The Scottish Mortgage Investment Trust (LSE:SMT) is an investment vehicle of asset manager Baillie Gifford. Listed on the FTSE 100 index, it provides investors with exposure to the technology sector. With holdings in Tesla Motors, Alibaba Group, and Tencent Holdings, SMT shares have been volatile lately. What are the reasons for this volatility? Should I add this stock to my long-term portfolio using a spare £1,000? Let’s take a closer look.
SMT shares and the recent market sell-off
In terms of financial results, SMT generally performed well during the pandemic. In 2020, for instance, profit before tax was £24m. For 2021, this declined to £10m. It should be noted, however, that past performance is not necessarily indicative of future performance.
More recently, SMT shares have not been immune from the sell-off in the technology sector and the stock market more generally.
In November 2021, shares in the FTSE 100 stock were trading at highs above the 1,500p level. It now trades about 1,030p, down 10% in the past year.
This means that in the past six months, the value of SMT shares has fallen by roughly 30%. There are a few reasons for this.
Challenges ahead
Interest rates in the UK and US have been rising after the pandemic. This has resulted in some investors opting to simply save money at higher rates instead of buying stocks. High growth and emerging market shares can be hit especially hard because they are seen as riskier investments.
The recent Russian invasion of Ukraine also caused panic in the market. This resulted in 15.5% fall in SMT shares. While the value of technology stocks declined, gold and silver enjoyed gains as they are seen as safe havens during the crisis.
There have also been further waves of the pandemic throughout China. As part of its ‘zero Covid’ policy, China has once again been locking down cities. These cities include the financial and technology hubs Shanghai and Shenzhen.
SMT has a number of large holdings in Chinese companies. These include Alibaba and gaming giant Tencent.
The lockdown measures have spooked investors and has raised fears that the underlying value of SMT’s Chinese holdings will fall as operations in China face a potential slowdown.
Just two weeks ago, however, the Chinese government promised financial support for suffering technology markets. This gives me confidence that any China-related lockdowns may be short-term in nature and will subside over time. It is also possible that any future variants could lead to a fall in SMT shares.
Overall, SMT would provide me with exposure to the biggest technology companies and help me further diversify my portfolio. Currently, there appear to be too many threats in the market. I want to see issues like the pandemic and the war in Ukraine subside before I spend my spare £1,000 on SMT shares.