Athlete preparing to run at the start line in a lane numbered '2023'

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Last year was unforgettable for investors in Scottish Mortgage Investment Fund (LSE: SMT). The share price plunged 46% as the market sold high-growth stocks in favor of less risky assets. It meant Scottish Mortgage shares finished 2022 among the worst performers in the FTSE 100.

However, I think there are three catalysts that could spark a rally in 2023.

Interest rates

More than half of the Scottish mortgage portfolio is allocated to high-growth US stocks. Rising interest rates have had a disproportionate effect on the valuations of such companies.

This is because growth stocks are generally more affected than value stocks by rising interest rates because their (potential) cash flows are further into the future.

Due to persistently high inflation, many analysts expect the US Federal Reserve (Fed) to continue raising interest rates in the first half of this year. The reference rate today is between 4.25% and 4.5%. While that’s a 15-year high, it’s actually around the long-term average.

However, there is evidence that US inflation may have peaked. If that’s the case, this may lead the Fed to hold rates (or even cut them slightly). This could cause a strong rally in many of the growth stocks held by Scottish Mortgage.


Currently, almost 13% of the trust’s portfolio is made up of Chinese assets. However, managers have said their investments in China will be decided based on whether the companies are aligned with the government’s policy goals.

This follows a major crackdown since 2020 on domestic tech companies by authorities in Beijing. In response to this, the trust has sold alibaba and cut its participation in Tencent.

Top 10 holdings (as of November 30)

Holdings Country % of total assets
1. Modern USA 9.9
2.ASML Europe 6.8
3.Tesla USA 4.9
4. Illuminate USA 4.1
5. Northern voltage Europe 3.6
6. Free Market Latin America 3.2
7. Space exploration technologies (SpaceX) USA 3.2
8. Meituan Porcelain 3.1
9.kering Europe 3.0
10. Amazon USA 2.4

The table shows that only one of the current top 10 companies is based in China (food delivery giant meituan). Even so, Chinese stocks represent more than £1bn of assets. Therefore, taken together, they continue to be important to the performance of the trust in the future.

Some analysts now think the worst of China’s regulatory crackdown may be over. This could make Chinese stocks more attractive, driving up its share price and helping Scottish Mortgage in the process.

modern readings

The ultimate potential catalyst refers to modern, the largest holding company of the trust. Co-director Tom Slater has said: “modern has a technology platform that could fundamentally change healthcare for the next decade.”

The company uses messenger RNA to instruct cells in the body to make proteins that can prevent or fight disease. Data reads from some of its active clinical trials are due this year. If any of these are positive, then the stock could get a big lift.

Of course, if the results were disappointing, then the stock could suffer. However, Moderna recently reported positive data from its phase 2b study for a personalized cancer vaccine. The stock shot up more than 20% on this news. Something similar could happen again.

I will buy more shares this year.

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