Key points 

• The Scottish Mortgage Investment Trust has outperformed the market over the past decade
• The trust has been able to ride the growth of the tech sector 
• It has some unique advantages to help find new ideas

Scottish Mortgage Investment Trust performance 

The Scottish Mortgage Investment Trust (LSE: SMT) has been one of the best performing shares to own on the London market over the past decade. 

If I had invested £1,000 in the company back at the beginning of 2012, I would be sitting on a lump sum of around £9,700 today. A similar investment in the FTSE 100 would be worth around £2,000. Both of these figures include reinvested dividends. 

The trust has outperformed, thanks to its exposure to high-growth internet stocks. In many ways, the company was in the right place at the right time. Its exposure to corporations like Tesla and Amazon coincided with one of the most incredible rallies in tech stocks ever seen. As money flooded into these enterprises, the value of Scottish Mortgage’s positions surged. 

But it has been more than just luck driving the investment company’s success. The portfolio is managed by the team at Baillie Gifford, who are laser-focused on finding the next big opportunity. 

While there may be some hiccups along the way, these investment managers are prepared to focus on long-term growth and overlook short-term market trends.

This is a rare quality among UK fund managers. Many managers concentrate on short-term performance at the expense of long-term growth, which means they can miss the best opportunities.

Indeed, the Scottish Mortgage Investment Trust has achieved tremendous success by finding growth opportunities before the rest of the market discovers the potential. It takes a lot of research and conviction to get to this stage. 

Private market investing 

To complement its public market strategy, the firm also owns a portfolio of private businesses. It is uniquely positioned to capitalise on opportunities in the private market because the company does not have to worry about investor withdrawals. It is what is known as a closed-ended investment trust.

The shares are traded freely on the London Stock Exchange, but this does not influence the underlying capital base. On the other hand, open-ended funds have to buy and sell investments in line with investor deposits and withdrawals. This makes it challenging for them to own private investments, which can be challenging to buy and sell. 

The company has also developed a network to help it find these new opportunities in the private market. This is another competitive edge the group has over other growth investment trusts. 

Unfortunately, this does not guarantee success. Investing in high-growth companies at an early stage can be incredibly risky. If the Scottish Mortgage Investment Trust makes a few bad bets, it could cost investors millions of pounds. The trust also charges a management fee of 0.3% per annum. This additional cost could erode shareholder returns over the long run. 

Despite these risks and the additional cost, I would be happy to add the stock to my portfolio as a growth investment. With its unique structure and track record of finding growth opportunities, I believe the trust has excellent potential. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon and Tesla. 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.

Barclays (LSE: BARC) shares recently hit their highest level since early 2018. Investors who bought the stock one year ago have enjoyed strong gains. But anyone who has held the stock for longer might be less happy.

Here, I’m going to crunch the numbers on Barclays’ shareholder returns and ask if the bank’s share price can continue climbing in 2022. Should I consider adding Barclays to my portfolio?

Have long-term shareholders made any money?

Let’s start by looking at the total shareholder return generated by Barclays over the last five years. Total return is the sum of share price movements plus dividends — the total gain to shareholders.

Checking back through the data, I can see Barclays has paid dividends of 17.5p per share since the start of 2017. Over the same period, the stock has fallen from 229p to around 212p, a drop of 17p. Unfortunately, this cancels out the dividends received over the last five years.

That’s right. Give or take the odd penny, Barclays shares have delivered a total return of 0% since the start of 2017. An investment of £1,000 five years ago would still be worth £1,000 today.

To put that into context, the FTSE 100 — which hasn’t been a great performer — has delivered a total return of around 25% over the same period.

The only comfort for shareholders is that Lloyds’ performance was even worse.

However, investing is all about the future. If Barclays’ current strong run continues under its new CEO, who is known as Venkat, the bank may be able to rebuild its reputation with investors.

Barclays shares: what’s the outlook?

Big FTSE 100 stocks are covered intensively by City analysts with detailed models. So rather than trying to forecast the bank’s earnings myself, I think it makes sense to take a look at the consensus view from the City.

The news is a bit mixed. The good news is that broker forecasts suggest Barclays’ dividend will rise by 33% to 8.1p per share in 2022, giving a forecast yield of 3.9%.

However, after a strong performance in 2021, Barclays’ earnings are expected to fall by around 20% in 2022. I think the main reason for this is that Barclays’ investment bank — which handles corporate business — saw a big increase in activity during the pandemic. This is now returning to more normal levels.

Would I buy BARC today?

At a price of 212p, Barclays shares are valued at eight times 2022 forecast earnings, with a 3.9% dividend yield. The shares also trade more than 25% below their tangible book value of 287p per share.

These numbers look cheap to me, assuming the bank’s profits are broadly in line with expectations this year. However, I think it’s worth remembering that former boss Jes Staley has only recently departed under a cloud. Venkat is probably still finding his feet. I don’t yet know what might change.

Barclays’ profitability also remains relatively low, which could limit profit (and share price) growth.

On balance, I think Barclays shares could have a bit further to go from current levels, but I don’t see the bank as a bargain, at current levels. I’d prefer to wait for a market dip to provide a better buying opportunity.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays and Lloyds Banking Group. 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.

