a stock to boost my portfolio in 2022?
Scottish Mortgage Investment Trust (LSE: SMT) is a ‘technology stock’ that has performed extremely well during the Covid-19 pandemic. And I think it could bring breadth to my portfolio this year. Formed in 1909, it is highly diversified on a geographical basis and has holdings in a number of the world’s leading companies. In more recent times it has specialised in technology stocks, but it also holds stocks in other sectors, like pharmaceuticals. Let’s take a closer look.
A diverse portfolio
The main reason I like Scottish Mortgage Investment Trust is that aforementioned geographical diversity. Its holdings are from a number of countries, but mainly the US and China. This brings together some of the highest-profile (and, I think, best) stocks from the two biggest economic powerhouses of our time. These include Tesla, Tencent and Alibaba.
But while there are a number of well-known public companies on its list of holdings, it also offers exposure to private companies that would be extremely difficult for the average investor to access. While investing in the stock gives me access to all these different companies, I have to be careful to analyse its holdings where I can as their performances could affect the share price.
Scottish Mortgage Investment Trust is currently trading at around its net asset value (NAV), indicating that it is neither expensive nor cheap relative to the underlying value of the assets it owns.
Yet that doesn’t mean it isn’t appealing. In terms of the stock’s fundamentals, it has usually massively outperformed the FTSE 100 index in the past five years, although it underperformed the index in the 2018/19 fiscal year.
The growth in its share price over recent periods is staggering. It registered 188% share price growth in the past two years, although it rose only 10.35% in the past year.
I also like how the trust’s managers allocate cash and I was interested in the pandemic-era move to make Moderna the top holding. This made sense, given that Moderna has been at the forefront of the global vaccination rollout. It is clear that Scottish Mortgage Investment Trust can adapt to new and challenging situations.
The post-pandemic era
There are risks, of course. Given its current holdings I am not totally confident that this stock will continue to outperform in the post-pandemic environment at the level it has done. With a heavy emphasis on technology and pharmaceuticals, I would be looking elsewhere to benefit from the reopening. Airlines and hospitality could perform much better than they have done of late, for instance.
Nonetheless, as the Moderna move showed, the trust’s leadership has shown itself to be adaptable. And it may tweak its holdings to cater for the end of the pandemic. Besides, it’s unlikely that the technology stocks it holds today will see their businesses devastated by the return to normality. Quite the reverse, in fact. In the long term, I think this stock brings diversity to almost any portfolio. While I am not adding immediately, I will be looking for opportunities to buy in the future whenever there are any dips in the share price.
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Andrew Woods holds no share mentioned. The Fintech Zoom UK has recommended Tesla. 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 Fintech Zoom we believe that considering a diverse range of insights makes us better investors.
Fintech Zoom UK 2022