Scottish Mortgage (SMT) vs Invesco QQQ: one is a better buy by far

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on May 5, 2023
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  • Scottish Mortgage Investment Trust shares have been in a bearish trend.
  • The fund has an exposure to illiquid private companies like SpaceX.
  • Invesco QQQ is a better passive investment for technology investors.

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Scottish Mortgage (LON: SMT) share price has continued falling this year even as technology stocks have jumped. The shares were trading at 627p on Friday, a few points above the year-to-date low of 607p. They have plunged by ~59% below the highest level in 2022.

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SMT vs QQQ ETF

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Scottish Mortgage and Invesco QQQ are funds that hope to generate strong and stable returns by investing in the technology sector. They nonetheless use different strategies. QQQ is a passive fund that simply tracks the Nasdaq 100 index.

SMT, on the other hand, is an actively managed fund that invests in both public and private technology companies. Another difference is that SMT invests in global companies, with some of the top constituents being from China and Europe. Some of the top private companies in the fund are SpaceX, Zipline, and Northvolt among others.

I believe that investors should invest in QQQ instead of Scottish Mortgage for a number of reasons. First, Scottish Mortgage’s exposure in unlisted companies is a big risk, especially in the era of high-interest rates. The exposure to unlisted stocks stands at about 30%. In the past few months, we have seen many private companies like Shein and Klarna raise cash at lower valuations.

Second, having exposure in these unlisted companies is risky because of the difficulty in taking them public. Many tech companies that went public in the past few years have all flopped. Therefore, QQQ is a better investment because of it high liquidity. In a recent statement, Chrispin Odey, a well-known hedge fund manager said:

“It’s got problems and it’s very expensive still and of course they’ve got quite a lot in private equity ventures, tech ventures, which is dangerous — they all demand rights issue after rights issue.”

Third, there is the uncertainty of active management. While some active managers have done well over the years, many of them tend to underperform. A good example of this is Cathie Wood, who did well during the pandemic and then lost the momentum recently. 

Technicals are supportive of QQQ vs Scottish Mortgage

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Scottish Mortgage share price

The final reason is that QQQ stock has better technicals compared to Scottish Mortgage. On the chart above, we see that the Scottish Mortgage share price has been in a strong bearish trend in the past few months. During this period, the fund has remained below the 50-day moving average, signaling that bears are in control. Therefore, in this regard, the fund will continue falling as sellers target the key support at 380p.

On the other hand, QQQ stock has been in a bullish trend and remains above the 50-day moving average. It has also moved above the ascending trendline shown in blue. Therefore, the shares will likely continue rising, especially if the Fed decides to pivot.

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