Image source: Getty Images
Shares in Baillie Gifford Scottish Mortgage Investment Trust (LSE: SMT) have risen 12.2% in the first half of this year, meaning the trust has performed better than the FTSE 100, which is up 5.7% in the same period.
Beating the index has become something of a routine for Scottish Mortgage. Over the past five years, the Footsie index has risen 8.6%, while the fund has returned a staggering 61.8%. Even in 2020, when the FTSE 100 fell 15.2%, the trust surged 106.9%.
You get the point. Of course, past performance is no indication of what a share price will do in the future, but Scottish Mortgage has a pretty solid track record of delivering very decent returns, and I'm optimistic that it can continue this way into the second half of 2024.
Reason 1
I say this for a few reasons. The first is that we could see multiple rate cuts this year. Inflation fell to the 2% target in May. The market seems to be expecting the first rate cut in August. If inflation stays at or falls below 2%, we could see the Bank of England cut rates multiple times this year.
The cuts would benefit the trust greatly, given its heavy weighting in growth stocks. In a high-interest-rate environment, those stocks will take a hit. These companies have lots of debt, which will become even more expensive to service if interest rates are as high as they have been.
So when banks started to raise interest rates at the end of 2021, Scottish Mortgage's share price plummeted.
But as interest rates fall, investors are expected to regain their appetite for adding growth stocks to their portfolios, which should provide momentum for the trust.
Reason 2
The second reason is that the trust currently looks cheap. According to Scottish Mortgage's website, it is currently trading at a 9.3% discount to its net asset value. This means that by investing through Scottish Mortgage you could, in theory, buy the companies it owns for less than their market value. This looks like a good deal to me.
The story continues
I am buying
For these reasons, I am looking to add more shares in Scottish Mortgage to my portfolio this month, as at current prices they look like a good buy.
That said, the coming months will of course present challenges. First, it goes without saying that any signs of a delay in rate cuts would likely send stocks plummeting. If inflation rises again, banks may hold back on action in the coming months.
In addition, roughly a quarter of the companies it owns are not traded on the stock market. Valuing these companies can be difficult. Their actual value may be lower than estimated. Conversely, it may be higher.
Still, interest rate cuts will come, and even if they are delayed in the short term, I'm not too worried.
With its goals of “holding the world's best public and private growth companies” and “maximizing total returns over the long term,” and an impressive track record of achieving these goals, I believe now is a wise time to consider the Footsie Fund.
This article Two Reasons Why Scottish Mortgage Shares May Keep Riding Higher In The Second Half Of 2024 originally appeared on The Motley Fool UK.
Show more
Charlie Keough holds shares in Scottish Mortgage Investment Trust Plc. The Motley Fool UK has no position in any of the stocks mentioned herein. Views expressed on companies mentioned in this article are those of the author and may differ from official recommendations we make in subscription services such as Share Advisor, Hidden Winners or Pro. At The Motley Fool we believe considering diverse insights makes us better investors.
Motley Fool UK 2024