Taking a diversified strategy to investing doesn’t should imply disappointing returns. The efficiency of Scottish Mortgage Funding Belief (LSE:SMT) shares over the previous decade supplies an ideal illustration of this.

Since across the begin of the Millennium, this funding belief has been targeted on high-growth know-how (and tech affiliated) shares. And since 2015, the FTSE 100 share has delivered a median annual return of 15.2%.

By comparability, the broader Footsie has delivered a yearly common of 6.2%.

Previous efficiency isn’t a assure of future returns, nonetheless. And there are challenges going through the tech sector that would impression the belief’s future earnings.

So what are Scottish Mortgage’s income and share price prospects for the following couple of years? And will I purchase it for my very own portfolio in the present day?

Development alternatives

Acquiring earnings forecasts for funding trusts is difficult. It’s because their earnings rely on the efficiency of the underlying investments, which might be extraordinarily unstable and troublesome to foretell.

In complete, Scottish Mortgage has holdings in 95 totally different tech shares and trusts. A few of its largest holdings are microchip producer Nvidia, e-retailers Amazon and MercadoLibre and social media large Meta.

Whereas near-term earnings are robust to nail down, the belief has important development potential over an extended horizon. Because the graphic under exhibits, it supplies a mess of the way for buyers to capitalise on the rising digital financial system.

One other advantage of this specific belief is that it provides buyers publicity to non-listed corporations they’ll’t spend money on instantly. These embody Elon Musk’s area transportation firm SpaceX, whose worth has roughly doubled in a 12 months to round $350bn.

Round 7.5% of the belief is devoted to this particular firm.

Hazard forward?

However like all funding, there are dangers to Scottish Mortgage’s earnings and share price efficiency within the close to time period and past.

One is a possible slowdown within the international financial system that damages company and shopper spending. Know-how shares are a few of the most cyclical on the market, and so they typically sink sharply in worth throughout downturns.

Contemporary commerce tariffs throughout key areas are one other hazard that would have an effect on the tech sector particularly severely. Doable penalties embody weaker gross sales, provide chain disruptions, higher manufacturing prices and lowered innovation, all of which might considerably dent the belief’s efficiency.

Right here’s what I’m doing

But I imagine these threats could also be baked into the belief’s low valuation. At £10.54 per share, it trades at a near-8% low cost to its web asset worth (NAV) per share of £11.40. This leaves a wholesome margin of error that would defend in opposition to extreme share price volatility.

I have already got important publicity to the tech sector via a few funds I maintain. Alongside an S&P 500-tracking exchange-traded fund (ETF) from HSBC, I’ve additionally invested within the extra focused iShares S&P 500 Data Know-how Sector ETF.

With out my present tech publicity, I’d critically think about including Scottish Mortgage shares to my portfolio. I believe its diversified strategy is an effective way to seize development alternatives whereas concurrently spreading danger.

For buyers searching for publicity to the booming tech sector, I imagine the belief is value severe consideration.