Scottish Mortgage Investment Trust (LSE: SMT) shares have had a rough ride, falling 47.4% in the last year. That is quite a fall from grace, for what was until recently a FTSE 100 stock market darling.

At its peak, it had delivered a staggering 500% return over five years. It did this primarily by piggy-backing on the boom in US technology stocks, with electric car maker Tesla its biggest holding.

Scottish Mortgage shares are struggling

Clearly, Scottish Mortgage didn’t mind taking a few risks, although I wonder whether lead manager James Anderson saw the writing on the wall. He stepped down in April, after 22 years at the helm. At its peak, his trust was worth £18.5bn. Today its market value is £10.9bn. 

If Anderson had retired one year earlier he might have escaped any blame for his share in the Scottish Mortgage carnage. I had become increasingly uneasy in recent years, as it looked like Anderson was taking too big a gamble on the frothy US market. That is the main reason why I resisted buying it.

Let’s say I had bought it exactly 10 years ago today. What would I have now? A decade ago, Scottish Mortgage shares traded at around 142p. At time of writing they stand at 742p, despite the stock meltdown.

If I had invested £1,000 on 26 October 2012, I would have bought 704 shares. Today those shares will be worth £5,223. That’s an increase of 422%. Not bad, although roughly a year ago, I would have been sitting on a much bigger gain.

Scottish Mortgage shares peaked at 1,528p recently as 5 November last year. At that point, my 704 shares would have been worth £10,757.

In practice, they’d have been worth even more, assuming I reinvested my dividends to buy more stock. With an annual yield of just 0.47% Scottish Mortgage isn’t exactly a dividend aristocrat, but every little helps.

SMT is too risky for me today

Despite the difficulties of the last 12 months, I would still be sitting on a decent gain, and probably wouldn’t sell Scottish Mortgage shares if I held them. Instead, I would hold back and wait for the recovery.

What should I do as a newbie? Should I buy them or are there better opportunities out there? During the summer bear market rally, Scottish Mortgage shares immediately picked up. I would expect them to do so again, when we see a more enduring recovery.

The trust remains an aggressive play on US technology, with Tesla its second biggest holding at 6.80% of the portfolio, just behind vaccine maker Moderna at 6.90%. Other top 10 holdings include biotech firm Illumina and battery business Northvolt, as well as Space Exploration Technologies, Amazon, and Tencent.

Clearly, this remains a high risk, high conviction fund. It boomed during the era of cheap money, as investors chased growth at any price, but those days are over. Today, my focus is now on buying dividend shares that have been undervalued by the market for too long. I prefer them to riskier growth stocks, given current economic certainties. That’s why I wouldn’t buy Scottish Mortgage today.

The post If I’d invested £1,000 in Scottish Mortgage shares 10 years ago here’s what I’d have today appeared first on The Twelfth Magpie.

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Harvey Jones doesn't hold any of the shares mentioned in this article. 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.

Scottish Mortgage Investment Trust (LSE:SMT) and Fundsmith Equity have been two of the UK’s most popular investment funds for the past decade, but 2022 has been tough on both of them. I’d bet on Terry Smith’s vehicle bouncing back first.

Long-term investors in Scottish Mortgage and Fundsmith Equity were handsomely rewarded until this year’s stock market volatility struck. At one point, Scottish Mortgage produced a stunning 500% return over five years. All good things come to an end, though, and recent performance has been disappointing.

Investors lose trust in Scottish Mortgage

Measured over 12 months, Scottish Mortgage has fallen an incredible 41.8%, more than twice the 18.6% drop on its benchmark IT Global index. Fundsmith Equity has also fallen, although its descent has not been as dizzying. It is down 10.6% over one year, against an average drop of 6.5% on the IA Global index, Trustnet figures show.

I’m not surprised that Scottish Mortgage is the bigger faller. As I warned last year, it made a huge punt on US tech, including volatile stocks such as Tesla and Chinese e-commerce giant Tencent Holdings. At one point nearly 70% of the fund was invested in the booming US stock market. That has shrunk to 54% following this year’s bear market.

Fundsmith also went big on the US, although Smith assembled a more cautious portfolio of growth and income stocks. Top holdings include Microsoft, Danish multinational pharmaceutical company Novo Nordisk, tobacco manufacturer Philip Morris and L’Oréal.

Investors have pulled more than £1bn from Fundsmith Equity in just three months, according to FE Fundinfo. They are abandoning Scottish Mortgage, too. The investment trust routinely traded at a premium to the net asset value of its underlying holdings, such was the demand. Today it is trading at a discount of 15.4%.

