As Scottish Mortgage Investment Trust (LSE: SMT) shares have plunged in value over the past couple of weeks, I have been wondering if I should double down on the stock. I do not own the trust directly, but I own some of its most significant holdings. Acquiring the stock would mean increasing my exposure to these companies overall.
Time to catch a falling knife?
Buying shares when they are falling in value is never easy. More often than not, investors are selling because there is something wrong. In this case, it looks as if the market is becoming worried about the outlook for highly valued growth shares. Analysts are starting to question whether or not these businesses can maintain their lofty growth trajectories.
In all honesty, I do not want to increase my exposure to companies that may struggle to live up to their reputations. If they continue to underperform, Scottish Mortgage Investment Trust shares could continue to fall.
However, I would not just be buying shares in individual businesses with this trust. I would also be acquiring the investment reputation and skills of the managers at Baillie Gifford. This investment manager has a fantastic reputation for finding early-stage growth stocks in public and private markets.
Indeed, Scottish Mortgage has a portfolio of private investments alongside its public equity portfolio. As such, in some respects, I would not be doubling down on the positions I already own. I would be doubling down on some holdings, but I would also be acquiring completely new positions in different companies.
Are Scottish Mortgage Investment Trust shares undervalued?
This is something I have to take into account when analysing the trust and its potential. I am not just buying exposure to a portfolio of growth stocks. I am also acquiring an experienced management team, portfolio of private companies, and pipeline of other potential investment opportunities.
Of course, there is a fee for this management. The trust charges an annual management fee of 0.34%. This is something I will have to keep in mind as we advance. Other fees may also be levied on top of this management charge, such as dealing and borrowing costs.
The trust is also highly concentrated. The top four holdings make up around 25% of assets under management. I am not entirely comfortable with this level of concentration. It would only take one disaster in the portfolio to significantly impact overall returns.
Still, even after taking this risk into account and factoring in the trust’s management fees, I think I will be happy to double down on Scottish Mortgage Investment Trust shares.
Being able to invest alongside such an experienced team of growth investors and a portfolio of private companies is an extremely attractive opportunity, especially for a long-term investors like me.
