Scottish Mortgage Investment Trust shares News | The Twelfth Magpie

Scottish Mortgage shares are down 36%: should I buy now?

Dylan Hood — Tue, 30 Aug 2022 07:32:00 +0000

Scottish Mortgage Investment Trust (LSE: SMT) shares have fallen a whopping 36% so far in 2022. The main reason for the drop is rising inflation and subsequent interest rate hikes, which have weighed on stock market valuations. Over a 12-month period, the situation looks even bleaker, with the shares falling just under 40% in value. With inflation still on the rise, is now the time to buy this stock? Let’s find out.

A rocky road

Red hot inflation has been a key market trend in 2022. With UK inflation reaching 10.1% in July and predicted to rise to over 18% by January, the situation looks pretty grim. Interest rates have been hiked to 1.75% in the UK in an effort to curb rising prices. This is putting severe pressure on growth stock valuations, which is very bad news for Scottish Mortgage. This is because the trust’s holdings are primarily focused on exactly this type of asset.

For example, the trust’s top three holdings are Moderna (8.3%), Tesla (6.7%), and ASML (6.6%). All of these stocks fit into the high-growth stock category and have exhibited high volatility so far in 2022. As interest rates continue to rise, and markets become increasingly uncertain, Scottish Mortgage shares could be in for an ongoing bumpy ride.

Another reason why the shares have suffered is pressure from Chinese regulatory authorities on US-listed Chinese companies. This has sparked the threat of potential delisting, which has vastly reduced investor confidence. Companies like NIO (which makes up 2.9% of Scottish Mortgages portfolio) have seen their shares tank on the potential of being delisted from the NYSE.

Reasons I like the stock

So why do I like the trust? For starters, at 829p, the shares are much cheaper than they were a year ago. In addition to the lower price, I adopt a longer-term outlook when looking at shares. Baillie Giffords’s flagship trust looks to “add value over five-year time frames, preferably much longer”. So, maybe I should discount the upcoming short-term volatility and look further into the future. Although past returns are no indication of future performance, Scottish Mortgage’s 606% 10-year return – compared to a 231% return for its benchmark the FTSE All World Index – highlights the stellar management of the trust.

In addition to this, being an investment trust, it allows me access to a bundle of assets in different industries, all under one investment. This is great for reducing my portfolio’s risk level. It also allows me access to non-listed companies, like Elon Musk’s SpaceX, in which Scottish Mortgage owns a £430m stake.

Am I buying?

I think that in the short term, Scottish Mortgage shares could face more volatility. However, here at The Motley Fool, we’re long-term investors. I think that under £9, the investment trust shares could land me some healthy returns over a broader time horizon – say 10 years. For that reason, I’m seriously considering adding this stock to my portfolio at today’s price.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended ASML Holding and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Are Scottish Mortgage shares a bargain at 822p?

Dylan Hood — Tue, 23 Aug 2022 08:27:55 +0000

2022 has been a tough year for growth stocks. It’s only natural that investment trusts that target growth stocks have taken a beating too. Scottish Mortgage Investment Trust (LSE: SMT) is a prime example of this. The high-growth trust performed well in 2020 and 2021 but has fallen over 36% so far in 2022. Widening this timespan to 12 months, and the shares have fallen an equally disappointing 39%. So, currently sat at 822p, is the stock a bargain buy? Or should I steer clear of Baillie Gifford’s flagship investment trust? Let’s investigate.

The story so far

To understand why the stock has fallen, we must cast our minds back to the height of the Covid-19 pandemic. In an effort to remedy the economic shutdown, central banks across the world poured billions into economies to keep them afloat. At the same time, the virus disrupted supply chains. This meant there was less supply, but people had more money (on a macro scale) to spend on the same goods. The result of this – rising prices.

Fast forward to 2022, and inflation has been reaching sky-high levels. To make things worse, the tragic Russia-Ukraine crisis has sent energy prices soaring, adding to inflationary pressures. Now central banks are faced with a new task: to slow down rising prices. They do this by increasing interest rates.

When interest rates increase, investors withdraw their money from higher-risk, speculative assets like growth stocks, and put them into safer assets. This is because they can earn a better risk-free rate. Interest rates in the UK and US have been on the rise recently, the former sitting at 1.75%.

Scottish Mortgage’s main holdings are exactly the type of stocks that are being negatively affected by this kind of market. For example, its top two holdings Moderna (8.3%) and Tesla (6.7%) have fallen 39% and 28% so far in 2022. Many analysts are predicting inflation to keep rising, which likely means that rates will too. If this does happen, it would be bad news for Scottish Mortgage shares.