Yet I wouldn’t sell either fund right now. With Scottish Mortgage, all that would do is crystallise a pretty brutal loss. This has always been a higher-risk fund, and investors have to accept a degree of volatility. They are still well up over five years, with the fund trading 90.4% higher over that time, more than triple the 27.4% growth on its benchmark.

Fundsmith Equity is standing firm

However, I wouldn’t buy the trust today. Funds usually takes some time to recover after the scale of crash Scottish Mortgage has just experienced. Also, it is heavily geared at 12.9% of its portfolio, adding to the risk.

Fundsmith investors also remain comfortably ahead over five years. The fund grew 68.3% in that time, against benchmark growth of 46.9%. It is already showing signs of recovery, rising 3% in the last month while Scottish Mortgage is down another 7%.

2022 has been bumpy for every investor, Smith included, but for now he seems to be sticking to the plan. Fundsmith Equity is a strong core portfolio holding, and if I had to buy one of these two funds today, this would be my first choice. Although I wouldn’t completely rule out Scottish Mortgage. Just look at the size of that discount!

The post I’d avoid Scottish Mortgage and buy Terry Smith’s Fundsmith Equity today appeared first on The Twelfth Magpie.

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Harvey Jones doesn't hold any of the shares mentioned in this article. 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.

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.

The post Scottish Mortgage shares are down 36%: should I buy now? appeared first on The Twelfth Magpie.

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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.

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.

The post Are Scottish Mortgage shares a bargain at 822p?             appeared first on The Twelfth Magpie.

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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.

The Scottish Mortgage (LSE: SMT) share price has taken a beating over the past year, down 33%. With inflationary pressures causing a weak economic outlook, investor confidence in stocks such as Scottish Mortgage has waned in 2022.

The investment trust has been a top performer over the past decade. And despite a 52-week low of 670p, the Scottish Mortgage share price is currently sitting at around 900p. Here’s why I think the stock could be a great long-term addition to my portfolio today.

Scottish Mortgage decline

As mentioned, this year has been nothing to write home about for Scottish Mortgage. With inflation spiking globally, including 10.1% and 8.5% for the UK and the US respectively, the trust has been in the firing line of this.

With a focus on growth stocks, some of its top holdings have seen large losses as investors have shied away from such businesses.

Its tech-heavy focus has also fuelled this downfall as the sector has seen a market correction this year. Combined, this has driven down the stock’s price.

Not all bad news

Despite this, it’s not all bad news for Scottish Mortgage.

For a start, the last month has seen the stock rise 13%, clawing back some of its recent losses. This could be a sign that investors are beginning to gain confidence in the trust once again.

Yet more importantly, what’s crucial for me is Scottish Mortgage’s long-term outlook. Sure, it’s had a tough year. However, management highlights that performance is judged over a five-year stretch. And therefore, short-term volatility is less of an issue to me. While past performance is no indication of future returns, the last five years have seen Scottish Mortgage shares rising 114%. Pretty impressive.

As a retail investor, I also deem the range it offers my portfolio to be vital. With one investment, I get a slice of stocks from a variety of sectors and countries.

What this essentially does is help offset risk. By owning a slither of each stock through the trust I’m avoiding the riskier play of buying its holdings, such as ASML, directly.

One issue I do have is its relatively large weighting in China. The nation recently reduced its medium-term lending rate by 10 basis points as data revealed a slowdown in consumer demand. With cracks starting to appear in its economy, this could spell bad news for Scottish Mortgage.

However, I still have faith in the Chinese economy’s potential to produce the ‘next big thing’. Scottish Mortgage has an eagle eye when it comes to finding high-growth companies that produce juicy returns.

I’m still buying

So, despite the near-term issues it may face, I’d still buy the shares today. I think from a long-term perspective its weighting in China has the ability to bear fruit. Add this to the diversity it offers my portfolio, and I’d happily open a position in the stock.

Trading at around the 900p mark, I’d buy Scottish Mortgage shares today and hold for the long run.

The post The Scottish Mortgage share price has suffered. Here’s why I’d still buy! appeared first on The Twelfth Magpie.

More reading

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• Scottish Mortgage shares are now even cheaper after SpaceX’s amazing stock market debut!
• Most Britons miss out on the first 20 years of investment compounding. Here’s how a Junior ISA or SIPP can change that

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended ASML Holding. 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.

However, things seem to be on the up for Scottish Mortgage shares, which have risen over 25% in the past month. With today’s uncertain macroeconomic outlook, is now the time to be buying the shares? Or should I avoid this high-growth index fund? Let’s find out.

