With an investing timeline of 10, 20 years or longer, I believe that catching world-class growth stocks is the best way to maximise returns. Imagine buying stock in Amazon while it was plugging away as an online bookshop. Well, buying a hot property early on is essentially the Scottish Mortgage Investment Fund (LSE: SMT) mantra.
Past winners include Nvidia (bought in 2016) and Tesla (bought in 2013). Both of those buys look prescient in hindsight. Other exciting names such as SpaceX or Bytedance (Tiktok owner) take place in the fund too.
While there are many ways of getting exposure to growth stocks, I think Scottish Mortgage is one investors should consider. Here are three reasons why.
Promise
Aiming for growth is all very well and good, but there are thousands of investment funds out there with the same goal. What makes Scottish Mortgage special?
For me, it’s being able to outsource the research in seemingly inscrutable sectors. Dutch company ASML produce photolithography machines which are vital for the production of semiconductor chips used in artificial intelligence (AI). What’s more, ASML has a near monopoly. Sounds like a promising stock, but for one thing.
What do I know of photolithography? I’ve read up on the field and watched a few videos, but it seems closer to magic than technology to me. By instead buying Scottish Mortgage, with its substantial stake in ASML, I can get exposure to it and other such stocks without becoming an expert in technologies most people haven’t even heard of.
Diversity
Another feather in the Scottish Mortgage cap is that of regional diversity. My current portfolio consists exclusively of UK and US stocks. I doubt I’m unusual in my sticking to my home market and the rather large one across the pond, but what about all the other wonderful companies dotted across the globe?
Take carmaker BYD, a Chinese company selling electric vehicles (EVs) for less than $8,000, when US competitor Tesla’s cheaper models are in the $40,000 range. What if BYD overtakes the Western company? It might have already happened, on last year’s revenue figures the Chinese firm were winning.
This isn’t a moot example either. Around 1.5% of the Scottish Mortgage portfolio is invested in BYD shares which gives me exposure to an exciting firm in a country I wouldn’t otherwise look into.
Discounts
The third and final reason I’m bullish here is that the shares are trading at an inbuilt discount. The technical term is Net Asset Value (NAV), the difference between the asset value of the company and its market value.
The Scottish Mortgage NAV is 8.95% which is like I’m paying 9% less than what the portfolio’s holdings would cost on the market. The catch? Many of those holdings aren’t on the market. They’re unlisted. They don’t have a market price.
So I’m relying on the Scottish Mortgage brains to calculate the value of their own assets. That may be off-putting to some, in fairness.
Still, pair a hypothetical discount with specialised growth stocks from around the world and this is a stock I believe is one to consider.
