Scottish Real Estate Investment Trust (LSE: SMT) is a global investment management company that has generated incredible returns over the past five years. This results primarily from two achievements.
First, the success of its growth-focused investment strategy, which is largely due to the acquisition of technology stocks such as Tesla And nvidia. Both companies, which make up 8.3% of the SMT portfolio, showed strong year-over-year performance. The Scottish Mortgage Investment Trust currently has a 44% exposure to US equities. With high returns from indexes like Standard & Poor’s 500 And NasdaqIt is clear how this trust has generated exceptional returns.
Secondly, decision-making in management should be noted. The Scottish Real Estate Investment Trust sold 80% of its shares in Tesla during May 2021. This was true before Tesla’s share price plunged nearly 17% over the following month. This company obviously has an efficient decision making process behind its trading.
Make an investment of £1,000
Over the past five years, Scottish Mortgage Investment Trust’s stock price has risen 257%. This means that an investment of £1,000, placed in January 2017, will now come to £3,570. Including an average annual dividend yield of 0.6% over this period, which would yield approximately £50, the total investment would be worth £3,620! This is a very impressive return on investment, which is why this trust has always been so well respected. Compare this with FTSE 100, which has returned only about 4.5% in the past five years.
Even the Scottish Real Estate Investment Trust has outdone its investment rivals. 3i group yielded a five-year return of 98%, while F&C . Investment Fund Sitting 65% less. This performance results from the heavy technology focus of the Scottish Real Estate Investment Trust throughout the pandemic. The company is clearly doing exceptionally well. But with the stock price down 11% compared to last month, where is this company heading in 2022?
The recent drop in the stock price is due to fears of a widening tech bubble. Many investors believe that tech stocks Tesla and Nvidia are well above their fair value, and are facing a correction soon. Such concerns have led to a drop in SMT’s share price as investors consider the impact of the bubble on the company’s tech-laden portfolio.
This drop got me thinking if now was the perfect time to invest. With an exceptionally strong five-year performance, it’s tempting. However, there are definitely risks.
Fears of a tech bubble are valid. Nvidia saw a very high annual return of 101%. While the Scottish Real Estate Investment Trust has benefited, it is likely that this tech stock has peaked in such returns. Regardless, as I look forward, I am more interested in examining how confidence adapts to such fears rather than whether this bubble is growing.
The Scottish Real Estate Investment Trust recently changed its portfolio. The company now owns large amounts of shares in NIO And Mituan, exposing its portfolio to the Chinese market. In addition, allocations of funds to healthcare stocks now make up 21% of the fund’s portfolio, outstripping technology stocks by 17%.
The tech sector is certainly at risk of a value correction. While this still poses a risk to SMT, I trust the company’s management decision making to mitigate potential risks. For this reason, I will be looking to add Scottish Mortgage Investment Trust stocks to my portfolio.
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Hamish Cassidy has no position in any of the stocks mentioned. The Motley Fool UK recommended Tesla. The opinions expressed about the companies mentioned in this article are those of the author, and therefore may differ from the official recommendations we provide on our subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, we believe that thinking about a variety of ideas makes us better investors.