Scottish Mortgage Investment Trust (LSE:SMT) has been a phenomenal performer over the past decade. In the five years from 2017 to 2021, it gained an impressive 319%. That was enough to turn a £10k investment into a whopping £41k. By comparison, the FTSE 100 rose by just 26% over the same timeframe.
But such significant outperformance can be difficult to sustain. There was a notable shift in the fund’s performance from the start of this year. So far, it has lost more than a third of its value in 2022.
What’s going on?
Scottish Mortgage owns many high-growth technology stocks. Despite their long-term prospects, it appears that they may have become overvalued in the near term.
Such shares perform particularly well when interest rates are low and falling. The monetary policy of quantitative easing used by the US Federal Reserve is also great for these technology stocks. That’s because in the short term, the stock market can be driven by liquidity more than long-term fundamentals.
But this year, the policy has begun to reverse. Inflation is likely to blame. The US central bank has a mandate to control inflation. But rapidly rising prices, pushed higher by the war in Ukraine, is causing alarm at the world’s largest central bank.
Where next for the Scottish Mortgage share price?
After a 34% tumble this year, the Scottish Mortgage share price is now back to levels seen in July 2020. But has it now fallen too far and is it time for me to buy it for my portfolio again?
I reckon the Scottish Mortgage share price could remain volatile over the coming months. The macroeconomic environment is undergoing a period of adjustment that might not be over.
That said, the long-term fundamentals of the stocks owned by this fund are encouraging. The managers look for well-run businesses that offer the best durable growth opportunities for the future.
They’re focusing on three main themes: the digital transformation of the world; the connection between biology and technology; and clean energy.
Its top holdings include Moderna, Tesla and ASML. And fittingly, these shares cover all three themes.
I reckon these areas are likely to be key drivers of the future. The market leaders that dominate might change over the coming years, but Scottish Mortgage seems to have a knack at picking the big winners.
As such, I look forward to adding this investment trust back into my Stocks and Shares ISA. As a long-term investor able to withstand short-term hurdles, I would consider buying it now.
A word of warning though. Technology share prices are particularly volatile right now. Just yesterday, Tesla shares fell by 12% in one day amid concerns about Elon Musk’s takeover of Twitter.
Yet all things considered, if the Scottish Mortgage share price were to fall further, I would consider it an even bigger bargain.