After an incredible rally in 2020, the Scottish Mortgage Investment Trust (FTSE: SMT) has continued its fine form into this year. Since I last wrote on SMT back in August, the FTSE 100 stock has risen over 10%.
The stock is up over 20% year-to-date – and with it currently trading at 1,515p, here’s why I’d buy the Baillie Gifford fund for 2022.
SMT’S diverse portfolio
What I most like about SMT is its diverse portfolio. Most importantly, it provides me exposure to an array of sectors and opportunities. As an example, its recent surge is partly linked with Tesla, which makes up 6.3% of SMT’s assets. The recent rise of the Tesla share price past the $1,000 mark contributed to a rise in SMT’s share price. SMT’s top holdings, as of 31 October, also included biotech firm Moderna (7.8%), ASML (5.6%), and NIO (2.9%). This further shows the exposure to exciting companies I can gain from a single investment in this trust.
Another reason I deem the FTSE 100 stock a buy for 2022 is its focus on China. Although some firms have suffered recently due to stricter regulations from the Chinese government, it is clear China has major long-term potential. SMT’s large focus on the world’s fastest-growing economy is an enticing reason for me to buy. The short-term volatility this may provide does not distract me from the long-term gains that could potentially be made.
SMT concerns
I do, however, have a few concerns with the trust. First, continuing supply chain issues could pose a threat to SMT. With both Tesla and NIO among its top holdings, should these issues persist I’d expect this to translate into a drop in the price of the trust’s stock. It’s heavy focus on tech stocks could also provide periods of volatility, as seen back in February when the share price dipped 30% due to the tech sell-off.
Also, the trust has been on an incredible run over the past few years, which leads me to question just how long this momentum can continue. With the threat of rising inflation, could this be the factor that halts SMT’s impressive form?
However, I have faith in SMT is due to its impressive track record. The FTSE 100 stock is up over 40% during the past 12 months and over 350% within the previous five years. For perspective, the FTSE 100 has only climbed 14% and 6% over the same periods. The trust’s cheap ongoing charges of 0.34% are another enticing factor for me given its long-term performance.
Why I’d buy
I think SMT has great potential for 2022 and beyond. There are of course short-term issues that could lead to volatile periods, but the trust’s long-term performance shows that it can deliver solid returns as part of its longer-term investment strategy. A potential dip in the share price, if problems such as supply chain issues and rising Covid-19 cases persist into the rest of 2021, could present an opportunity for me to add SMT to my portfolio. The long-term focus the trust has in place outweighs these momentary concerns – and, as such, I would buy.
Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended ASML Holding. 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.
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