Down 9% in H2 2024, is the Scottish Mortgage share price a yay or nay?

As we move into the second half of 2024, the Scottish Mortgage share price is taking a dive. What does this mean for the stock?

| More on:
Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Scottish Mortgage (LSE: SMT) share price climbed 13% in the first half of the year, but like many other stocks it hit a wall in July. It has since fallen 9% while in the same period, the FTSE 100‘s risen 1%.

The main reason for this is the fund’s heavy leaning towards US tech stocks like Nvidia and Amazon. Both are down between 6% and 8% since we entered the second half of the year. But it’s not just the US to blame. The fund’s fourth largest holding, Dutch chip-maker ASML, is down an eye-watering 25%.

All things considered, it’s not been a great period for tech.

So why’s this happening?

Early August, fears of an impending US recession send ripples through global stock markets. Headlines waxed lyrical about stubbornly high inflation and how a ‘tech bubble’ would send markets spiralling.

A lot of this was overblown and based on one report revealing unexpectedly high unemployment in the US. Most markets recovered fairly quickly from the early August dip. But tech appears to have taken the brunt of the losses.

In fairness, stocks like Nvidia have been treading dangerously near correction territory for some time now. What goes up, must come down, after all. And doubly so when it goes up 2,500% in just five years.

What does this all mean for the stock?

It’s too early to tell if this week’s half-point interest rate cut by the Federal Reserve will make a huge difference to Scottish Mortgage. The S&P 500 experienced some volatility following the cut, rising 38 points on the news only to fall 56 in the next hour.

Fundamentally, the fund looks to be in a good position. Its price-to-earnings (P/E) ratio of 7.8’s decent and the stock’s trading at a 10% discount to net asset value (NAV). That suggests the current price could be a good entry point to buy.

Furthermore, some of its top holdings aren’t entirely tech-based stocks. For example, Ferrari, up 35.7% this year, and MercadoLibre, up 38%.

High-risk exposure

I think the current situation reveals the fund’s over-exposure to riskier growth stocks. Management’s recently tried to reduce this slightly, selling some of its Nvidia stock in June.

At the same time, it’s clear about maintaining its faith in the potential of artificial intelligence (AI). This is reflected in its Meta and TSMC holdings. If AI turns out to be a dud, it’s got a backup in e-commerce stocks like MercadoLibre, Shopify and Meituan.

My verdict

Scottish Mortgage has struggled lately and the past five years have been volatile. There’s a chance it’s taking some risk with tech- and AI-related stocks. In 2020 and 2021, this paid off well for the fund but that doesn’t mean it’ll continue.

Overall, I think this is just a mild dip. It’s unlikely the tech sector will continue to falter in the long run. I’m a bit hesitant to dive into tech stocks or buy more right now, but I’m happy holding my Scottish Mortgage shares.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Mark Hartley has positions in Scottish Mortgage Investment Trust Plc and Taiwan Semiconductor Manufacturing. The Motley Fool UK has recommended ASML, Amazon, MercadoLibre, Meta Platforms, Nvidia, Shopify, and Taiwan Semiconductor Manufacturing. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Should I sell my FTSE All-Share index fund and buy a S&P 500 tracker instead?

Harvey Jones is wondering whether now is a good time to invest more money in the S&P 500, after a…

Read more »

Investing Articles

Should I buy dirt-cheap BT shares after the recent pullback?

BT shares were on the up but now they're sliding again after the board trimmed full-year guidance. Now Harvey Jones…

Read more »

Investing Articles

Up 28%, can the easyJet share price keep rising?

The easyJet share price has gained altitude over one year but plunged over five. Is now an attractive time for…

Read more »

British Isles on nautical map
Investing Articles

Should I buy more BAE Systems shares at 1,350p?

BAE Systems shares have had a fantastic run since early 2022, yet still don't appear overvalued. Is it now time…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

7% yield and a cheap valuation! Is this one of the best shares to buy this month?

Christopher Ruane has been looking for cheap shares to buy. This one has a 7% dividend yield, so is it…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Should I buy National Grid shares for the big dividend before it’s too late?

This year's price weakness has left National Grid shares on what looks like a tempting valuation. I hope it doesn't…

Read more »

Investing Articles

There are now 5,000 ISA millionaires! See the surprising UK dividend shares they’re buying

The number of ISA millionaires is growing all the time and guess what? They're really into blue-chip dividend shares listed…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Down 38% in weeks! Time to snap up NIO stock?

NIO stock's more than doubled in value over the past five years but has been on a wild ride lately.…

Read more »