We are only two weeks into 2022 so far. And it is already becoming clear that inflation could be the one big risk to my investments this year. Concerns on inflation have been building up for quite a while. Companies have flagged rising cost pressures for around a year now. They appear to have been managed well so far, but inflation is only rising. And now it has risen enough for me to speculate about whether it could actually lead to a stock market crash. 

How big is the inflation problem?

The UK’s last inflation print, for November 2021, stood at 5% on a year-on-year basis. And the next one due soon is expected to be even higher. And inflation is hardly just a phenomenon restricted to this country. The US too, saw a pretty ugly inflation report earlier this week. Consumer prices rose to the highest levels in 40 years at 7%. Considering that many FTSE 100 companies have globalised interests, high inflation is particularly bad news. If it was restricted to just one country, geographical diversification could have softened the blow. But the cushion is not there now. 

Fiscal stimuli’s double-edged impact

Part of the reason for the increase in inflation is high government spending. The stimulus provided during the pandemic resulted in high commodity prices, which at the time was good for the likes of FTSE 100 miners like Evraz, Rio Tinto, and Anglo American. But it also resulted more generally in higher inflation. In its trading update, sportswear retailer JD Sports Fashion estimates that some £100m of profit increase could have accrued just from the US government’s stimulus in the past year. 

As the effects of these stimuli wear off, inflation could come off too, of course. But it might just have a cost associated with it. Government spending was helping the economy sustain itself during a difficult time. There is no way of knowing whether the recovery will be robust even after the stimuli are withdrawn. So far, the UK has shown only tepid recovery and forecasters’ bullishness on US growth has also reduced in recent months. So in effect, we could be looking at muted growth as inflation is brought under control.

The likely outcome

However, even this is better than the possible impact if inflation continues to rise. It could result in a sharp growth slowdown, which in turn could well lead to a stock market crash, in my view. I do believe, however, that while the risk exists, its probability is unlikely to be high as policies are put in place to counter this possibility. I think the more likely effect of high inflation could be occasional pullbacks in the stock markets. This could be because of an impact on investor sentiment or due to companies’ results being impacted by high prices or both. 

Keeping this in mind, as an investor I do not see any reason to be deterred from buying FTSE 100 stocks. As long as I have a medium to long-term time frame in mind, I think inflation could well even itself out over time. If there are any dips in quality stocks in the meantime, I would buy them. 

Manika Premsingh owns Anglo American, JD Sports Fashion, and Rio Tinto. The Motley Fool UK has 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.

AO World (LSE:AO) saw its share price drop by 76% in 2021. So what caused this former FTSE 250 incumbent’s share price to drop so significantly? Let’s take a closer look.

AO World demoted from FTSE 250 index

AO World is a retail company specialising in electrical goods and appliances for the home. These appliances include TVs, washing machines, fridge freezers, dishwashers, and more. It operates in two key markets, the UK and Germany. Once sold, AO picks and packs goods at its warehouse facility before delivering them through its own in-house delivery business as well as other logistics partners.

When the pandemic began in 2020, many consumers were unable to spend money on leisure activities and holidays. This meant many turned to home improvements including purchasing new appliances. In addition to this, with the demand for housing outstripping supply, demand for such products was evident too.

At the beginning of 2021, AO shares were riding high at 429p per share. By the close of the year, shares had reached penny stock levels at 100p. 2020 was an excellent year for the AO share price as it rose from 90p per share to over 400p. It is worth noting that at the time of writing, AO World has been demoted from the FTSE 250 index.

What happened in 2021?

As 2021 went on, macroeconomic factors began to take their toll on AO. The well documented supply chain crisis will have affected the availability of its products. This will have led to disrupted operations and loss of custom. In addition to this, AO also suffered from the shortage of HGV drivers in the UK related to Brexit. Having difficulty in fulfilling orders for customers can often lead to them looking elsewhere. Finally, rising costs across the economy and businesses will have impacted performance. All of these factors will have affected performance and investment viability as well its eventual demotion from the FTSE 250.

AO released an interim report in November for the six months ended 30 September 2021. This report was a mixed bag which did not help the ailing share price. Revenue came in at £760m, which is a 67% increase compared to pre-pandemic 2019 levels. Customer numbers were up and new warehouse facilities had opened throughout the UK and Germany.

Despite AO recording impressive revenue, the same could not be said for profit. AO reported a loss for the interim period. In addition, net debt increased too. It is worth noting that AO is in a saturated market where competitors try to outmanoeuvre each other with lower pricing. This often places pressure on profit levels, making them very slim. Most tellingly, AO said the outlook for the full year was bleak. Revenue growth would be between -5% and 0%. Profit was forecast at £10m-£20m compared to £28m in 2020. In addition to this, AO’s German business has seen an increase in competition. This will not have helped the ailing share price as Germany is a key growth market for AO.

Final thoughts

Reviewing a turbulent 2021 for AO World, the falling share price makes sense. Macroeconomic factors, coupled with falling profits, have meant many problems have arisen a the same time for the former FTSE 250 stock. Its investment viability has taken a major hit in 2021. 

