It has not been a great time to own shares in Scottish Mortgage (LSE: SMT). The Edinburgh investment trust has tumbled by 29% in value over the past year. Lately, Scottish Mortgage shares have been changing hands for close to their lowest price in three years.
That has pushed up the dividend yield, but it still only stands at 0.6%.
With a falling share price, small dividend yield and investor questions over its investment strategy, is Scottish Mortgage a potential bargain for my portfolio – or might it just keep on getting cheaper?
Choppy sailing
I think the answer could actually be both of those things.
In the short term, I would not be surprised to see Scottish Mortgage shares get even cheaper. The reason for their fall has largely been cooling investor sentiment leading to lower tech valuations. Given the investment trust’s tech-heavy portfolio, that has hit it hard.
But I think tech valuations could continue to suffer in coming months. If that happens, Scottish Mortgage shares could get cheaper even from here.
However, trying to time the market is a tricky if not impossible task. Instead, I prefer to ask whether today’s share price underrates what I see as the long-term value of a business.
In the case of Scottish Mortgage shares, I think the answer may be yes. The shares are trading at a discount of around 20% to their net asset value. That is a significant discount in my view, perhaps reflecting a loss of investor confidence in the trust.
Its strategy of investing in the early days of promising growth companies has worked before. A tech downturn may make it look unfashionable. But I think the strategy is still the right one and can work again.
Long-term view
Based on that and as a long-term investor myself, could it make sense for me to add Scottish Mortgage shares to my portfolio?
I think it may.
The company has an excellent track record and I reckon its approach remains sound. Stepping back from the current market woes of some of its large holdings, I am confident in the ability of the trust managers to find exciting investment ideas for the coming decades. Hopefully, over time, some will do very well. That could lead to a higher share price for Scottish Mortgage.
It is a shareholder in well-known tech powerhouses like Tesla and MercadoLibre. But the firm also has positions in what I see as up and coming firms such as Wise and Zalando.
Scottish Mortgage has done well in the past (even though it has backed some donkeys) because it has also picked a few huge winners. I think the same thing could happen in future, given its current portfolio. If I had spare cash to invest today, I would happily add Scottish Mortgage shares to my own holdings.
