The Scottish Mortgage Investment Trust (LSE:SMT) was one of the standout performers in 2020. The SMT share price doubled in the year and attracted a lot of attention from investors. Over the past few months, progress has stalled. The share price is down almost 8% in a month, and is down 3.5% today. What has changed here and should I buy the dip?
The basics of SMT
For those not familiar with SMT, it doesn’t offers mortgages or invest in property. The Scottish part of the name is accurate, as the trust is managed by Edinburgh-based investment manager Baillie Gifford.
The SMT share price should closely mirror whatever the total value of the funds assets are at any one time. The assets within SMT are mostly global equities. As of the end of February, the fund reported that the top 10 stocks it held made up 46% of the overall value of the portfolio. Big holdings include major names such as Amazon, Tesla, Tencent and Moderna.
Although it’s listed in the UK, the largest exposure SMT has is to the US. Within the portfolio, 35% of stocks held are US-listed. From a sector standpoint, it has high exposure to consumer cyclicals, technology and healthcare.
Why is the SMT share price falling?
The overall make-up of the company makes the SMT share price very sensitive to general stock market sentiment. This is because the fund itself is simply a collection of stocks from around the world.
Over the past month, global stock markets have seen a bit of a tree shake. I wrote last week about how rising inflation expectations saw global markets drop last week. Naturally, the SMT share price fell, as it’s a reflection of these markets.
The NASDAQ index has been particularly hard hit over this period. Given that several of the largest single stock holdings in SMT are listed on the NASDAQ, this also hasn’t been great news.
A dip worth buying
Instead of analysing SMT as a company when deciding whether to buy or not, I think I need to take a broader market view. This is referred to as top-down analysis.
Do I think the global economy is going to continue to bounce back this year? Yes. Do I see rising inflation and interest rates as a material hindrance to high-growth areas such as technology? Not really. Do I think the US will lead the global recovery given its size and firepower? Absolutely.
As a result of those questions and answers, I would look to buy the dip that has been seen recently in the SMT share price. In fact, the stock has the attributes and exposure in all of the right places to capitalise on this, I feel.
The risk to my view is a surge in a Covid-19 variant that destabilises the recovery. Or the overheating of an economy leads to it raising interest rates too quickly. Either way, I don’t see either of these risks as significant right now, so would look to buy SMT shares.
