Shareholders in Scottish Mortgage Investment Trust (LSE: SMT) had got used to strong returns for a number of years. So it must have been an unwelcome change to see the Scottish Mortgage share price slide 19% over the past 12 months.
Does this fall present a buying opportunity for my portfolio? Or could the Scottish Mortgage share price head further south?
Tech focus
The simplest explanation for the downward movement in the SMT share price is the trust’s heavy tech focus. Its top 10 holdings include tech names such as ASML, NVIDIA and NIO. Such companies have seen their share prices tumble lately. NIO, for example, is 64% down over the past year. Thanks to its heavy tech focus, when tech shares did very well, so did SMT. But now that many leading tech shares are experiencing substantial falls, the same is happening for SMT.
I do not think that is the whole picture, though. the firm has been reshaping its focus and there is more in its portfolio than tech alone. Indeed, its single biggest holding is pharma giant Moderna. Another top 10 holding from outside the tech world is luxury goods maker Kering. That means that, although further tech falls could keep hurting the share price, it may get some support from other holdings. For example, luxury goods are in strong demand at the moment and Kering has risen 17% over the past year.
Changing of the guard
An additional concern some investors have is that the trust plans to change its management. Its co-manager is stepping down this year after four decades at the investment firm that runs it.
Is that good or bad for the shares? Clearly performance over the past few years was excellent, suggesting that the fund managers did a great job. But a good fund is not reliant on a single personality, in my view. It has an investment strategy, relationships in the City and a research team that mean it could do well under different leaders. Only time will tell if that is the case at SMT. But for now at least, I have no reason to doubt that the trust’s management will continue to be good. It is in the best interests of the investment firm that runs it to keep it that way.
Potential for Scottish Mortgage price recovery
Even after the recent fall, I see reasons for me to remain bearish on the Scottish Mortgage share price. Despite its diversification, the firm remains heavily weighted to tech. There is a risk that tech shares could keep losing ground, hurting the SMT share price further.
Even the non-tech names may suffer amid valuation concerns. Moderna has slipped 7%, for example. I think further market corrections could see the share price continuing to lose ground in the weeks to come. I will not be buying the trust for my portfolio.