Fund Focus: four questions to ask Scottish Mortgage

Scottish Mortgage Ord (LSE:SMT) was the most popular investment trust among ii customers last month, and seemingly with good reason. 

Returns have been strong this year thanks to an early position in Space Exploration Technologies Corp Class A (NASDAQ:SPCX), and the trust’s shares have more generally enjoyed big gains since 2023. 

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But SpaceX maintains something of an overwhelming position in the fund for now, making up 17.5% of assets at the end of August. And my mention of returns since 2023 glosses over a nasty 2022, when shareholders had to swallow a loss of around 45% as interest rates shot up.

As such it’s worth asking: what exactly will define returns for SMT beyond SpaceX? And what sets it apart from the many other growth funds out there?

AI, but not all AI

The trust recently held what it dubbed a “digital conference”, providing some updates on portfolio activity, looking at future trends and discussing key markets such as China. And this does give us some sense of what’s going on in the portfolio.

As we discussed in an analysis roughly a year ago, artificial intelligence (AI) is a big area of focus for the trust. As investment specialist Hamish Maxwell put it in an update, AI has become a “major portfolio theme”, with the team attempting to access it from multiple angles.

By his reckoning, this ranges from “the power and data centres underpinning AI” to chips and compute via names such as Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM), ASML Holding NV (EURONEXT:ASML), NVIDIA Corp (NASDAQ:NVDA) and SK hynix Inc ADR (NASDAQ:SKHY). There’s also data infrastructure via companies like Databricks and Snowflake Inc Ordinary Shares (NYSE:SNOW),  AI models from Anthropic and MiniMax Group Inc Ordinary Shares - Class A (SEHK:100), and “physical intelligence” such as Tempest AI and Horizon Robotics Class B (SEHK:9660).

There’s therefore a good spread of different exposures to the theme, and to me this can be viewed in a couple of very different ways. A glass half-full view is that the fund is accessing an exciting theme via multiple avenues and has a better chance of capturing its winners. A more fearful take is that the trust is exposed in many different ways to any sell-off associated with AI.

Either way, the trust could continue to be volatile, with big ups and downs, suggesting that using it as a satellite holding and sticking with it for the long term could shield your portfolio a little.

But...what else?

As we noted in 2025’s analysis, it can be a little trite to dismiss SMT as just an AI fund. It targets plenty of different themes, from healthcare innovation to the digitalisation of commerce, and the investment team has always looked happy to move the portfolio around depending on which themes and companies stand out. So, there is a bit more breadth here than some might assume.

As Maxwell put it in the recent update: “There’s a broader pipeline of developing opportunities such as Rednote in consumer platforms, Figma Inc Class A (NYSE:FIG) in design software, Loyal in pet longevity, Zipline in drone logistics, Enveda in biotech and PsiQuantum in quantum computing. 

“Meanwhile, sentiment towards Moderna Inc (NASDAQ:MRNA) has been recovering from a very low base, helped by groundbreaking progress in its cancer vaccine trials.”

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Questions to ask about SMT

SMT shares have returned around 35% so far in 2026, and gains of such magnitude often tend to make me a little cautious. But markets could nevertheless tend to push on with the big gains of recent years.

Having accepted the lack of a crystal ball, I can at least set out a few questions we might want to ask in terms of what the future might hold for Scottish Mortgage, as set out below:

What SpaceX position do we ultimately end up with?

Back when Tesla Inc (NASDAQ:TSLA) was a major position in Scottish Mortgage some years back, it seemed that Baillie Gifford wanted to keep its allocations to an internal limit somewhere around the 10% mark. 

Over time, as the team gets the ability to sell down its SpaceX exposure, we will see how much of the fund is beholden to one company’s fortunes.

As that position size falls, it will also be interesting to know where the proceeds go.

The state of the AI trade

As noted, the trust is very exposed to the wins and losses associated with AI. The portfolio might serve as a guide to how the AI story is developing, too.

Can we survive further rate rises?

Scottish Mortgage shares fell off a cliff in 2022, thanks to the fact that interest rates were rising aggressively. Such increases are not kind to “growth” shares, and nor to the private companies Scottish Mortgage likes to hold. They made up around 22% of the fund at the end of August.

Rate rises are on the agenda again, so we should ask how resilient growth companies now are as the cost of debt increases again.

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Where are the opportunities beyond the US?

Scottish Mortgage, to its credit, has not been afraid of looking past the US, with a decent focus not just on China but on regions such as Latin America, plus Taiwan and South Korea. It’s worth keeping an eye on how far it strays past developed markets and what risks and rewards this can bring. Its exposure to China has certainly brought shocks in the past.