Scottish Mortgage Investment Fund (LSE: SMT) stocks suffered a defeat in 2020 and continued to generate stable returns throughout 2021. Stocks are up more than 8% since I last covered them in June… However, SMT faces new challenges. I’m going to take a closer look to see if I should add more stocks to my portfolio today.
Volatility of Chinese stocks
One thing I love about investment funds is the wide range of stocks that you can access in a single investment. SMT is no different here, offering a broad technology-dominated portfolio. However, some of the largest Chinese SMT holdings, including Tencent (4.2%), NIO (3.5%), and Alibaba (3.3%) were recent concerns.
Regulatory measures against several companies and industries are holding back growth. For example, Alibaba was fined $ 2.8 billion for anti-competitive practices, and the IPO of its financial subsidiary Ant Financials was halted. A similar case happened with Tencent. The company was heavily fined for violating competition and stripped of its exclusive rights to listen to music. This can be a problem when promoting SMT shares, since these companies make up a significant part of its portfolio.
Yield increases / inflation concerns
Another challenge for SMT is the impact that rising bond yields have on the growing stock market as a whole. The tech sell-off in early 2021 was fueled by fears about inflation, as indicated by soaring bond yields. The SMT portfolio is largely composed of early growth stocks. These types of stocks are the most affected by inflation because they often run out of debt and the rise in interest rates can be catastrophic. Inflation also lowers the value of these companies’ future projected earnings. In the future, I will definitely keep an eye on the Scottish Mortgage Investment Trust shares.
Scottish Mortgage Investment Fund Shares: A Long-Term Perspective
The reason SMT actively invests in companies at an early stage is because of their long-term perspective. As my comrade Fool, Charlie Keough, indicates that the SMT target is “maximize total return for shareholders in the long term“. Such statements indicate that the company is probably not addressing more near-term issues, such as the Chinese crackdown. In addition, China is the fastest growing economy in the world. Having such a large share of this growth should pay off for Scottish Mortgage Investment Trust shares in the future.
In addition to this, Scottish Mortgage Investment Fund shares are up 6%, 14% and 40% in the last month, six months and one year, respectively. This shows that regardless of the challenges SMT faced, it was able to deal effectively with them.
I was an investor at the Scottish Mortgage Investment Trust for a while. However, I would wait before adding anything to my portfolio. I’d love to see what Chinese stocks look like in the coming months and how SMT will manage its portfolio in return.
Dylan Hood owns shares in the Scottish Mortgage Investment Trust and NIO. Motley Fool UK owns and recommends Alibaba Group Holding Ltd. and NIO Inc. Advisor, Hidden Winners and Pros. At The Motley Fool, we believe that considering a variety of ideas makes we are the best investors.