ATT is more nimble in its approach and, consequently, possesses greater growth potential.

But there are issues with this strategy. One danger of holding both funds is that my portfolio becomes overly concentrated in one sector. That’s fine when things are going well. But it’s less easy to stomach when other parts of the market are generating better returns. Theoretically, the Allianz fund could also prove more volatile because it holds fewer stocks.

In addition to this, some overlap of holdings is inevitable. Electric car maker Tesla, for example, is SMT’s second-biggest position and the fourth-biggest of Allianz Technology Trust. Am I happy with this much exposure? Elon Musk may have defied his critics to date but the last few months have been tricky for holders to say the least.

Another important thing to highlight is the costs involved. Baille Gifford charges investors only 0.32% for managing Scottish Mortgage. As well as being low for an active fund that deviates substantially from the underlying benchmark, it’s also less than half the ongoing charge of the Allianz trust (0.8%). What may seem like a small difference can really impact returns over the years. And here at Fool UK, we’re big fans of keeping costs as low as possible.

Staying put

As things stand, I’m happy to stick with Scottish Mortgage shares as my main exposure to technology stocks. Maintaining a balanced portfolio (and ensuring a good night’s sleep) means more to me than shooting for the moon.

Even so, it will be interesting to see if both trusts rally to the same extent when market confidence inevitably returns.

Overly fearful sentiment in property

Rightmove (LSE:RMV) is one company that has been caught up in the recent sell-off. The stock is down almost 20% in the past month and 33% in the past year.

The property marketplace generates revenue from the advertisers and estate agents that list on the site. In this way, it can make money regardless of whether properties are listed for sale or to rent. One of the largest positives for the business is driving customers to the website, generating hits in the process.

I understand that people could be selling the stock due to concerns around the property market. Rising interest rates will make buying a home more expensive. Yet I don’t think this fundamentally ruins the Rightmove business model. After all, if people can’t afford to buy, they will still visit Rightmove and look for properties to rent.

On that basis, I think the 20% fall more than compensates for any fears around the market in general. I think it looks like a great level to be buying the share. It’s on my watchlist to purchase in the coming month.

A FTSE 100 stalwart

The drop in the FTSE 100 has also dragged down Scottish Mortgage Investment Trust (LSE:SMT). It might surprise some, given that the fund only holds 1.9% of invested money in UK assets. However, the stock market stumble has been evident worldwide. The US stock market has also had a tough time recently. So, the 33.56% of allocation to the US has also been negatively impacted.

In the past year, the share price is down 48.4%. However, one point worth noting is the difference between the share price and the net asset value. In theory, these should be the same. If the trust owns 75 stocks, the value of these stocks combined should correlate to the price of the trust. It’s hard to accurately price this in real time, but the latest valuation shows that the share price is 10.18% lower than the net asset value.

This is one reason why I think it should be a stock on my watchlist now. Within the space of the next year, I’d expect the discount to return to a fair value.

Another reason why I like the stock is because I’m optimistic about the outlook for two of the largest areas the trust is invested in. These are healthcare and technology, comprising just under a third of the portfolio. By purchasing shares in the trust, I get exposure to these sectors, leaving the individual stock selection to the professionals.

Thanks to the fall in the FTSE 100, I’m considering buying both of the above stocks before the market rallies back.

More recently though, performance has been weak. In the past year, the shares lost 49% of their worth. Does that make them a possible bargain for my portfolio?

Valuing Scottish Mortgage shares

Often if a share price falls by almost half in the space of a year, it suggests that the underlying business has problems. For example, sales may have fallen or rising costs could have dented profit margins.

Things are a bit different at Scottish Mortgage. It is an investment trust, which means it pools funds from its shareholders and invests them in a variety of shares. It owns stakes in companies such as Moderna, Tesla and ASML. In fact those were its three biggest holdings at the end of last month, accounting for almost a fifth of Scottish Mortgage’s portfolio.

When the value of the underlying shares moves up or down, that should typically be broadly reflected in the price of Scottish Mortgage shares too. But that is not guaranteed. In fact, at the end of last month, the shares were selling at a 13% discount to the trust’s net asset value.

