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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• As SpaceX stock plunges below its opening price, is it time to dump Scottish Mortgage shares?
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• 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.

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.

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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.

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.

Scottish Mortgage Investment Trust (LSE: SMT) shares have performed poorly so far in 2022. They are down 46% year to date, and over the last 12 months, they have fallen 43%. The main reason for the fall is rising interest rates, which were raised by the US and UK central banks on Wednesday to control inflation. The Scottish Mortgage share price slumped 8% on the news.

Reasons for the share price fall

The Federal Reserve announced yesterday that it is hiking interest rates by 0.75% to a range of 1.5% to 1.75%. The Bank of England announced a similar rise in rates to 1.25%. These hikes have been made in an effort to control record inflation levels. When interest rates go up, investors can earn higher returns on safe assets, and hence they turn away from high-growth stocks.

The bad news is that Scottish Mortgage Investment Trust holds exactly the type of assets that people tend to sell during this kind of market volatility. For example, the fund’s top three holdings as of the end of May were Moderna (7.4%), ASML (6.7%), and Tesla (5.7%). All of these stocks have fallen over 5% on news of rates being hiked.

The Fed predicts that rates could climb as high as 3.4% by end of 2022. If this is the case, then I expect Scottish Mortgage shares to struggle to gain any momentum throughout the rest of the year.

The investment trust’s performance has also been tainted by strict Chinese regulations. Since late 2020, the Chinese government has been cracking down on the tech sector in an attempt to curb the monopolistic power of some of its biggest firms. Scottish Mortgage had been building up positions in many of these companies. It announced in its annual report that this strategy was likely a mistake.

Long-term vision

Interest rates and Chinese regulation do pose serious short-term threats to Scottish Mortgage shares. However, the trust’s investment strategy looks to “add value over five-year time frames, preferably longer”. This means finding quality growth companies and investing in them with a long-term outlook. The fund’s performance backs up this methodology, generating 150% returns over the past five years. Past performance is no indication of future returns; however, this does highlight the fund’s exceptional management.

Therefore, perhaps I shouldn’t be worried about short-term volatility and take more of a long-term outlook on the shares. What’s more, growth stocks are starting to fall back from the sky-high valuations seen in 2021. The trust could start to pick up some shares at bargain prices, leading to high growth in years to come.

Would I buy the shares?

Overall, I think that Scottish Mortgage shares could fall lower over the next few months. Both the Bank of England and the Fed have predicted more rate hikes, and I think this will push growth stock valuations lower. Therefore, I won’t be buying the stock today but will be keeping it on my watchlist.

The post Here’s why Scottish Mortgage shares fell 8% yesterday 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 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.

Broadening the returns horizon to 12 months, the shares are down over 36%. For comparison, the investment trust’s benchmark, the FTSE All-World Index, is up 4.8% over the past year. Does this fall in price mark the perfect opportunity for me to buy Scottish Mortgage shares? Or should I steer clear of this FTSE 100 high-growth fund?

The lowdown

In order to understand the fall in Scottish Mortgage shares, it’s important to understand the types of companies that the trust holds. Trust managers Tom Slater and Lawrence Burns strive to own high-growth companies that can generate healthy returns over a five-year minimum period. This methodology has led them to concentrate heavy holdings in tech growth stocks. For example, the trust’s top five holdings at the time of writing are Moderna (6.5%), ASML (6.4%), Illumina (6.3%), Tesla (6.2%), and Tencent (4.9%).

The reason why Scottish Mortgage shares have been falling is due to rising inflation and interest rates. These are weighing down on the high valuations that growth stocks experienced in 2021. When inflation rises past government targets, central banks raise interest rates to slow down economic growth. When this process occurs, investors sell out of riskier positions such as the growth stocks outlined above.

In addition to this, SMT’s Chinese holdings have been facing some pretty strict regulatory tensions. Managers announced in its March annual report that the build-up of Chinese positions may not have been the smartest choice. This is another explanation for the trust’s poor performance.

Long term focus

Rising interest rates do pose a threat in the short to medium term for companies that Scottish Mortgage Trust targets. However, this factor may be irrelevant in the long term. As mentioned, the firm looks to “add value over five-year time frames, preferably much longer”. The historical share price lends credence to this, rising over 150% in the last five years, outperforming the benchmark by 85%. While past performance is no indicator of future returns, these figures do highlight to me the trust’s stellar management. With growth stock valuations down across the board, I think now could be a good time for me to open a position in the trust for long-term growth.

The verdict

Overall, I think that Scottish Mortgage shares could slide further in the short term as interest rates continue to creep up and Chinese regulatory risks intensify. However, I am confident in the fund’s management and think that over a long-term time horizon, these short-term pressures will leave negligible impacts on returns. Therefore, at their current low price, I am seriously considering buying Scottish Mortgage shares today.

The post Scottish Mortgage shares are down 39%: here’s why I plan to buy now 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 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.

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.

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 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.

