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The Scottish Mortgage Investment Trust (LSE: SMT) has lost around 25% of its value since hitting an all-time high of 1,415p around the middle of February.
However, as a long-term investor, this doesn’t concern me at all. In fact, by taking a step back, it becomes clear how insignificant this decline is in the grand scheme of things. Over the past 12 months, the stock has returned nearly 55%.
While past performance should never be used as a guide to future potential, based on Scottish Mortgage’s past successes, I think the recent decline in the trust’s share price could be a fantastic buying opportunity.
Scottish Mortgage opportunity
When I refer to the investment trust’s past successes, I’m not referring to its stock price. Instead, I’m pointing to the firm’s track record picking investments.
Over the past decade, the investment company has earned a reputation as an astute growth investor. Accordingly, it searches the market for the best growth stocks.
These aren’t just companies with high growth rates. The investment manager is looking for enterprises that have a substantial competitive advantage. This can indicate the businesses selected will continue to grow year after year and get better at what they do.
Picking these sorts of companies isn’t easy. Most professional investors fail. However, Scottish Mortgage has succeeded because it has such a strong reputation, it’s easy for the trust to build positions in firms before they even go public.
For example, in the middle of March, the investment manager received a boost when one of its private holdings, Stripe, achieved a record $95bn valuation.
As a closed-ended investment company, Scottish Mortgage also has advantages. Unlike other funds, it doesn’t have to buy and sell securities to meet inflows and outflows. It also has more flexibility where it can invest and for how long. The firm has held a stake in Amazon for nearly two decades.
It can also invest where some investors might be unwilling, or unable, to invest. Some 24% of the portfolio is currently invested in Chinese securities, with 37% in US stocks. Its largest holding is Chinese tech giant Tencent, and the trust’s managers believe “the pace of innovation at scale in China now exceeds anything we can find in the rest of the world.“
All of these advantages have helped the firm achieve the record it has over the past five years. It’s returned 322% since May 2016.
I think it would be unreasonable to say I believe the trust can repeat this performance in the years ahead. But I believe the advantages outlined above will persist, which may help Scottish Mortgage pick the market’s next big winners.
Of course, success isn’t guaranteed. Like all investment companies, Scottish Mortgage has and will continue to make mistakes.
Investing in growth companies can be a risky business. These stocks are also highly volatile. So the trust might not be suitable for all investors.
Nevertheless, as a way to invest in some of the world’s growth champions, I think Scottish Mortgage has an unrivalled offer. That’s why I’d invest £10k in the business right now.
The post I’d invest £10k in the Scottish Mortgage Investment Trust appeared first on The Motley Fool UK.
Rupert Hargreaves has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2021