Economic considerations

On Thursday, the Bank of England raised interest rates by 0.5%, to 1.75%. This has come after months of red-hot inflation, which peaked at 12.7% in June. Scottish Mortgage was able to ride the early wave of high valuations in 2020 and the start of 2021, but the interest rate hikes of 2022 seem to have burst this bubble.

When interest rates rise, people tend to pull money out of speculative investments like growth stocks and put them into safer assets like bonds. This is because they can achieve a higher risk-free rate of return. This is bad news for funds like Scottish Mortgage, as a large portion of their holdings is focussed on high-growth equities.

For example, its top 10 holdings include Tesla (6.7%), Moderna (8.3%), and Tencent (3.8%), all of which are classed as growth stocks. Higher rates have hurt these stocks’ lofty valuations and pushed the Scottish Mortgage shares down. As rates continue to rise to control inflation, the shares could face even more pressure.

Upward momentum

As mentioned, the shares have seen an impressive surge in recent weeks. This movement reflects the encouraging performance of some of the trust’s underlying assets. For example, biotech firm Moderna has risen over 35% since the start of June and makes up a hefty 8.3% chunk of the trust’s asset holdings.

I think the upward momentum reflects the firm’s top-tier management. Although past returns are no indication of future performance, the fund has generated a five-year return of 118% and a 10-year return of 606%. Both of these figures comfortably outperform the FTSE All World Index, which is the trust’s benchmark.

The trust also gives me access to companies that aren’t publicly traded. For example, Elon Musk’s SpaceX makes up 2.9% of the trust. This allows me to benefit from growth I couldn’t get on my own, which is an attractive opportunity. In addition to this, like any investment trust, I am gaining a stake in a wide array of companies and industries all under one investment. This helps my portfolio with diversification and reduces risk.

The verdict

Overall, I think now could be a risky time to buy Scottish Mortgage shares. Yes, the shares are well below their 2021 levels, and the trust has demonstrated excellent management historically. However, I think that rising rates could continue to hamper the fund’s performance, as it relies heavily on growth stocks. Therefore, this stock will remain on my watchlist for now.

The post Scottish Mortgage shares are back on the rise: is now the time to jump onboard? appeared first on The Twelfth Magpie.

More reading

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• An AI beast just racked up 80-fold growth and is now a top holding in this FTSE 100 trust
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• Scottish Mortgage shares are now even cheaper after SpaceX’s amazing stock market debut!
• Most Britons miss out on the first 20 years of investment compounding. Here’s how a Junior ISA or SIPP can change that

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.

Here are three reasons the FTSE 100 investment trust could be an excellent stock market recovery pick for my portfolio.

US growth stocks

First, Scottish Mortgage owns multiple US stocks with strong potential for future growth. For example, biotech players Moderna and Illumina as well as electric vehicle company Tesla feature among its top four holdings. Collectively, they make up 18.5% of the investment trust’s portfolio.

Many of these stocks have suffered during bear markets in the S&P 500 and Nasdaq. This in turn has depressed the Scottish Mortgage share price. However, speculation is mounting that the Federal Reserve might change its rate-rising strategy due to recession fears. This would come after a period in which Chairman Jerome Powell’s steely resolve has seen it hiking interest rates at the fastest pace in a generation.

A monetary policy change could be a catalyst for a return to a ‘risk-on’ environment across American trading floors. I believe many of Scottish Mortgage’s largest positions would be major beneficiaries from such a change in sentiment. By extension, the fund’s shares would likely rise in line with increases in the net asset value of its investments, should that eventuality materialise.

China reopening

Second, the investment trust also stands to benefit from developments on the other side of the Pacific. Around a fifth of its portfolio is concentrated in Chinese shares. The fund has substantial positions in tech giant Tencent and shopping platform Meituan in addition to others.

The Chinese stock market has suffered as the country grapples with coronavirus outbreaks while resolutely pursuing its ‘zero-Covid’ policy. Yet I expect there could be policy changes at the Chinese Communist Party’s 20th National Congress later this year. Following a 2.6% contraction in GDP during Q2, I wouldn’t be surprised to see the focus shift from infection control to economic recovery.

Scottish Mortgage has almost unrivalled exposure to China among FTSE 100 stocks. If this giant emerging market returns to economic strength, the investment trust should prosper too.

Unlisted equities

Third, the fund also owns a substantial number of unlisted shares. Using access to scientific expertise to identify opportunities in conjunction with a long-term investing approach, Scottish Mortgage hopes at least some of these holdings will become future champions in the boom phase of the next economic cycle.

