“Caution advised” as UK investors steer clear of Scottish Mortgage

Man on phone looking at stocks and shares on laptop

Recent underperformance has led UK investors to reconsider their positions in Scottish Mortgage, as well as ARKK ETFs, which have experienced significant declines.

Over the past year, the Scottish Mortgage Investment Trust (SMT) has witnessed a 30% drop, while the ARK Innovation ETF (ARKK) has seen a more substantial decline of 50%.

Investors express concerns over the high valuations of these funds as well as their exposure to risky assets. SMT heavily weighs technology stocks, and ARKK invests in various disruptive technologies, as highlighted by investment platform Invezz.

“Investors are seeking more diversified and lower-risk alternatives compared to SMT and ARKK,” stated Crispus Nyaga, a financial analyst at Invezz. “Several UK-based ETFs provide exposure to the UK stock market without the elevated valuations and risk associated with SMT and ARKK.”

Nyaga’s remark serves as a vital reminder that even popular funds can go through periods of underperformance. It’s crucial for investors to thoroughly understand the risks before blindly investing in such funds, emphasizing the need for diversification in their portfolios. Invezz suggested considering alternatives such as renewable energy investments, while the Dumblittletrader said “using the right platform” is key. 

One notable alternative is the iShares Core FTSE 100 ETF (ISF), which tracks the FTSE 100 index—a broad representation of the 100 largest companies on the London Stock Exchange. This ETF offers greater diversification and lower risk than SMT or ARKK.

Another viable option is the Vanguard FTSE All-Share ETF (VUSA), which tracks the FTSE All-Share index, providing comprehensive coverage of the UK stock market and boasting a lower expense ratio than ISF; which bodes well given’s recent piece on what’s in store for 2024. 

In summary, UK investors’ growing aversion to Scottish Mortgage and ARKK ETFs due to their recent underperformance underscores the risks involved in these funds. Investors should carefully assess their investment goals and risk tolerance before committing to such funds.

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Poppy loves personal finance almost as much as she loves her two cats, Tif and Taz.
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