Jabran Khan has 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.

The Cineworld Group (LSE: CINE) share price was in freefall at the back end of 2021. A lost legal case concerning its aborted takeover of Cineplex and the prospect of heavy damages caused investors to flee for the exits yet again.

Cineworld’s share price has bounced strongly from those 13-month lows, however. That’s despite lasting fears over more debt being piled onto the company’s weak balance sheet. And in recent hours it climbed back above 40p per share following a strong reception to its latest trading numbers.

Should I buy Cineworld shares following this recent strong momentum? Or should I treat recent share price gains as a dead cat bounce?

Superhero sales

Let’s look at those sales numbers first of all. Cineworld said on Friday that attendances at its movie theatres remained strong despite resurgent Covid-19 cases in its territories. Thanks to blockbusters like Spider-Man: No Way Home, box office sales in December came in at 88% of 2019 levels.

A strong slate of crowd-pulling movies has helped get the crowds back in in their droves. And encouragingly for Cineworld the seat-filling popcorn flicks are set to continue thick and fast. Popular comic book fare like The Batman and Black Panther: Wakanda Forever is scheduled to come down the pipe in 2022, along with other potential blockbuster releases like Avatar 2 and Mission: Impossible 7.

Cineworlds cheap share price

A slew of trading releases from cinema operators show that the allure of the cinema remains as strong as ever. Streaming giants Netflix, Disney, and Amazon’s Prime service have soared in popularity during the Covid-19 crisis. But people still like to take a trip to the flicks to catch the latest movies. I myself took in the full spectacle of watching Spider-Man at my local Odeon instead of settling to watch it on the small screen.

So could now be the time to stock up on Cineworld shares? It certainly offers splendid value for money on paper. Firstly the UK leisure share trades on a forward price-to-earnings ratio of just 9.5 times. On top of this Cineworld’s share price commands a chubby 3.5% dividend yield. This beats the broader average of 2% for FTSE 250 shares by a massive margin.

Worth the risk?

I believe investing in the cinema sector could be a good idea. I just wouldn’t do this by snapping up Cineworld. This is because the company’s massive debt levels are putting me off, debts that could shoot up considerably if the company fails to overturn the aforementioned Cineplex ruling.

At best this debt could have significant consequences for Cineworld’s growth plans. At worst it could push the business back towards oblivion if the pandemic persists and its cinemas are locked down again. I’m particularly tetchy over news that infection rates in Cineworld’s core US market just hit a record daily high of 1.5m. There are plenty of quality cheap UK shares for me to choose from today. So I won’t be taking a chance with high-risk Cineworld despite those fresh trading numbers.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon. 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.

I think these low-cost UK shares could help me make a heap of cash. Here’s why I believe these dividend-paying ‘nearly’ penny stocks are perfect for my portfolio right now.

A near-penny stock with HUGE dividends

There are a number of ways in which UK share investors can capitalise on the UK’s rapidly-growing elderly population. One way I’d do this is to buy XPS Pensions Group (LSE: XPS) which trades at 139p. The Office for National Statistics thinks one in four citizens will be aged 65 and above by 2050. That compares with one in five in 2019.

I expect XPS Pensions — the biggest pensions consultancy in Britain — to exploit this demographic opportunity to its fullest. I also like this particular company because of its commitment to expansion. In December, it agreed to acquire industry peer Michael J Fox for a fee of up to £3.75m.

I think XPS Pensions is an especially good buy because of its dividend prospects. Its defensive operations mean it should have the confidence and the financial clout to pay big dividends year after year. Indeed, its yield for the two financial years to March 2022 and 2023 sit at 4.8% and 5.2% respectively.

I’d buy the company even though its thirst for acquisitions could come back to bite it, for example if an asset throws up unexpected costs or delivers underwhelming revenues.

Building for growth

A worsening shortage of residential rental properties is encouraging me to invest in The PRS REIT (LSE: PRSR) too. Rents on family homes are booming as demand outstrips supply. In the last financial year (to June 2021) this UK share was able to increase rental rates on re-let properties by 6.2% and to existing tenants by 4%.

This massive market imbalance saw rents in the UK rise at their fastest rate since 2008 in the third quarter of last year, according to Zoopla. The property listings giant thinks tenant costs will continue rising strongly and has forecast average growth of 4.5% in 2022.

It’ll take a long time for this rapid uptrend to moderate, given the massive amount of residential properties required. And in the meantime, PRS is supercharging its own production plans to make the most of the opportunity.

In December, it acquired three of five targeted sites on which it plans to build 383 new units. The business recently hiked its portfolio target to 5,700 homes from 5,200 previously.

Now PRS doesn’t come cheap. At current prices of 106p, the property firm trades on a forward P/E ratio of 29.5 times. This sort of valuation could cause its share price to drop sharply if it encounters problems, for example if building material prices continue to soar.

However, I believe the bright market outlook makes this ‘almost’ penny stock worthy of a handsome premium like this. Besides, a meaty 3.8% dividend yield helps to take the edge off The PRS REIT’s elevated earnings multiple.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has 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.

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