What we’re really looking for is effectively a few needles within what is a very, very large haystack.

Lawrence Burns, Deputy Manager

I like the exposure to equities I otherwise wouldn’t have access to. How these positions perform will be a crucial test for new manager Tom Slater following James Anderson’s departure earlier this year.

Should I buy Scottish Mortgage shares?

Of course, the shares aren’t without risks. A recession stateside might hurt the fund’s US holdings, China’s economic woes may continue, and I do have concerns that some of the unlisted equities could be overvalued.

Nonetheless, I’m increasingly optimistic Scottish Mortgage could soon return to blistering growth. I’d buy today.

The post 3 reasons Scottish Mortgage shares could explode in a stock market recovery appeared first on The Twelfth Magpie.

More reading

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• An AI beast just racked up 80-fold growth and is now a top holding in this FTSE 100 trust
• SpaceX doesn’t pay a dividend. So how come it may help these investors earn passive income?
• Scottish Mortgage shares are now even cheaper after SpaceX’s amazing stock market debut!
• Most Britons miss out on the first 20 years of investment compounding. Here’s how a Junior ISA or SIPP can change that

Charlie Carman has a position in Tesla. 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.

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.

The post Are Scottish Mortgage shares good buys at 774p? appeared first on The Twelfth Magpie.

More reading

• As SpaceX stock plunges below its opening price, is it time to dump Scottish Mortgage shares?
• An AI beast just racked up 80-fold growth and is now a top holding in this FTSE 100 trust
• SpaceX doesn’t pay a dividend. So how come it may help these investors earn passive income?
• Scottish Mortgage shares are now even cheaper after SpaceX’s amazing stock market debut!
• Most Britons miss out on the first 20 years of investment compounding. Here’s how a Junior ISA or SIPP can change that

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.

The recent fall 

The reason for the recent decline in the share price is simple: as the value of the firm’s investments have declined, so has the value of the fund. In fact, the fund includes stakes in companies such as Moderna, Tencent and Amazon. Over the past year, Moderna has sunk over 40% in the past year, Tencent has fallen 38% and Amazon has crashed 39%. As the value of these companies have declined, the Scottish Mortgage share price has fallen in response. 

There are also some worrying signs for the future. Indeed, as inflationary pressures continue, interest rates are likely to be raised further. This makes it more expensive to issue debt, which can have negative effects on the future growth of these companies. High inflation also reduces the discretionary income available for consumers, which could have further negative consequences for tech stocks. These are risks that must be considered in relation to Scottish Mortgage shares.

Why would I still buy Scottish Mortgage shares? 

Despite these risks, I am still confident in the ability for the fund to make solid returns in the long term. This is due to its reputation for being excellently managed, making returns to investors of around 85% in the past five years. It also known for finding high-potential companies. For example, it invested in Tesla in 2013, when its share price was around $10. Tesla is now priced at around $700. It also invested in Nvidia in 2015, when the chipmaker had a share price of around $6. It has since soared to around $170. For this reason, I trust the company to find the highest-potential growth stocks in the market. 

The fund is also very diversified, and I believe that this reduces its risk. For example, its tenth largest shareholding is Kering, the owner of Gucci and Saint Laurent. As luxury fashion consumers are less susceptible to inflationary pressures, I believe that this holding could be a good inflation hedge. Further, the fund invests in many privately owned companies, including Epic Games and ByteDance. As retail investors cannot participate in the growth of these companies, investing in Scottish Mortgage shares offers a great alternative. Therefore, I am willing to disregard the risks and open a small position in Scottish Mortgage Investment Trust for my portfolio. 

The post Down 50%, Scottish Mortgage shares are a no-brainer buy appeared first on The Twelfth Magpie.

More reading

• As SpaceX stock plunges below its opening price, is it time to dump Scottish Mortgage shares?
• An AI beast just racked up 80-fold growth and is now a top holding in this FTSE 100 trust
• SpaceX doesn’t pay a dividend. So how come it may help these investors earn passive income?
• Scottish Mortgage shares are now even cheaper after SpaceX’s amazing stock market debut!
• Most Britons miss out on the first 20 years of investment compounding. Here’s how a Junior ISA or SIPP can change that

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stuart Blair owns shares in Kering and Nvidia. The Motley Fool UK has recommended Amazon 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.

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.

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.

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.

The post Could the Scottish Mortgage share price be about to turn around? appeared first on The Twelfth Magpie.

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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.