Buying at a discount

At a basic level, that means Scottish Mortgage shares are undervalued. After all, in theory, someone could buy all the shares in the trust, liquidate its assets and recoup 13% more than they paid.

In reality, things are less simple. Investment trusts often trade at a discount to their net asset value. That can be the case for decades without anyone launching a takeover bid to try and realise the underlying net asset value by selling the trust’s assets.

Still, I do think a 13% discount offers me the chance to buy into a diversified portfolio of shares at a cheaper price than if I tried to build such a portfolio myself.

Long-term investing mindset

But I am not attracted to Scottish Mortgage shares only because they are trading at a discount to their net asset value.

I also think the trust’s track record of finding and investing in promising growth companies early in their development could help it continue to unlock value for shareholders. Growth companies have fallen out of favour with some investors in the past year.

But as a long-term investor, I still see potential in businesses that can benefit from emerging consumer trends such as electric vehicles and digital commerce.

There are also risks. If tech company valuations continue to fall, that could also hurt the price of Scottish Mortgage shares. The company’s track record is not necessarily a guide to how well it will perform in future – its investment manager retired this year after many years at the helm.

However, the shares are undervalued compared to their underlying value and I also feel positive about their long-term potential. If I had spare cash at the moment, I would buy some for my portfolio.

It’s clear the next few months may be volatile when it comes to investing in the stock market. However, I think Scottish Mortgage shares, currently trading for well below 800p, could be a smart long-term addition to my portfolio.

The story so far

Scottish Mortgage made a name for itself back in 2020 when it rose an impressive 105% despite Covid-19 running rife on markets. However, since then, the trust’s growth has significantly slowed.

The main reason for its demise year to date is inflation. Rates have been on the rise across the globe. And as a result, markets have seen trillions wiped off their value. Inflation has at times been above 10% in both the US and the UK. And with rates showing no sign of slowing down, this could spell trouble for the Scottish Mortgage share price.

This is because during these volatile periods the worst affected assets are growth stocks, which Scottish Mortgage focuses on holding in its portfolio. Due to the volatility these stocks provide, investors tend to shy away from them during difficult times, instead switching to ‘safer’ alternatives.

Due to this, investors have been selling off their shares in the trust. With its top holdings including names such as Tesla and ASML, which are down 40% and 38% this year, it’s clear to see why Scottish Mortgage has suffered.

Is it time to buy?

Despite this, I think now may be the perfect time for me to buy the stock.

Firstly, the investment style adopted by its management team is one I can relate to. By this, I mean buying for the long hold.

Performance is measured over a five-year+ period, meaning the volatility that can be seen in the markets right now shouldn’t pose a threat. While past returns are not an indication of future performance, the last five years have seen the trust return an impressive 80%.

On top of this, I also like the diversification I get through buying Scottish Mortgage shares. As a retail investor, I get access to over 100 companies all through a single investment. For me, this is perfect.

One issue is its weighting to China. With some cracks beginning to appear in the country’s economy, this could leave the trust exposed. On top of this, as inflation rises in the months ahead, the trust may also see its price take a hit.

With this said, I’d happily open a small position in Scottish Mortgage today. Its focus on growth stocks combined with its long-term approach leads me to think I could see some healthy returns in the years ahead. I also think its weighting in China will bear fruit in the long run.

We are, however, still looking at an 80% gain over the past five years, which beats the pants off the FTSE 100 and its 6% drop.

Comparison with the FTSE perhaps misses the point, and the US Nasdaq makes a more meaningful benchmark. That high-tech index has gained 70% over the same five years, so Scottish Mortgage is a little ahead.

Needed correction

But back at its November peak, the Scottish Mortgage share price had soared way past the Nasdaq. Both have fallen since, and the two are now far more closely aligned. It’s all down to the stocks held by Scottish Mortgage. They’re all global growth investments, many listed on the Nasdaq.

