Over the past year, the price of shares in Scottish Mortgage Investment Trust (LSE: SMT) has fallen 42%. That is hardly the stuff of investor dreams. However, I see the pullback as a possible buying opportunity for my portfolio. At the right price, there are a number of things I like about the prospect of owning Scottish Mortgage shares. Here are three reasons I am currently considering buying the shares for my portfolio.
1. Exposure to growth stories
Two common styles of investing are growth and income. My portfolio is weighted in favour of income shares right now, but I am always on the lookout for more growth shares I can own.
Scottish Mortgage has a track record of finding and investing in some brilliant growth stories early in their development. For example, it owns stakes in businesses like Tesla and Latin American digital commerce giant MercadoLibre. With its team of professional investors hunting for the next big thing in many markets, I think the trust is in a good position to spot some promising growth shares.
In theory I could buy those shares myself once I became aware of the growth stories. But I like the fact that Scottish Mortgage operates as an investment trust. By buying one share in the trust, I can get exposure to dozens of companies in which it holds stakes. So even with limited funds, owning Scottish Mortgage stock could help me share in the possible success of a wide range of growth companies.
2. Dividends across the decades
From an income perspective, the dividend yield on Scottish Mortgage shares is not going to excite me. It is only 0.5%.
However, the trust has a record of dividends that stretches back decades. In fact, the last time it cut its dividend was all the way back in 1933. In recent years it has been growing its dividend annually, even though the yield remains small.
Past performance is no guide to what might happen to a dividend in future. But the Scottish Mortgage dividend appeals to me because it reflects a long history of shareholder focus that I think is central to the culture of the trust. It shows that Scottish Mortgage is a long-established trust that has demonstrated an ability to survive and even thrive amid difficult market conditions, many times over.
3. Diversification benefit
One risk when investing in growth stocks is that it can be hard to stay diversified. A real winner like Amazon in its early days can come to occupy an outsized space in one’s portfolio over time as its share price soars. From a risk-management perspective that can be problematic.
Owning Scottish Mortgage shares could help me get the sort of diversification I want. Not only does it own stakes in dozens of listed and private companies, but it has shown it is alert to the need to stay diversified.
For example, Scottish Mortgage did very well by buying Tesla early on. But as the Tesla share price rose, it came to have a massive role in the trust’s portfolio. Scottish Mortgage started selling some of the shares without abandoning Tesla altogether, demonstrating a focus on keeping properly diversified even when it backs a share that increases a lot in value.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon, MercadoLibre, and 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 Motley Fool we believe that considering a diverse range of insights makes us better investors.