A long-term play

Here at The Motley Fool, we are long-term investors. That means picking quality stocks and holding them for up to 10 years. Scottish Mortgage operates with the same thesis. It looks to “add value over five-year time frames, preferably much longer” and explicitly states that it doesn’t “add much more than anyone else in the short term”. So, perhaps I should be discounting the current volatility, and be operating with more of a long-term view, trusting the fund’s management.

I only have to check on the trust’s previous returns to see this management in action. Over the last five years it has returned 118%, and over the last 10 years, a whopping 606%. This vastly outperforms the FTSE All World Index, which is the stock’s benchmark.

Am I buying?

I’m not buying just yet though. I think in today’s macro climate, a growth-focused trust is too risky for me. However, I will be keeping this stock on my watch list as I think it could have the potential to yield some big returns over a 10-year span.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Are Scottish Mortgage shares good buys at 774p?

Dylan Hood — Mon, 11 Jul 2022 11:22:42 +0000

In the first seven months of 2022 Scottish Mortgage (LSE: SMT) shares have fallen over 40%. That’s around 10 times more than the drop in the FTSE 100 over the same period, underlining the disappointing performance. Over the past 12 months, the shares are down an equally discouraging 39%.

However, last week the shares experienced an encouraging 5% jump in value. Currently sitting at 774p per share, down almost 50% from its all-time high, is now the time for me to add Scottish Mortgage stock to my portfolio?

Why the trust has underperformed

The main reason why Scottish Mortgage shares have underperformed this year is the nature of the stocks it holds. The trust targets high-growth companies and aims to hold them for a minimum of five years to generate healthy returns. This strategy has worked well in the past, highlighted by an impressive 585% increase in the share price over this period.

However, 2022 has been characterised by rising inflation and interest rates. Rising rates put big pressure on the valuation of growth stocks, which soared in 2020 and 2021. This has caused investors to pull out of growth stocks and pour into safer value stocks. The performance of Scottish Mortgage’s top holdings has taken a hit accordingly. For example, Tesla (5.7%), NVIDIA (2.5%), and Tencent (5%) are down 37%, 47%, and 21% year to date. Although Tesla is up 9% over the past 12 months, Nvidia and Tencent are down 22%, and 34% respectively.

A buying opportunity?

2022 has proved a tough year so far for Scottish Mortgage shares. However, this volatility may only be a flash in the pan in the long run. As mentioned, the trust looks for value over a minimum five-year period – preferably longer – and its healthy past returns show the exceptional execution of this thesis. Therefore, perhaps I should be discounting the current volatility and adopting a broader outlook?

This situation seems especially prevalent in China, where Scottish Mortgage has about one-fifth of its holdings. Recently, Chinese stocks listed in the US have taken a hit due to tough regulatory rules. However, China is still a rapidly-growing economy, and having such a large stake in this growth could pay dividends in the long run.

Another positive about the fund is that it gives me access to a wide portfolio of companies all under one investment. In addition to this, I also get access to unlisted companies, like SpaceX, in which the trust holds a large position.

What I am doing now

Overall, I think that at 774p, Scottish Mortgage stock could be a great addition to my portfolio. Yes, there’s some short-term volatility that has beaten down the share price, but in my eyes, this offers me a chance to grab shares at a discount. The diversification and access to unlisted companies are big pluses too. Therefore, I’m seriously considering adding a position to my portfolio soon.

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Could the Scottish Mortgage share price be about to turn around?

John Choong — Thu, 02 Jun 2022 06:32:00 +0000

Scottish Mortgage Investment Trust (LSE: SMT) is one of the world’s biggest investment trusts. The share price is down 35% this year, following US indices into bear market territory. However, positive economic data released last week made its share price jump by 15%. As such, the trust may be set for a turnaround.

Declines are difficult to bear

Seeing a company’s share price plunge deep into the red is never a pretty sight. Unfortunately, the trust’s investors had to bear with losses of up to 45% at one point. So, what’s behind the monumental drop in share price? Well, the Scottish Mortgage portfolio holds an abundance of growth names. The top 10 holdings alone have an average price-to-earnings (P/E) ratio of 37, which is more than twice the S&P 500‘s P/E ratio of 16.

Scottish Mortgage Investment Trust Holdings	Fund %
Moderna	6.5%
ASML	6.4%
Illumina	6.3%
Tesla	6.2%
Tencent	4.9%
Meituan	3.0%
NVIDIA	2.7%
Amazon	2.6%
Alibaba	2.6%
Kering	2.4%

Source: Scottish Mortgage Investment Trust

Growth stocks suffer the most when interest rates rise, as has been the case due to sky-high inflation. As a result, spending is expected to decrease due to higher borrowing costs. As growth stocks get their valuations from future cash flows, a slowdown in future spending slashes their valuations.

