Scottish Mortgage Investment Trust (LSE: SMT) is the successful fund managed by Baillie Gifford. Remarkably, it was first launched back in 1909, and today it’s the largest investment trust in the FTSE 100. But recently, the Scottish Mortgage share price has been falling. Already in 2022, the fund has lost over 14% of its market value. It’s down over 7.5% over one year too.
So, what’s going on? And does this weakness present me with a buying opportunity?
Why is the Scottish Mortgage share price falling?
I think the recent weakness in Scottish Mortgage has to be set against its strength over a longer timeframe, in particular. Since the end of 2019 the fund is up by almost 100%. If I’d held the Trust throughout this period I’d be extremely pleased with this return. But this outperformance over the pandemic period may also be a reason for the share price to fall this year.
With this in mind, the first thing I do before buying any fund it to check the most recent factsheet. It should tell me what the investment strategy is, and show the top 10 holdings within the fund. Scottish Mortgage’s recent factsheet describes it as an actively managed global equities portfolio. It looks to deliver returns predominantly from share price rises over a long-term horizon. From here I can check the underlying holdings to see that the fund is heavily weighted towards technology, consumer discretionary and healthcare stocks. For example, the Trust holds Moderna, Tesla, Nio and Nvidia shares.
I can now check the individual performances of these stocks in 2022. Indeed, they haven’t been great. Moderna is Scottish Mortgage’s biggest position and this stock is down almost 20% in 2022 already. Nvidia has fallen over 8%, and even Tesla, usually a stock market darling, is 1% lower.
These companies performed extremely well over the pandemic. Moderna in particular was able to develop a leading vaccine against Covid. Recently though, risks such as inflation, the prospect of higher interest rates, and over-valuations have been weighing on these share prices.
But does this matter in the grand scheme of things?
Here’s what I’m doing
I don’t think it does. After all, Scottish Mortgage has been picking stocks successfully for over 100 years now.
For me, the key point to consider is the time horizon. The Trust’s strategy, as described in the factsheet, says it aims to outperform the FTSE All-World Index over a rolling five-year period. The volatility of share prices over a few weeks, and even over one year, shouldn’t matter to me if I take a long-term view of Scottish Mortgage shares. The managers have shown they can pick good stocks for many years now, and the recent share price fall doesn’t really change this fact.
So, I would consider buying the Trust at this share price. I have a high tolerance for risk and need that as the Scottish Mortgage share price might continue to be volatile from here due to the issues I mentioned above. Nevertheless, I consider this Trust a high-quality potential addition to my higher-risk portfolio.