If I had invested £1,000 in Scottish Mortgage 10 years ago, this is how much I would have

Key points

  • Scottish Mortgage Investment Trust has outperformed the market over the past decade
  • Confidence has been able to ride on the growth of the technology sector
  • It has unique benefits to help find new ideas

Performance of the Scottish Mortgage Investment Trust

the Scottish Mortgage Investment Trust (LSE: SMT) has been one of the best performing stocks held in the London market over the past decade.

If I had invested £1,000 in the business at the start of 2012, I would be sitting on a lump sum of around £9,700 today. A similar investment in the FTSE100 would be worth around £2,000. Both figures include reinvested dividends.

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The trust outperformed, thanks to its exposure to high-growth internet stocks. In many ways, the company was in the right place at the right time. Its exposure to companies like You’re here and Amazon coincided with one of the most incredible rallies tech stocks have ever seen. As money flowed into these businesses, the value of Scottish Mortgage’s positions jumped.

But it’s not just luck that has made the success of the investment company. The portfolio is managed by the Baillie Gifford team, who are focused on finding the next big opportunity.

While there may be some hiccups along the way, these investment managers are willing to focus on long-term growth and ignore short-term market trends.

This is a rare quality among UK fund managers. Many managers focus on short-term performance at the expense of long-term growth, which means they can miss the best opportunities.

Indeed, the Scottish Mortgage Investment Trust has had enormous success in finding growth opportunities before the rest of the market discovered the potential. It takes a lot of research and conviction to get to this stage.

Private market investment

To complement its public market strategy, the company also has a portfolio of private companies. It is uniquely positioned to take advantage of private market opportunities, as the company does not have to worry about investor withdrawals. This is called a closed-end investment trust.

The shares are freely negotiable on the London Stock Exchange, but this does not influence the underlying capital base. On the other hand, open-ended funds must buy and sell investments based on investors’ deposits and withdrawals. This makes it difficult for them to hold private investments, which can be difficult to buy and sell.

The company has also developed a network to help it find these new opportunities in the private market. This is another competitive advantage of the group compared to other growth investment trusts.

Unfortunately, this does not guarantee success. Investing in early-stage high-growth companies can be extremely risky. If the Scottish Mortgage Investment Trust makes a few bad bets, it could cost investors millions of pounds. The trust also charges a management fee of 0.3% per year. This additional cost could erode long-term shareholder returns.

Despite these risks and the added cost, I would be happy to add the stock to my portfolio as a growth investment. With its unique structure and track record of finding growth opportunities, I think the trust has great potential.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Rupert Hargreaves has no position in any of the stocks mentioned. The Motley Fool UK recommended Amazon and Tesla. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we give in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of information makes us better investors.

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