The Scottish Mortgage Investment Trust (LSE:SMT) share price been in freefall for months and is down 48% since December. This was compounded by a 6% drop on Thursday, just one day after it lost its position as the UK’s largest investment trust in market cap terms. The largest trust is now 3i Group. However, Scottish Mortgage still sits higher than 3i Group in terms of total assets. Its assets are worth £14bn compared with 3i Group’s £13bn.
Scottish Mortgage had been one of the most successful trusts in recent years, but its tech weighting has been the reason for its downfall over the past year. Its well-publicised fall, from a high of around £15 per share in November to £7.32 at the time of writing, reflects the fortunes of the tech industry.
2022 has been carnage for tech stocks. Netflix is down 72%, Meta is down 44%, Amazon is down 38% and Tesla is down 38%. Google, Microsoft and Apple have also experienced their worst years since 2008, while China’s Tesla competitor NIO is down 62%.
What stocks does SMT hold?
The Scottish Mortgage share price reflects the value of the stocks it holds. The fund’s success in recent years has been, in part, due to former manager and star-stock picker James Anderson, who retired in April. Anderson had made huge returns for investors by taking early bets on nascent technology firms such as Tesla, Amazon and China’s Alibaba. SMT started buying Tesla when the shares were changing hands for just $6 — the stock was trading over $1,000 a share in April.
However, Anderson had previously noted that the strategy of picking “big winners” can have “periods of pain“. And that’s certain what investors are experiencing now.
SMT’s five biggest holdings are Moderna, Illumina, ASML Holding, Tesla and Tencent. All five of these stocks, which collectively represent around 27% of the portfolio, have lost at least 20% of their value this year. Moderna, the company that brought us the lifesaving mRNA Covid-19 vaccine, is SMT’s largest holding and has lost 47% of its value since the beginning of the year.
Multinational luxury fashion corporation Kering is the only non-tech stock to feature in SMT’s top 10 holdings. However the firm, which owns brands like Balenciaga, Bottega Veneta, Gucci, Alexander McQueen and Yves Saint Laurent, has also seen its share price slump. It’s down 38% since the start of the year.
Prospects
Last year, Tom Slater, Scottish Mortgage’s current manager, said that the trust was already on the lookout for the next generation of big winners. However, this process takes time and it may be a while before we see the next big winners come through.
Personally, I’m more concerned about the short-term prospects of some of its biggest holdings. I’m certainly not bullish on Tesla as I believe its position in the market is becoming increasingly diluted by new entries and established car manufacturers. I’m also unsure of Moderna’s prospects as the company’s recent performance is so heavily linked to the Covid-19 pandemic. Meanwhile, Tencent has showed signs of slowing growth.
Should I buy?
For me, it’s a no. I think the trust’s shares could sink further in the coming months and I’m not confident on the long-term prospects of some of its biggest holdings.