It’s heating up for FTSE 100 investors on Bonfire Night, with the blue-chip index climbing to a three-month high today (5 November). The elusive 11,000 mark is again in sight.
Yet the Bank of England has also just increased interest rates from 3.75% to 4%, the first rise in more than three years. This is to try and tame rising inflation stemming from the Iran war.
But if inflation keeps ticking up, there’s a chance that rates could go higher than 4%. They peaked at 5.25% in 2023.
In theory, rising interest rates are not great for growth companies in my portfolio. These can be valued on cash flows that are years away from materialising, making them more sensitive to higher rates.
Take Scottish Mortgage Investment Trust (LSE:SMT), for example. It invests solely in growth companies, including some that are private and still unprofitable. A higher-rate environment globally could put financial pressure on these upstarts.
Given this, why am I not going to sell my Scottish Mortgage shares, even if rates go higher?
Secular growth trends
The FTSE 100 investment trust backs businesses targeting long-term growth opportunities in areas like AI, e-commerce, digital payments, semiconductors, and space technology. These are secular growth trends, and they won’t stop advancing just because central banks temporarily raise interest rates.
For instance, inflation-weary people might limit what they buy on Amazon (one of the trust’s key holdings), but they aren’t going to ditch their smartphones and flock back to the high street. E-commerce is here to stay.
In other words, structural shifts in the global economy ultimately dwarf macroeconomic events like interest rate changes.
Semiconductors are another great example. This industry itself is inherently cyclical, but the reality is that global demand for chips has only been going one way for decades. Up and up, despite recessions, wars, rate changes and whatever else.
Scottish Mortgage top 10 holdings:
| SpaceX | Space technology |
| TSMC | Semiconductor foundry |
| Nvidia | AI chips |
| Moderna | mRNA biotechnology |
| ByteDance | Social media |
| Anthropic | AI lab |
| Zipline | Drone logistics |
| MercadoLibre | E-commerce and digital payments |
| ASML | Semiconductor equipment |
| Amazon | E-commerce and cloud computing |
Permanent capital
Another reason I’m not selling is the investment trust structure itself. It allows Scottish Mortgage to deploy capital into companies for years without worrying about selling positions to pay cash to anxious investors.
On the other hand, this does mean the market value of investment trusts can diverge from the underlying net asset value (NAV). This can go one way (premium) or the other (discount).
Scottish Mortgage swinging to a meaty discount is an inherent risk. For example, it was trading at a huge 20% discount to NAV throughout 2023 (though the share price has doubled since then).
The trust tells investors to judge its performance over multiple years, or even decades. In the 10 years to the end of September, it delivered an annualised total return of 464% versus 228% for the FTSE All-World Index.
9% discount
Finally, there are some fantastic companies in the portfolio that are yet to go public. These include AI lab Anthropic, payments giant Stripe, and Revolut (now Europe’s most valuable private company).
SpaceX is an outsized position, adding risks to performance if it disappoints. But there are plenty of other public holdings I expect to get larger in future, including Amazon, MercadoLibre, and BYD.
Currently, the discount to NAV is 9%. At this price, I think the stock’s worth considering for the long term.
What growth stock do we like better than Scottish Mortgage Investment Trust Plc right now?
One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential growth.
And the best bit is that you can see it for yourself, right now, absolutely free of charge!
No jargon. No hard sell. Just a clear look at a growth share idea we think is worth your time.
Ben McPoland owns shares in MercadoLibre, Nvidia, Scottish Mortgage, SpaceX, and TSMC.
It’s heating up for FTSE 100 investors on Bonfire Night, with the blue-chip index climbing to a three-month high today (5 November). The elusive 11,000 mark is again in sight.
Yet the Bank of England has also just increased interest rates from 3.75% to 4%, the first rise in more than three years. This is to try and tame rising inflation stemming from the Iran war.
But if inflation keeps ticking up, there’s a chance that rates could go higher than 4%. They peaked at 5.25% in 2023.
In theory, rising interest rates are not great for growth companies in my portfolio. These can be valued on cash flows that are years away from materialising, making them more sensitive to higher rates.
Take Scottish Mortgage Investment Trust (LSE:SMT), for example. It invests solely in growth companies, including some that are private and still unprofitable. A higher-rate environment globally could put financial pressure on these upstarts.
Given this, why am I not going to sell my Scottish Mortgage shares, even if rates go higher?
Secular growth trends
The FTSE 100 investment trust backs businesses targeting long-term growth opportunities in areas like AI, e-commerce, digital payments, semiconductors, and space technology. These are secular growth trends, and they won’t stop advancing just because central banks temporarily raise interest rates.
For instance, inflation-weary people might limit what they buy on Amazon (one of the trust’s key holdings), but they aren’t going to ditch their smartphones and flock back to the high street. E-commerce is here to stay.
In other words, structural shifts in the global economy ultimately dwarf macroeconomic events like interest rate changes.
Semiconductors are another great example. This industry itself is inherently cyclical, but the reality is that global demand for chips has only been going one way for decades. Up and up, despite recessions, wars, rate changes and whatever else.
Scottish Mortgage top 10 holdings:
| SpaceX | Space technology |
| TSMC | Semiconductor foundry |
| Nvidia | AI chips |
| Moderna | mRNA biotechnology |
| ByteDance | Social media |
| Anthropic | AI lab |
| Zipline | Drone logistics |
| MercadoLibre | E-commerce and digital payments |
| ASML | Semiconductor equipment |
| Amazon | E-commerce and cloud computing |
Permanent capital
Another reason I’m not selling is the investment trust structure itself. It allows Scottish Mortgage to deploy capital into companies for years without worrying about selling positions to pay cash to anxious investors.
On the other hand, this does mean the market value of investment trusts can diverge from the underlying net asset value (NAV). This can go one way (premium) or the other (discount).
Scottish Mortgage swinging to a meaty discount is an inherent risk. For example, it was trading at a huge 20% discount to NAV throughout 2023 (though the share price has doubled since then).
The trust tells investors to judge its performance over multiple years, or even decades. In the 10 years to the end of September, it delivered an annualised total return of 464% versus 228% for the FTSE All-World Index.
9% discount
Finally, there are some fantastic companies in the portfolio that are yet to go public. These include AI lab Anthropic, payments giant Stripe, and Revolut (now Europe’s most valuable private company).
SpaceX is an outsized position, adding risks to performance if it disappoints. But there are plenty of other public holdings I expect to get larger in future, including Amazon, MercadoLibre, and BYD.
Currently, the discount to NAV is 9%. At this price, I think the stock’s worth considering for the long term.
What growth stock do we like better than Scottish Mortgage Investment Trust Plc right now?
One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential growth.
And the best bit is that you can see it for yourself, right now, absolutely free of charge!
No jargon. No hard sell. Just a clear look at a growth share idea we think is worth your time.
Ben McPoland owns shares in MercadoLibre, Nvidia, Scottish Mortgage, SpaceX, and TSMC.