Nasdaq shares had been flying, with many up on super high price-to-earnings (P/E) ratios. But since last November, the index has plunged by 30%. I think US tech shares were overheated, and I see that as a welcome correction.

Buy Tesla?

Even after the fall, some are still on lofty valuations. Tesla, for example, is now on a forward P/E of 65. But analysts think earnings will grow strongly, and they predict a P/E of around 35 in the next two years. Is that a fair valuation, now, for one of the world’s favourite growth stocks? I think it might be.

Scottish Mortgage has Tesla shares as its second biggest holding. And some of its other holdings also look to me like they’re on attractive valuations now.

Fallen growth stocks

Moderna is the trust’s biggest holding, and its shares are down 60% over the past 12 months. P/E forecasts are erratic, standing at about 17 for 2023.

ASML, in third place, is down 36%. Fourth-placed Illumina has dipped 44%. And we see pretty much the same across most of Scottish Mortgage’s holdings.

In short, buying Scottish Mortgage shares gets us a selection of technology-based growth shares from around the world, but mostly US-listed ones on the Nasdaq index. And buying through an investment trust provides a key benefit. We get diversification from a single purchase.

If I want to buy depressed US tech stocks individually, I’d need to invest a large amount of money across a range of different ones in order to get any meaningful diversification. And I don’t want to do that. My investing strategy is mostly based on dividend income, with about 10% to 20% on growth or other one-off bargains.

Risky right now

What could go wrong?

Well, I fear we might be in for a lengthy bearish phase for growth, and for technology in particular. Recessionary eras, when inflation and interest rates are climbing, aren’t generally the times when investors go for growth strategies. No, that generally tends go alongside an optimistic mood.

But as a contrarian, I think the best time to buy tech growth shares is when they’re down. And Scottish Mortgage shares are now on a 12.7% discount to net asset value, adding an extra sweetener. I might buy some more.

After every storm comes a rainbow

The decline in the trust’s share price can be attributed to its heavy weighting towards growth stocks. These equities don’t fare particularly well during a bear market, as has been the case in both the US and China, where Scottish Mortgage’s top holdings are based. While these are the cause of the fund’s weakness, they also now present me with an opportunity to buy the shares at a discount.

Since the last quarter, the FTSE 100 fund has opted to shift around a number of its top holdings. The likes of Alibaba, Nvidia, and Kering have taken a back seat, while Space Exploration Technologies, Northvolt, and NIO take their place.

Concrete opportunities

Scottish Mortgage hasn’t had the best luck over the past year. It’s suffered a combination of rising interest rates and Chinese lockdowns. These have led to staggering declines for growth stocks, which get their valuations from future cash flows. Nonetheless, with Covid officially declared endemic in most countries and China slowly reopening, the path is set for a potential rebound.

In addition to that, Scottish Mortgage presents other long-term growth opportunities with its American names. For one, Moderna will be preparing for multiple product launches that include vaccines for flu and other viruses. These shots are all currently in stage three trials and if successful, could continue Moderna’s success. Moreover, Tesla recently announced a record number of vehicles produced with lots more to come as demand for electric vehicles shows no signs of waning. Meanwhile, ASML has a global monopoly on extreme ultraviolet lithography machines used by semiconductor foundries. As such, the world’s third-biggest semiconductor equipment maker has a bright future ahead.

Trust the process

So, does this mean Scottish Mortgage shares are set to explode from here? Well, not necessarily. While the start of Q4 has seen investors sparking a relief rally in hopes that the Federal Reserve in the US will pivot on its interest rate hikes soon, Fed funds futures seem to tell a different story. Thus, the risk remains that the US central bank could still overreact and cause a recession.

Additionally, there’s the risk that China reverts to locking down once again, which could ruin any recovery in the Scottish Mortgage share price. This has happened on several occasions, making Chinese stocks something of a double-edged sword. I’ll be keeping a close eye on Chinese politics, as well as statements made by Fed members.

