I have shares in Scottish Mortgage Investment Fund (LSE: SMT). Although I entered my role over two years ago, I have watched with dismay as my Scottish Mortgage shares have plummeted since I bought them.
The loss would have been worse if I had bought my share two years ago. However, I invested knowing that this is a high risk/reward fund. Also, as a long-term investor, I am more concerned with my performance over a decade than short-term volatility.
So let’s explore the return you would have gotten on a £1,000 investment in January 2021, and why I think stocks look cheap after a substantial cut.
two year return
Two years ago, the FTSE 100 the mutual fund soared as the net asset value (NAV) of its growth stock portfolio soared.
Scottish Mortgage share price was trading at 1229 pence, boosted by economic stimulus measures in response to the Covid lockdowns.
Today, the stock is changing hands at 770 pence. That’s a 37% decline in 24 months.
In 2021, you could have bought 81 shares with a lump sum of £1k, leaving £4.51 as spare change. Those shares would currently be worth £623.70.
As a growth stock oriented fund, Scottish Mortgage is not known for its dividends. Nonetheless, it would have received a handful of small dividend payments during that time period totaling £5.80.
So my grand total today would be £634.01, including shareholder distributions and additional cash.
Investment in growth stocks
Baillie Gifford’s flagship investment trust has a clear purpose. To quote co-director Tom Slater, it is the search for “long-term capital appreciation investing in the world’s most promising growth companies for long periods of time and embracing the volatility that comes with it.”
Looking at a longer time horizon, the fund has been successful in delivering strong returns. Over a five-year period, Scottish Mortgage shares outperform FTSE World Index that the company uses as a reference point.
So why are stocks so volatile? To answer this, it helps to examine the stocks you own. For example, the fund’s largest holding is pioneer in mRNA biotechnology. modern to 10.6% of Scottish Mortgage’s portfolio.
Moderna shares drew enthusiasm from traders during the pandemic due to the development of its effective vaccine against Covid-19. Scottish Mortgage timed its entry point to coincide with the FDA’s emergency use approval in December 2020.
Talking about Moderna simply as a provider of covid vaccines is like pigeonholing Amazon as a simple bookstore in the early 2000s.
Scottish Mortgage Investment Fund
Since then, Moderna’s share price has fallen as investors have turned elsewhere, seeking defensive investments and inflation hedges. However, with a diverse portfolio to combat cardiovascular disease, cancer, infectious disease and autoimmune disease, Scottish Mortgage supports the company in generating strong profits for years to come.
I would buy more today
Scottish Mortgage shares carry significant risks. I expect more volatility going forward, given the nature of the company’s portfolio.
However, I am confident in the fund’s leadership to identify the promising growth stocks of the future. I would take the opportunity to lower my average share price by investing more today while the stock is trading at an 8.3% discount to portfolio NAV.
The post If you had invested £1k in Scottish Mortgage shares 2 years ago, this is what you would have now! first appeared in The Motley Fool UK.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Charlie Carman has positions with the Scottish Mortgage Investment Trust. The Motley Fool UK has recommended Amazon.com. Opinions expressed about the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make on our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that Considering a wide range of ideas makes us better investors.
Motley Fool UK 2023