It’s been a poor year for Scottish Mortgage (LSE: SMT) shares. The investment trust has been one of the top performers over the past decade, returning a whopping 450% to shareholders within this time. However, as inflationary concerns continue to bite, the stock has fallen nearly 45% across the last year.
So, is this fall a chance to buy Scottish Mortgage shares? I believe so. Here’s why.
Delving deeper
Let’s start by taking a closer look at why Scottish Mortgage has fallen in recent times.
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The main driver behind this is inflation. Rising rates have seen global markets being pushed downwards in 2022. And with rates in countries such as the UK looking like they’re unlikely to slow down anytime soon, this has seen the Scottish Mortgage share price suffer.
During tough times the worst affected assets are growth stocks, which the trust focuses on holding. Due to their volatile nature, investors tend to turn their backs on such investments, instead opting for ‘safer’ alternatives.
Scottish Mortgage’s top holdings include the likes of Tesla and ASML, which have fallen 30% and 41% this year respectively. With this in mind, it’s clear to see why the stock has seen its price drop.
Is now the time to buy?
With that said, does it open the door for me to grab some cheap shares? After all, I think the trust has plenty of positives that make it a buy.
Firstly, Scottish Mortgage’s management investment style aligns with mine. And by this, I mean buying for the long term. The managers say performance is measured over a five-year+ timeframe. Therefore the volatility we’re currently experiencing could be seen as an opportunity rather than an issue.
While past performance is no indication of future returns, the last five years have seen Scottish Mortgage return 82% to its patient shareholders, highlighting the strength of long-term investing.
What I also find attractive is the diversity this single investment offers me. Buying Scottish Mortgage shares means I get exposure to over 100 companies, including over 50 unlisted businesses. And its cheap ongoing charges of 0.32% are an added benefit.
But there are a few factors that could drag its share price down in the months ahead.
To start, inflation looks like it’s set to continue to rise for the foreseeable future. This has been the main catalyst behind the trust’s downfall, so I wouldn’t write off the stock falling further should rates continue to spike.
Scottish Mortgage also has a large weighting to China. And with the country experiencing ongoing Covid struggles alongside a property crisis, it may be a while before we begin to see the extreme growth that we’ve seen in the Chinese economy in years gone by.
I’d still buy
Despite these issues, I’d still buy Scottish Mortgage shares today and hold for the long haul. The trust has proved it can return hefty profits to shareholders. And while in the short term China may experience further issues, I think that the stock’s weighting to the world’s second-largest economy could turn out to be a winner in the future.