Nevertheless, I’m convinced that the impact of lockdowns and inflation will be minimal in five years’ time. This is the timeline that Scottish Mortgage manager Baillie Gifford sets out for investors to expect a meaningful return. I’m confident in its ability to generate excellent returns. This is why I’ll buy the shares for my portfolio. And I’ll buy regularly to smooth out my overall price (known as pound cost averaging) if its share price continues to head lower. After all, the fund has an excellent track record of beating the market over the long term.

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)

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.

Well, I do think growth shares still face short-term risk. And I reckon some falls, in part, represent long overdue price corrections. But I have my eye on a few growth prospects this month.

Buy Nasdaq?

When I think growth shares, the US Nasdaq index comes to mind. That index has slumped from a high of 16,212 in November 2021 to 10,575 as I write. That’s a whopping 35%. But how can we take advantage?

The clear choice for me is Scottish Mortgage Investment Trust (LSE: SMT). Scottish Mortgage shares have crashed by an even bigger 52% over the same timescale.

Falling further than the US technology index, the investment trust is now on a discount to net asset value of 12.4%. That means we can buy Scottish Mortgage shares for that much less than the value of the investments it holds.

The top 10 holdings currently include Moderna, Tesla, Amazon, and NIO among other popular Nasdaq and worldwide technology stocks. There’s clearly a risk of further short-term falls. But I think Scottish Mortgage is an attractive way to invest in a basket of global growth stocks.

Cybersecurity

I’ve been intrigued by cybersecurity specialist Darktrace (LSE: DARK) ever since it crossed my radar.

Darktrace hit the headlines and soared. But it looked very much like a hot growth stock that was overhyped and overvalued. Some short sellers took note and joined the party, and a number of analysts were very critical.

But moving forward to today, we see a 70% share price fall since last year’s peak. And the short sellers are gone. Darktrace shares did jump briefly in August when a possible offer for the company emerged. But that came to nothing and the price fell back again.

Would I buy now? I really don’t know. The company is only just into profitability, and financial ratios don’t mean much now. Forecasts, for example, put the shares on a price-to-earnings (P/E) multiple of over 110.

Revenue growth looks strong, and I am tempted. But I’ll probably wait until I can convince myself that profit is sustainable.

Engineering

I’ve watched Melrose Industries (LSE: MRO) on and off quite a lot over the years, but have never bought.

Melrose buys up struggling engineering firms, turns them around, and then sells them. But engineering is not the most in-favour sector with UK investors at the best of times.

And after the latest stock market downturn, the Melrose share price has now fallen 40% in 12 months.

Due to the nature of the business, with long cycles between acquisitions and disposals, year-on-year earnings can be erratic. And analysts don’t expect another annual profit until 2024.

But we’re looking at a price-to-book ratio of only around 0.6 now, valuing the company at just 60% of its assets. But there is a good bit of risk in going for engineering investments when facing the possibility of a painful recession.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

ASOS

What it does: ASOS is an online fashion retail firm, comprising 17 different brands. It operates around the globe.

By Andrew Woods. My growth stock pick for October is ASOS (LSE:ASC). For the years ended August, between 2017 and 2021, earnings per share (EPS) rose from 77.2p to 128.9p. Over this period, the company had a compound annual EPS growth rate of 10.8%. I consider that to be consistent and strong.

However, ASOS has been operating in a challenging environment for the retail sector more generally. As the cost-of-living crisis has hit, customers have had less disposable income to spend on clothes. Inflation has also led to shrinking profit margins, as wages and costs increase. The share price reflects these problems, having fallen 82% in the past year.

Despite this, sales improved during the summer and the business expects full-year profits to be within the initial guidance range. Another indication that the company is in decent financial shape is its low levels of debt. This means it’s potentially well placed to work on expansion as we emerge from the pandemic.

Andrew Woods has no position in ASOS.

Kainos Group

What it does: Kainos is an IT support services business that helps companies, organisations and governments digitalise operations.

By Zaven Boyrazian. Kainos Group (LSE:KNOS) helps its clients digitalise operations and deploy Human Capital Management solutions through its partnership with Workday. The group serves the public and private sectors, with its most prominent collaboration being with the National Health Service.

