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At Scottish Mortgage Investment Trust (LSE:SMT) share price is up 3% in 2023. But signs are emerging that UK stock investors are becoming increasingly bearish on tech stocks.
according to Hargreaves Lansdowne, the trust – which focuses on US and Chinese technology stocks – was the fifth best-selling stock on the platform in the past seven days. At FTSE 100 shares accounted for 1.42% of all sell orders over the week.
Will Scottish Mortgage shares sink? And as a long-term investor, should I consider building a position in the business?
The layoffs keep coming
Scotland Mortgages’s Top 10 Holdings (as at 31 December 2022)
| Company | What he did | % of Scottish Mortgage Total Holdings |
| Modern | Make pharmaceuticals including vaccines | 10.6 |
| ASML | Produces semiconductor manufacturing equipment | 6.7 |
| Illumina | Developing systems for genome sequencing | 4.1 |
| Space Exploration Technology | Manufacture and launch spacecraft | 3.6 |
| Northvolt | Making lithium-ion batteries | 3.6 |
| Meituan | Operates a Chinese online shopping platform | 3.5 |
| Tesla | Electric Vehicle (EV) Production | 3.2 |
| Free market | Operate e-commerce and payment systems | 3.1 |
| dry | It has a wide range of luxury brands | 2.8 |
| Tencent | Provides a wide range of digital services | 2.5 |
| Pinduoduo | Operating an internet shopping platform | 2.5 |
Source: Scottish Mortgage Investment Trust
The outlook for the global economy has brightened in recent weeks. Typically, this will increase demand for growth stocks like technology stocks. So why are investors selling Scottish Mortgage Investment Trust shares?
The answer is job cuts. Many of the job losses, in fact, are due to the boost tech companies enjoy when the pandemic fades and consumers cut back on spending.
Amazon kick off 2023 by announcing 18,000 role cuts in early January. Then last week, the owner of Google Alphabet and software giants Microsoft announced they were cutting 12,000 and 10,000 roles respectively.
And yesterday, the music streaming platform Spotify said it is axing 6% of its global workforce.
An expensive option
Job cuts like these help protect profits during good times. This is why the above stocks rose in value after the streamlining announcement.
But the problem is that many US tech stocks continue to trade at multiples. And many in the market (including Hargreaves Lansdown customers selling Scottish Mortgage shares) do not believe the business now warrants high valuations as the global economy cools.
This shows the Scottish Mortgage Investment Trust share price.
Growth potential
This is not to say that FTSE 100 trusts do not have great investment potential over the long term.
As the graphic shows, Scottish Mortgage shares provide exposure to various industry growth and trends for the next decade and beyond. What’s more, many of the businesses we invest in have a strong track record of innovation and creating market-leading products and services.
However, I still have a problem with the premium of many shares in the command of its portfolio. Earnings forecasts for some of these companies have long looked juicy. And before the prospect of a global recession appeared.
As a result, I think stocks may struggle to deliver strong capital appreciation. On balance, I’d rather buy another FTSE 100 stock today.
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