If I’d invested £10k in Scottish Mortgage one year ago, here’s what I’d have now

Mortgage Scotland (LSE: SMT) remains the UK’s best-selling investment trust, most recently AJ Bell figures show, but it has been a terrible year.

That confidence gained spurs during the post-financial crisis crisis, after taking big bets on US tech and disruptive start-ups. At one point, three-quarters of the portfolio was invested in the US, with nearly a tenth devoted to just one stock, Elon Musk’s Tesla. It’s also big on tech giants like Amazon and Tencent.

It’s not a mortgage company

I have repeatedly highlighted the success of Scottish Mortgage and the increasing risks it poses. The wheels turned last year when inflation and interest rates rocketed, and US tech collapsed. Nasdaq down for third time in 2022, but Scottish Mortgage fared worse. Net asset value halved by 2022.

Measured over 12 months, the stock price is currently down 35.82%. If I had invested £10,000 on March 20 last year, I would only have £6,418 today. I will suffer a paper loss of £3,582, plus trading costs.

Scottish Mortgage yields 0.55% a year, which will give a dividend of around £50, but will not cover the growing losses.

Long-term investors have done better. If I invested £10,000 five years ago, I now have almost £15,000. If I had invested ten years ago, my money would have grown by 298% and £10k would have been worth £39,817.

This tells me two things. First, we never judge the performance of an investment in just one year, especially an unstable year like 2022. Second, the real rewards of the investment will be realized in the long term. Despite a disastrous last year, long-term investors are still thriving.

Can confidence ever come back?

The big question is: should I buy Scotland Mortgage today? I’ve been thinking about this for weeks, but now I’ve made up my mind and the answer is no. The collapse of Silicon Valley Bank made my mind up for me.

US banks are making money by lending to tech startups, but are being squeezed by today’s high interest rates. I suspect Scottish Mortgage’s hunting ground will be a barren area for some time, as dominoes totter and fall.

Today, I prefer to invest money in high-yield FTSE 100 stock. By reinvesting regular dividends, I should be able to benefit from continued volatility, by taking on more shares when prices decline. Scottish Mortgage does not offer that option.

The fall in the stock price could certainly make today a tempting entry point. The trust is currently trading at a 17.88% discount to the underlying value of the assets it holds. It is lower than the long-term average discount of only 1.5%.

Management has reduced its exposure to the US, which currently accounts for about half of the fund, and has also reduced its exposure to technology. These resets can set you on a more positive path. Also, the best time to buy stocks is before they take off, rather than after.

Give it a full decade and I think Scottish Mortgage will be back. But today, I think there are better places to invest my money.