Despite record double-digit organic sales growth, the stock has lost nearly a third of its market capitalisation in the last 12 months. It seems the recent drop in profit margins has spooked some investors. And given that the stock trades at a lofty premium of 47 times earnings, this volatility isn’t surprising.

The drop in profitability comes from the steady decline of pandemic tailwinds rather than internal issues. Meanwhile, demand for Kainos’ services continues to grow with a record level of bookings at £349.8m.

While it’s frustrating to see profitability wobble, the underlying business remains uncompromised. And with an impressive amount of potential, I believe the recent downward trajectory presents an attractive buying opportunity, even if the stock still looks expensive.

Zaven Boyrazian does not own shares in Kainos or Workday.

Halma

What it does: Halma is a collection of businesses focused on industrial safety, environmental monitoring, and life sciences.

By Stephen Wright. I’ve been buying shares in Halma (LSE:HLMA) over the last month. So I’m putting my money where my mouth is on this one. 

The reason I’ve started investing in this stock is that I think that it’s finally trading at an attractive price. The company has always looked great but expensive to me.

Halma has a straightforward business strategy. It attempts to acquire businesses and use the cash they generate to buy more businesses.

The company also has a decentralised corporate culture. In other words, it leaves individual businesses to get on with what they do well. 

Halma’s share price fell below £20 per share recently. At those prices, I think that it’s a terrific buy.

If the stock reaches that price again in October, I’ll be looking to increase my investment significantly. But I think Halma is a great company that I’m happy owning shares in.

Stephen Wright owns shares in Halma.

Spire Healthcare 

What it does: Spire Healthcare provides private healthcare services in the UK through 39 hospitals and eight clinics. 

By Royston Wild. The resilience of healthcare-related spending means stocks like Spire Healthcare (LSE: SPI) are popular picks during tough economic times like these.

Theoretically, Spire’s turnover might suffer as Britons start to feel the pinch. As times get tough, people could be tempted to wait that bit longer for treatment and get it for free on the NHS. 

But the size of NHS waiting lists today means that demand for private care continues to rise strongly. At Spire, revenues rose 7% in the six months to June as private revenues jumped almost 22% year on year.

A record 6.8m people were on NHS waiting lists in September. And the Institute for Fiscal Studies thinks the number will get worse before it gets better, possibly even hitting 10.8m people in 2024 before slowly falling. 

This explains why City analysts think Spire will report healthy earnings growth over the short-to-medium term. It’s expected to flip from losses of 7.1p per share in 2021 to earnings of 4.4p this year. And in 2023 earnings are tipped to double to 8.8p. 

Royston Wild owns shares in Spire Healthcare. 

Scottish Mortgage Investment Trust

What it does: Scottish Mortgage Investment Trust is one of the world’s biggest and most famous trust funds. The Baillie Gifford & Co fund invests globally and looks for strong businesses with above-average returns.

By John Choong. While Scottish Mortgage Investment Trust (LSE: SMT) has performed atrociously thus far this year, investors are told to expect a five-year return. As such, the current drop could pave way for a monumental recovery when the global economy eventually recovers.

The trust’s top holdings are mostly growth stocks, with the likes of Moderna and Tesla having plenty of upside to their earnings over the next decade, and could help boost the share price. Additionally, Scottish Mortgage has quite a healthy exposure to China. As the second largest economy in the world reopens from its Covid-19 lockdowns, Chinese equities are seeing steep rebounds, and Scottish Mortgage is expected to benefit from that to some extent.

Either way, with its share price down nearly 50% from its all-time high, this could be an opportune time for me to start a long-term position in a fund with historical success. That being said, investors should be wary that further lockdowns in China could prolong its road to recovery.

John Choong has no position in Scottish Mortgage Investment Trust.

Smithson Investment Trust

What it does: Smithson is a global investment trust run by Fundsmith. It invests in high-quality, small- and mid-cap growth stocks.

