Within the FTSE 100, there’s a broad range of different types of companies. One interesting firm included is the Scottish Mortgage Investment Trust (LSE:SMT). It’s a collection of stocks managed as an investment trust by Baillie Gifford, a money manager. Yet as it’s publicly listed, I can buy and sell shares with ease. Over the past year, the share price has increased by 2.3%. Here’s why I think it could be a top FTSE 100 buy for me in 2022.
A short-term fall
Before anyone points their finger at me, I do need to address one technical point. When I say that this is a cheap FTSE 100 stock, I’m not talking about the difference between the share price and the net asset value. Given that SMT holds multiple stocks, there’s a net asset value of all of the stocks combined. In theory, the share price should reflect this value. In reality, it doesn’t always do this, so the share price can be higher or lower than the actual asset value.
Currently, it trades around the same level. As it’s not at a discount, it isn’t cheap from this point of view. From my point of view, the share price is cheap because the stocks within the trust are also cheap!
For example, the share price is down almost 10% over the past month. A lot of this has to do with the sell-off in growth stocks, particularly in the NASDAQ. From reviewing the top holdings, there’s a decent exposure to the NASDAQ. This includes the likes of Tesla, NVIDIA, and Illumina.
Although I have mixed opinions on the value of Tesla, I think that the slump in growth stocks over the past month has been overdone. This was mostly driven by concerns around Omicron and the pace of monetary policy tightening by central banks. I don’t think either of those points warrant long-term concern. Therefore, this 10% fall in the past month makes me want to buy the potential dip in this top FTSE 100 stock.
A top FTSE 100 stock, but with caveats
Another reason why I think SMT has good value is because I’m buying the shares that give me exposure to a professional money manager. I think that 2022 will be a much more challenging year to be a smart stock picker versus 2021. Although I back myself, I’m happy to give some of my funds to invest it in a stock like SMT. The manager can then actively manage these funds on my behalf. As I have the ability to sell at any time, I’ve not locked up my money for a long period of time.
Clearly, I do need to think about the risks. One is that the share price doesn’t always track the net asset value. I might come to sell in the future and find that the share price is well below the actual value of the stocks.
Another risk is that if we see a stock market crash, the SMT share price is likely going to be hit hard given the exposure it has to growth stocks. However, on balance I’m still considering buy shares in this top FTSE 100 stock for my portfolio.
Jon Smith and The Motley Fool UK have no position in any of the shares mentioned. 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.
