I bought Scottish Mortgage Investment Trust (LSE: SMT) shares just over two years ago and it’s been a roller-coaster journey ever since. I watched with glee as the investment trust gained 80% in 14 months.
That glee turned to horror with the share price plunging 51% from its November 2021 high of £15.69. Today, at a price of £7.62, my investment is firmly in the red. After a torrid year, I’m asking myself whether it’s time to bail out of my Scottish Mortgage shares.
Big bets in question
One reason I bought Scottish Mortgage shares was to increase my exposure to growth shares. I could buy one investment trust with a diversified portfolio of public and private businesses around the world. However, even with that diversification, many of its holdings have proven to be susceptible to today’s macroeconomic challenges. Moreover, Scottish Mortgage’s managers have made some big bets that are looking questionable now.
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Firstly, Scottish Mortgage is a large investor and has strong relationships with Chinese businesses. The weighting of Chinese equities has fallen but they still make up 13% of the trust’s holdings. Chinese stocks have particularly suffered in the last year as China’s zero-Covid policy slammed the breaks on growth.
There’s also been an escalation in Sino-American tensions. Consequently, the appetite for Chinese equity investments is low. In fact, Chinese shares listed in Hong Kong have today plunged to their lowest valuation since the global financial crisis.
Secondly, its largest holding, Moderna, has fallen 50% this year. Investors have ditched vaccine stocks with some governments claiming that the pandemic is over. Of course, managers Tom Slater and Lawrence Burns have invested in Moderna with the long-term business case in mind rather than short-term Covid trends.
Why I remain bullish
Slater and Burns openly admit that volatility is par for the course when trying to achieve long-term gains. They look to add value over five-year time frames and preferably much longer than that. Undoubtedly, they have a proven track record with the share price rising 550% in the past decade even with 2022’s dismal returns.
The trust’s exposure to private businesses could also unlock future growth that would otherwise be inaccessible to me. Notable examples include spacecraft engineering company SpaceX, Swedish battery developer Northvolt, and TikTok parent company Bytedance.
I remain bullish on my holding over the coming years and see value in the investment trust today. The shares are trading at a 15.5% discount compared to NAV. At that valuation, I feel more inclined to add to my position rather than sell.
Many of the headwinds contributing to recent poor performance could persist. Nevertheless, I’m planning to ride the Scottish Mortgage roller coaster for years to come.