By Edward Sheldon, CFA. Smithson’s (LSE: SSON) share price has taken a big hit in 2022 as growth stocks have fallen out of favour and I think this has presented a buying opportunity. Currently, the investment trust is trading at a significant discount to its net asset value (NAV).

I like Smithson’s approach to investing. Like its big brother, Fundsmith Equity, it typically invests in companies that are highly profitable. Meanwhile, it avoids companies that are heavily leveraged, as well as those in industries that are rapidly changing. Names in the portfolio at the end of August included UK property website powerhouse Rightmove, medical technology company Masimo, and cybersecurity specialist Fortinet – all great companies.

It’s worth pointing out that the Smithson portfolio is quite concentrated. So, stock-specific risk is quite high. If a handful of stocks in the portfolio were to underperform, overall performance could be impacted significantly. I’m comfortable with this risk, however. I think Smithson is a good way to get exposure to smaller growth companies listed internationally.

Edward Sheldon has positions in Smithson Investment Trust, Rightmove, and Fundsmith Equity.

Hargreaves Lansdown

What it does: Hargreaves Lansdown is a United Kingdom-based digital wealth management service administering company.

By Paul Summers: The share price of Hargreaves Lansdown (LSE: HL) has been in awful form in 2022 and it isn’t hard to fathom why. 

At a time when most people are just trying to pay their energy bills, it was inevitable that revenue at the company would suffer. Combine this with a reduction in new business and assets under administration and the 35% fall, while severe, makes some sense. 

Even so, I do think this is shaping up to be an attractive contrarian play. A price-to-earnings (P/E) ratio of 17 isn’t screamingly cheap but it does seem a very enticing price for a company that generates some of the highest margins in the FTSE 100. Moreover, the desire of many to take more control over their finances will surely prove a decent growth driver for years to come. 

In the meantime, there’s a 4.7% forecast yield in the offing.

Paul Summers has no position in Hargreaves Lansdown

That glee turned to horror with the share price plunging 51% from its November 2021 high of £15.69. Today, at a price of £7.62, my investment is firmly in the red. After a torrid year, I’m asking myself whether it’s time to bail out of my Scottish Mortgage shares.

Big bets in question

One reason I bought Scottish Mortgage shares was to increase my exposure to growth shares. I could buy one investment trust with a diversified portfolio of public and private businesses around the world. However, even with that diversification, many of its holdings have proven to be susceptible to today’s macroeconomic challenges. Moreover, Scottish Mortgage’s managers have made some big bets that are looking questionable now. 

Firstly, Scottish Mortgage is a large investor and has strong relationships with Chinese businesses. The weighting of Chinese equities has fallen but they still make up 13% of the trust’s holdings. Chinese stocks have particularly suffered in the last year as China’s zero-Covid policy slammed the breaks on growth.

There’s also been an escalation in Sino-American tensions. Consequently, the appetite for Chinese equity investments is low. In fact, Chinese shares listed in Hong Kong have today plunged to their lowest valuation since the global financial crisis.

Secondly, its largest holding, Moderna, has fallen 50% this year. Investors have ditched vaccine stocks with some governments claiming that the pandemic is over. Of course, managers Tom Slater and Lawrence Burns have invested in Moderna with the long-term business case in mind rather than short-term Covid trends. 

Why I remain bullish

Slater and Burns openly admit that volatility is par for the course when trying to achieve long-term gains. They look to add value over five-year time frames and preferably much longer than that. Undoubtedly, they have a proven track record with the share price rising 550% in the past decade even with 2022’s dismal returns. 

The trust’s exposure to private businesses could also unlock future growth that would otherwise be inaccessible to me. Notable examples include spacecraft engineering company SpaceX, Swedish battery developer Northvolt, and TikTok parent company Bytedance. 

I remain bullish on my holding over the coming years and see value in the investment trust today. The shares are trading at a 15.5% discount compared to NAV. At that valuation, I feel more inclined to add to my position rather than sell.

Many of the headwinds contributing to recent poor performance could persist. Nevertheless, I’m planning to ride the Scottish Mortgage roller coaster for years to come.