Can Scottish Mortgage shares lead the next bull market charge?

I was gearing up to sell my Scottish Mortgage (LSE: SMT) shares when they suddenly took off like a rocket in the final weeks of 2024.

The tech-focused FTSE 100 investment trust famously endured a terrible 2022, its shares halving as the technology sector fell out of favour. But tech’s roared back, and so have Scottish Mortgage shares. They’re up 28% over one year. Over five years – even accounting for 2022 – they’re up an impressive 66%.

This demonstrates the value of staying invested through market cycles. So why did I consider selling?

Can this FTSE 100 investment trust fly in 2025?

Typically, I prefer direct equities over funds. I’d rather make my own mistakes than delegate them to an investment manager. Aside from Scottish Mortgage, the only funds I hold are US-focused trackers Vanguard S&P 500 UCITS and the L&G Global Technology Index.

Research shows most fund managers underperform the market, so I take a risk when I pick active funds. Another concern is that around a quarter of Scottish Mortgage’s portfolio consists of unquoted companies, whose valuations are opaque. That said, this can be an advantage. For example, it holds Elon Musk’s privately-quoted SpaceX, which I couldn’t access otherwise.

If SpaceX’s Starlink division floats at some point this could boost Scottish Mortgage’s net asset value. Of course, not every IPO’s a success.

The trust also gives me exposure to stocks I wouldn’t normally consider, like the Taiwan Semiconductor Manufacturing Company, or Chinese tech firms such as PDD Holdings and Meituan.

The recent rally has firmed my resolve to stick with Scottish Mortgage through thick and thin. But what can I expect this year?

Its focus on high-growth, innovative companies means it thrives when confidence is high, but struggles when it falters. It did well from the post-Presidential election ‘Trump Bump’ but that may reverse. Investors fear Trump’s mooted tax cuts and trade tariffs could drive inflation and interest rates higher.

It’s an exciting growth stock

This will heap pain on growth stocks as it will increase borrowing costs and squeeze valuations. After the S&P 500’s strong gains over the last two years, a repeat performance seems unlikely, while Scottish Mortgage’s Chinese holdings are at the mercy of geopolitical tensions and regulatory risks.

Another challenge is the potential overhype of artificial intelligence (AI). If it fails to meet lofty expectations, tech stocks – including Scottish Mortgage – could take a hit.

One small advantage is that recent sterling weakness could boost the value of the trust’s overseas holdings. However, predicting currency movements is as tricky as guessing market trends.

Scottish Mortgage shares trade at an 11.8% discount to net asset value, but investment trust discounts have been persistently wide in recent years. A discount alone isn’t enough reason to buy or sell.

If markets rally, Scottish Mortgage could outperform. If they slump, it won’t escape unscathed. That’s why I hold shares like this for the long term. Over that horizon, I think the trust will power on.

I’m glad I still hold it. Now I need to hold my nerve.

The post Can Scottish Mortgage shares lead the next bull market charge? appeared first on The Motley Fool UK.

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Harvey Jones has positions in Scottish Mortgage Investment Trust Plc. The Motley Fool UK has recommended Taiwan Semiconductor Manufacturing. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.