At less than ?7, are Scottish Mortgage shares no-brainer buys?

In the last month, Scottish Mortgage (LSE: SMT) shares nosedived by another 8% to less than GBP7 per share. That fall left the share price down 55% from its all-time high.  That’s a sharp drop for a firm that manages nearly GBP10bn in assets and is considered one of the world’s leading money managers.

At less than GBP7, is it a no-brainer buy?

Stellar past performance

Between 2011 and 2021, Scottish Mortgage’s tech-heavy investment fund netted investors superb returns of 1,200%. I’d love to earn 12 times my money in the next decade, that’s for sure.  And that doesn’t even do justice to the fund’s long-term performance.

If I’d invested in the similarly tech-heavy US S&P 500 between 1993 and 2021, I’d have enjoyed returns of 871%. But if I’d put that money into Scottish Mortgage shares instead, I’d have got back 3,328% times my investment.  With one of the best track records in the business, what’s putting me off picking up a few shares at that battered GBP7 share price?

Well, a couple of things.

Worse than an index fund?

Studies have shown that 85% of investment funds don’t offer their investors market-beating returns. This means that most of the time, I’d do better investing in a market tracker compared to a fund like Scottish Mortgage. The main reason that figure is as high as 85% is because investment funds charge fees to manage each fund, to choose the stocks and so on.

A 2% fee is typical, but that’s 2% off the cash returns I’d get from my investment.  An advantage of Scottish Mortgage is that the fees charged are low at only 0.32%. Still, it’s an extra amount that I’d be paying over choosing stocks myself. 

The second problem is that the performance of tech stocks has been excellent for decades, but I’m a little wary that people have cottoned on to this trend. That’s a problem because of the sky-high valuation of some tech companies. Tesla is a good example.

It has a £615bn market cap – as large as the next six biggest automobile manufacturers – despite only having a 12% EV market share. The car manufacturer makes up over 5% of the Scottish Mortgage portfolio. In spite of these issues, there’s one final and important advantage with this stock that tips the scales for me. 

Global exposure

The best thing about Scottish Mortgage for me is the exposure to foreign firms that I don’t know too much about.

For example, Dutch semiconductor manufacturer ASML or ‘Latin America’s Amazon’ MercadoLibre are unknown quantities to me. But I can have some exposure to both these companies and others like them if I own a few shares in Scottish Mortgage. The idea of having its analysts do the research for me is appealing.

Throw in a stellar track record and a cheap GBP7 share price?

That makes the fund a no-brainer buy for me, and it’s why I opened a position last week.

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