It’s easy to see that Scottish Mortgage Investment Trust (LSE:SMT) shares have taken a bit of a pounding recently. Having dipped below the 800p mark, is the sell-off nearing its end after a fall of 40% in the past year? Could it now be time to add the FTSE 100 constituent to my portfolio?
Caught up in the market sell-off
If I’d invested in Scottish Mortgage a year ago, the share price movement since then would not have made for pleasant viewing. The shares are down 40% in that time, as mentioned, and they’ve fallen 18% in the last three months. At the time of writing, they’re trading at 785p.
It’s possible that Scottish Mortgage shares are cheap at current levels. The investment trust’s estimated net asset value (NAV) is currently 894.1p. Based on the current share price, it appears that it’s trading at around a 10.37% discount.
The falling share price can be traced back to November. This was when investors started selling technology stocks. In the following months, the wider market followed this trend.
Scottish Mortgage – a tech-heavy investment trust run by Baillie Gifford – was was hit hard because it holds large tech stocks like Tesla, Moderna, and Alibaba. The Tesla share price, for instance, has plummeted 37% since November.
These falls in share prices were mainly caused by investors retreating from tech and higher-risk stocks in the face of rising interest rates and rampant inflation.
Long-term outlook
Despite the poor recent performance, I don’t think this will worry the managers at Baillie Gifford. Scottish Mortgage operates for the long term, over five-year timeframes. To that end, it doesn’t seem that short-term fluctuations should be a cause for concern.
The investment trust could also provide me with exposure to companies across the world, from the US to China. Furthermore, I can tap into unlisted companies because Scottish Mortgage has a number of these in its portfolio.
However, the investment trust’s big holdings in Chinese firms are slightly unnerving. Continuous lockdowns and China’s ‘zero-Covid’ policy have caused an economic slowdown in the country and specifically in the tech sector.
Multiple lockdowns have hit the southern city of Shenzhen in recent weeks, which are impacting the tech hub’s ability to manufacture goods. This may continue to negatively impact the likes of Alibaba and Tencent, both of which are part of Scottish Mortgage’s portfolio.
Overall, this investment trust has many good points. It’s international and provides access to private companies I wouldn’t otherwise be able to get. On the other hand, the tech sector may still be far from recovery and ongoing issues in China also make me uneasy. While I’ll be avoiding the shares for the moment, I won’t rule out a purchase when the broader economic environment calms down.
