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Scottish Mortgage Investment Trust (LSE: SMT) shares have been one of the FTSE 100‘s high flyers in the last year. Its collection of exciting, future-thinking companies has pushed the share price up 68% since late 2023. With the chance to get some exposure to hot names like SpaceX, TikTok and Nvidia, investors might be wondering whether this is one to consider snapping up today? I believe so, and here’s why.
British investing
An interesting quirk of British investing is how overrepresented a few established companies are. Hargreaves Lansdown releases a report on this every so often, showing where people put their money via their ISA accounts.
The data is a bit predictable, to be honest. Each time, big FTSE 100 hitters like BP, Aviva and Legal & General dominate.
The problem? These are largely defensive stocks, and are sometimes unflatteringly called dinosaur stocks. That’s not to say they’re bad companies, but oil majors and big insurance firms don’t expect to have oodles of fast growth ahead of them.
Enter Scottish Mortgage. You could almost view this fund as the anti-FTSE 100, such is its focus on non-British growth stocks. They range from electric vehicles, battery technology, or simply an online Amazon lookalike in Latin America. Many of the companies are unlisted too, so there are shares I can’t buy on the market included.
Why might this be good? Because it adds diversification. It’s hard to pinpoint any one company that will go on a tear, but with a basket of 30 of them? That’s a lot of chances to strike gold.
And in a world where many are saying we’re standing on the precipice of a revolution in artificial intelligence, I wouldn’t like to be watching from the sidelines.
The risks
Investors ought to be aware of the risks too. To start with, the firms in this fund run at sizzlingly high valuations.
The price-to-earnings ratios of Amazon (50), Meta (29), Nvidia (46), and Ferrari (51) look massive compared to the FTSE 100 average (14). That’s par for the course with growth stocks, especially good ones, but it means less safety.
For example, the reason eye-wateringly valued internet stocks fell so far during the dotcom crash was simply because they had so far to fall. Scottish Mortgage could also sink like a lead balloon in any market turbulence.
Given the international nature of its constituents, the threat of President Trump’s tariffs is also something investors should keep an eye on. But how serious might these be?
Well, we got a little taste this week. The first day after he slapped tariffs on China, Mexico and Canada, the S&P 500 was down 0.76%. The next day it was up 0.66%. The MCSI world index was up on both days.
On those numbers, the markets don’t think there’s much of a problem. Just a storm in a teacup then? I’d say it’s too soon to tell. But I think the early signs are this shouldn’t be a red flag for anyone considering investing in Scottish Mortgage shares.
