Despite last week’s rise, Scottish Mortgage Investment Trust (LSE: SMT) has struggled in 2022. Although last Friday saw it close nearly 4% up, this small gain can’t be compared to the 40% that has been shaved off the stock’s share price year-to-date.
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.
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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.
