Scottish Mortgage Investment Trust (LSE:SMT) shares have been on a downward trajectory recently. What has caused this recent share price drop and should I add cheapened Scottish Mortgage shares to my holdings? Let’s take a closer look at developments to help me make a decision.
Why are Scottish Mortgage shares falling?
As a quick reminder, SMT is a publicly traded investment trust that looks for strong businesses yielding above-average returns. It is managed by Baillie Gifford & Co, an Edinburgh-based investment management partnership.
I believe SMT shares have fallen, in recent months especially, due to its heavy focus on tech stocks. Tech stocks have been the hardest hit by macroeconomic and geopolitical issues currently occurring throughout the world. Soaring inflation and the tragic events in Ukraine have caused stocks to fall and a stock market correction to occur. SMT is one of a number of stocks to experience a share price drop.
So what’s the current state of play with the SMT share price? Well, as I write, the shares are trading for 941p. At this time last year, the shares were trading for 1,251p, which is a 24% drop over a 12-month period. In 2022 to date, Scottish Mortgage shares have dropped 29% to current levels.
Cheap but risky
The recent dip in SMT’s share price has made me consider adding the shares to my holdings. There is lots to like about SMT, in my opinion. It has been one of the best performing investment trusts in the UK for a long time. It possesses an excellent track record of picking quality stocks and providing consistent returns. I do understand that past performance is not a guarantee of the future, however. In addition to all this, the fallen shares look cheap right now.
Tech stocks have suffered due to soaring inflation and the ways in which central banks are dealing with it. The US Federal Reserve has decided to adopt tighter monetary policies to curb soaring inflation. Here in the UK, the Bank of England (BoE) has increased interest rates to combat the issue. How does this affect Scottish Mortgage shares you ask? Well, SMT’s tech-heavy portfolio has suffered. The issue is that expensive technology stocks are valued on future growth, not current performance.
My verdict
I can understand the appeal of buying cheap Scottish Mortgage shares. A consistent track record of performance, buying the dip, and holding for the long term could be a good strategy to see lucrative returns for my portfolio.
I do have some concerns with SMT’s portfolio and the businesses within it. Let’s take a look at its two largest holdings, Moderna and Tesla. Moderna rallied during the pandemic because of the Covid-19 jabs it created. Profit is set to drop substantially as demand for these jabs decreases, however.
Tesla surpassed the $1trn valuation mark last year. But when I look at performance and the balance sheet I’m not sure I can see a $1trn company.
I’ll avoid Scottish Mortgage shares right now. I’m still a fan of the stock but current macroeconomic developments as well as its focus on tech growth stocks is putting me off. I will keep a keen eye on developments, however.