Over a period stretching back many decades, Scottish Mortgage Investment Trust (LSE: SMT) has been very rewarding for shareholders. Over the past 10 years, Scottish Mortgage shares have increased in value by over 450%. The investment trust also has one of the longest runs of maintaining its dividend among any share on the London market.
But does a 37% decline in the share price over the past year suggest that the glory days are over? Or might it be a temporary pullback that gives me an opportunity to add this proven performer to my portfolio?
Changing markets
As an investment trust, Scottish Mortgage invests in dozens of different companies. That means owning its shares could help me expose my portfolio to a diversified range of companies operating in different sectors and geographies.
That diversification only goes so far however. The trust invests behind some clear strategic themes. That explains why it has been (and remains) heavily exposed to tech companies. With the tech pullback over the past year or so, it is no surprise that Scottish Mortgage shares have been sinking.
Share price potential
Once tech shares come back into favour with more investors, the value of the trust’s shareholdings in companies like Tesla and Shopify could increase. That may push the price of its shares up again, perhaps beyond £10 apiece. It was that high as recently as April, though touching that level again would take a 31% rise from the current share price.
Reaching a £10 price again is not certain – and even if it does, I am not confident it will occur this year. A strong economic recovery could help. But if large economies continue to shrink, growth shares may continue to trade at their current prices, or lower, for a long time.
The trust is focused on growth and we recently lived through a great few years for growth shares. With a recession and rising interest rates, that has ended. But I am confident that growth shares will come back into vogue once the global economy is in stronger shape again. Meanwhile, even if growth shares fall overall, there may still be winners in the trust’s portfolio.
Long-term strategic investing
Despite that, I see the current price of Scottish Mortgage shares as a buying opportunity for my portfolio and would purchase them if I had spare cash to invest.
I am a believer in long-term investing. While I think Scottish Mortgage may continue to suffer from market movements in the short term, over a longer timeframe I remain upbeat about its prospects. It has identified some key business trends I expect to become increasingly important in years to come.
Using them, it has chosen a number of companies in each area it thinks have the potential to do well. If only some of them do very well, overall the trust could benefit handsomely. I cannot time the market so do not know when the tide may turn again in favour of tech valuations. If I wait too long, I may ultimately miss the boat next time around.
So while Scottish Mortgage shares might not reach £10 any time soon – and indeed could keep heading south – I am confident the current price offers me potential value from a long-term perspective.