Scottish Mortgage attracted many investors in 2020 with its 105% rally amid tough market conditions. And over the past decade, it has been a top performer. Yet this year has seen investors desert the trust as issues such as inflation continue to pressure investor confidence.

However, I think the large decline the trust has seen in recent times actually presents me with an opportunity to add Scottish Mortgage shares to my portfolio. Let’s find out why.

Why is SMT down?

After its solid performance in recent times, why has Scottish Mortgage seen such a drastic fall?

To start, it has a large weighting to growth stocks. The trust has holdings in firms such as Tesla. And with global inflation continuing to spike, it will have a detrimental impact on these firms. This is because to combat rising inflation, interest rates are rising. As such, the high levels of debt these companies have to fuel growth will become more difficult to pay off. On top of this, rising inflation tends to see many investors switching their investments to ‘safer’ value stocks. Combining these two factors, it’s easy to see why the share price is falling.

As well as this, Scottish Mortgage also has a substantial focus on tech stocks. This includes holdings such as Nvidia and Amazon. While tech stocks have surged in price over the past few years, they’ve struggled more recently.

SMT opportunities

Despite this, I still think Scottish Mortgage shares would be a strong addition to my portfolio.

Firstly, the above are short-term issues. Management is keen to note that the trust focuses on returns over a five-year period – using the FTSE All-World Index as a benchmark. And while past performance is no guarantee of future returns, the past five years have seen Scottish Mortgage return 92% to shareholders. The trust is also hardened to challenges, such as the 2008 financial crisis. And while such crises have had an instant impact on shareholder returns, in the long run investor’s patience has paid off.

With this said, the departure of James Anderson from the helm could provide to be an issue. After all, he was key in navigating moves such as the investment in Tesla in 2013 when it was trading for just $6. The loss of his eagle eye could have negative impacts on the Scottish Mortgage share price.

It’s now run by fund manager Tom Slater who also played a part in the trust’s rise over the past years. So, despite Anderson’s departure, I believe the capable hands of Slater will be able to keep the trust heading in the right direction.

Why I’m buying

While Scottish Mortgage may face some immediate issues, the trust has proved that over time it can deliver healthy returns to shareholders. I believe its weighting in growth stocks should pay dividends over the long term. And with cheap ongoing charges of just 0.34%, I deem cut-price Scottish Mortgage shares a solid addition to my portfolio.

The post Here’s why I’d buy Scottish Mortgage shares today! 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

Charlie Keough has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. 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.

Interest goes both ways

Scottish Mortgage was started as a mortgage-based fund, but has since transitioned to a heavily tech-based fund. This transition brought investors monumental returns from the tech boom during the pandemic. However, its share price has since fallen 40% from its all-time highs due to the underwhelming recent performance of those big tech names. This list includes the likes of Netflix, Zoom, Shopify, and many other growth stocks.

The reason for the heavy decline can be attributed to inflation and the rise of interest rates. The consensus is that when interest rates rise, growth stocks tend to suffer. This is because growth stocks have higher valuations based on future cash flows. High interest rates tend to slow economies down with the aim of suppressing consumer spending. As a result, growth companies are then expected to receive reduced cash flows which end up cutting their future valuations. This results in investors losing interest in those companies.

Upon assessing the Scottish Mortgage portfolio, it’s notable that the majority of its investments have seen monumental declines since the year began. Its biggest holding, Moderna, has seen its share price plunge 65% from its all-time high. The trust’s second-largest holding, Tesla, has also seen its share price suffer lately despite surpassing production estimates.

Locked down profits

The top holdings within Scottish Mortgage Trust include heavy investments in biotech, technology, and logistics. Within those names, the fund has a heavy allocation to China. As such, investors who want exposure to China can do so by investing in Scottish Mortgage as a close substitute. The FTSE 100 fund holds positions in Tencent, Alibaba, and even TikTok’s parent company, Bytedance.

As an emerging market, China’s growth is unprecedented, but its zero-Covid policy and authoritarian tendencies have seen many of its companies lose huge chunks of their valuations. The latest lockdowns in Shanghai and Beijing haven’t helped the Chinese investment case either. With three of Scottish Mortgage’s top holdings being Chinese-based companies I expect its share price to continue underperforming in the near term.

Trust in Scottish Mortgage Trust?

But has trust run dry in Scottish Mortgage Trust? I’d argue not. The flagship fund is managed by Baillie Gifford, one of Britain’s most popular fund managers. The firm has an excellent track record of producing stellar returns and I reckon that this is just a pit stop on a road to larger returns. For young investors like myself, the current bear market presents buying opportunities.

The current Scottish Mortgage share price is trading at a price-to-earnings (P/E) ratio of two. So, this could be a suitable entry point to buy the dip. Nonetheless, I feel the risks associated with investing heavily in Chinese stocks outweigh any potential returns. Therefore, I’m not planning to invest in Scottish Mortgage shares for the foreseeable future.

The post Here’s why the Scottish Mortgage share price is down 25% 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 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 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.

The post The Scottish Mortgage share price is rising: 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 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.