To make matters worse, China’s zero-Covid policy has led to several lockdowns in big cities. These lockdowns have had an impact on several of the FTSE 100 trust’s top Chinese holdings. Consequently, the Scottish Mortgage share price has suffered a decline from its biggest investments.

Trust and hope

That being said, Scottish Mortgage saw its share price rebound last week. This was down to a generally positive set of US economic data. Consumer spending figures were rather upbeat, and minutes released from the Fed meeting eased fears of a 0.75% rate hike. But most importantly, the core price consumption expenditure (PCE), the Fed’s preferred index for measuring inflation, pointed towards inflation peaking in April. This led to one Fed official suggesting that the central bank could even pause rate hikes in September. Officials from China also mentioned plans of lifting lockdowns which sent many of the portfolio’s Chinese stocks rallying, positively impacting SMT shares.

Core PCE Price Index Inflation (Source: US Bureau of Economic Analysis)

Unstable foundations

While Scottish Mortgage shares present a tremendous amount of upside, it also comes with plenty of risks. Since its remarkable one-week recovery, oil prices have shot back up to the $120 per barrel mark. Given that the main cause of inflation has been high oil prices, an EU ban on Russian oil imports, along with the reopening of the Chinese economy, isn’t going to drive inflation down anytime soon.

Moreover, although China has began lifting its lockdowns, there’s no certainty that a similar episode won’t happen again in the future. Therefore, I’m doubtful that the fund is completely out of the woods for a turnaround. The Chinese government’s ability to manipulate share prices of its local companies also presents too big of a risk to me. Thus, I won’t be looking to invest in SMT shares anytime soon. Instead, I’ll be looking to purchase other shares that could benefit my portfolio with more stability.

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John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Scottish Mortgage share price is rising: should I buy now?

Dylan Hood — Fri, 25 Mar 2022 08:24:45 +0000

The Scottish Mortgage Investment Trust (LSE: SMT) share price seems to have gained some momentum over the past 14 days, rising over 13%. While this is positive news for investors, the shares are still down 22% year-to-date. Broadening this time horizon to a year, the shares have fallen 9%.

The trust had a knockout 2020, rising over 106% for the year. In fact, over the past 10 years, it has generated a monster 617% return. This has solidified it as one of the UK’s leading listed trusts. So, with the shares seemingly back on the rise, is now the time for me to buy in? Let’s investigate.

Why the Scottish Mortgage share price appeals to me

The primary reason why I like the look of the shares is the fact that they allow me access to a bunch of high-growth companies all in one investment. The fund’s top 10 holdings include Tesla (5.3%), Tencent (4.7%) and Nvidia (3.1%), all high-growth tech-focused firms.

While this helps me diversify my portfolio, it also gives me peace of mind knowing my shares will be actively managed. If the 617% 10-year returns aren’t evidence of this stellar management, then I don’t know what is. For more context, over this period, the shares have outperformed the FTSE All World Index by almost 400%.

In addition to this bundle of listed companies, Scottish Mortgage also gives me access to privately held firms such as Northvolt, a Swedish-based battery cell manufacturer, and ByteDance, owner of the popular social media app TikTok. Retail investors currently cannot gain access to these firms’ high growth, but holding Scottish Mortgage shares would allow me to.

Not out of the woods yet

While the Scottish Mortgage share price does look attractive to me, there are still a number of risks that could impact the trust’s performance.

Firstly, the global macroeconomic outlook seems to be pitted against the trust. Scottish Mortgage has a very high weighting to tech stocks. This is part of the reason why the shares generated such astonishing returns in 2020 as high-growth tech stocks soared towards the tail end of the year.

While this favoured the trust in 2020, in 2022 it could go the opposite way. Inflation is creeping up across the globe, and the way that central banks tackle this is by raising interest rates. Just last week the UK and US raised rates to 0.75% and 0.25%, respectively.

When rates rise, people shift their assets away from high-growth high-risk investments and into safer assets as they can achieve a higher return. This isn’t great news for a high-growth, tech-heavy trust like Scottish Mortgage.

The macroeconomic outlook has only been made more volatile by the tragic Russian-Ukraine conflict. This is the last thing that Scottish Mortgage shares need at the moment.

Would I buy?

The current macroeconomic climate doesn’t bode well for a trust like Scottish Mortgage. It could lead to some serious short-term volatility. However, here at The Motley Fool, we’re long-term investors. I think the long-term outlook could be bright for the trust. As such, I would consider buying Scottish Mortgage at the current share price for my portfolio.

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