In the stock market, it is not necessarily true that what goes up, must come down but when a stock market star falls, it often falls far.
Take Scottish Mortgage Investment Trust PLC (LSE:SMT) (SMT), for example.
Between 2000 and 2019 (inclusive), the shares rose from around 95p to around 586p; not bad but then it only took another 22 months before the shares shot up to a high point of 1,568.5p as investors went crazy for disruptive technology stocks of the sort SMT invests in.
Since that high point, however, the shares have more than halved to 742p as a number of factors have encouraged investors to abandon “jam tomorrow” stocks for dowdier “porridge today and almost certainly porridge tomorrow and the day after that” stocks.
Those factors include rising costs, supply chain issues and the high probability that interest rates will be hiked swiftly in an attempt to control inflation.
The interest rates issue is probably the biggest albatross around the neck of technology companies. Since the financial meltdown in the first decade of the current millennium, financing debt has been relatively cheap, which is ideal for companies that require a huge amount of investment to win the “land grab” phase in a new market. With the cost of borrowing going up, life is going to get tougher for these sorts of companies, no matter how disruptive their technology may be.
So, we’ve seen investors rotating out of tech and correspondingly we have seen the value of SMT’s investment decline precipitously.
Today, the company announced in its results for the year to the end of March that its net asset value (NAV) per share had fallen 14.1% over the year to 1,021.8p.
Even that number is a “rear-view mirror” number; according to financial information provider Morningstar, SMT’s estimated NAV is now 832.63p.
Ouch.
SMT's top 10 holdings
The listing of SMT’s 10 biggest holdings reads like a “who’s who” of tech glamour stocks.
- Moderna Inc (7.3% of portfolio): US biotech company that has done well out of Covid vaccines. Shares down from US$235 to US$138 this year
- Tesla Inc (NASDAQ:TSLA) (6.6%): Electric vehicle maker. In 2022, the shares have slumped from US$1,200 to US$710.
- Illumina (NASDAQ:ILMN) Inc (6.4%): another US biotech. Down from US$373 to US$240 in 2022.
- ASML Holding NV (NASDAQ:ASML) (6.4%): Dutch company that produces machines that make microchips. Shares have plunged from US$798 to US$528 this year.
- Tencent Holdings (HKG:0700, OTC:TCEHY) Ltd (4.2%): Chinese multinational technology and entertainment conglomerate. In Kong Hong, the shares have fallen from around HK$450 at the start of the year to HK$342.
- NVIDIA Corporation (NASDAQ:NVDA) (3.4%): US computer chip company. The share price has not quite halved this year but it’s close; down from US$301 at the start of the year to US$169 now.
- Amazon.com Inc (NASDAQ:AMZN) (3.0%): The company that ate the High Street but which makes a significant chunk of its money from its computer servers business. Amazon boss Jeff Bezos might soon have to lay off the trips into space as the stock has crashed to US$2,142 this year from US$3,408 at the start of 2022.
- Meituan Class B (2.3%): A one-stop platform for food, transportation, travel, shopping and entertainment. The shares currently trade at HK$165.50, down from US$220 or so at the start of the year.
- Alibaba Group (NYSE:BABA) Holding Ltd (2.5%): Chinese e-commerce giant. The stock traded at HK$115 at the beginning of the year and is now languishing at HK$83.35.
- Kering SA (2.4%): French luxury goods firm. Has having a “money is no object” clientele saved the stock from the tech sell off? No. The shares are down from €708 to around €449.
Scottish Mortgage $SMT - Another Baillie Gifford fund joins the '50% down' club. At least they invest in the few stock market winners that drive the market (irony). Mr Anderson, your legacy lives on. pic.twitter.com/Tv2aYf1eVV
— Andrew ???????? (@fundhunter_co) May 19, 2022
SMT’s investment manager, Baillie Gifford, revealed that it had reduced its holdings in Tesla and Amazon over the last year but is generally sticking its guns in terms of its portfolio allocation.
“We believe that a greater understanding of disease's genomic and molecular causes will result in targeted and personalised healthcare. People's attention is shifting from traditional forms of media to online. The retail business is going mobile and payments companies are becoming aggregators of information and services. Enterprises are increasingly turning to the cloud for the provision of IT services. We are moving away from a world of carbon-based energy generation and transport. It is helpful to measure recent events and stock prices against these contentions,” Baillie Gifford said.
“Has healthcare become less likely to personalise? Will people go back to offline forms of media and commerce? Are we more likely to be using fossil fuels ten years from now?
“For us, the answer to these questions is 'No!'. Indeed, recent events are likely to have accelerated some of these processes. Consequently, we have not made meaningful changes to the portfolio. We still own all the top 30 stocks we owned a year ago (a relevant measure as approximately three-quarters of the portfolio by weight is in the top 30 holdings). Moderna, the mRNA company responsible for one of the key Covid vaccines, is now our largest holding, partly because of additions. It is the only company in our top ten held for less than five years,” it noted.