Despite a small rebound last Friday, 2022 has seen Scottish Mortgage (LSE: SMT) shares plummet by over 40%. The investment trust had been a top performer over the past decade. And in 2020 it showed its resilience, rising over 100% despite the impact of the Covid-19 pandemic. Yet with inflationary pressures this year denting investor confidence, the trust has taken a hit.
As a long-term investor, I think this fall is an opportunity for me to add the trust to my portfolio this month. Let’s find out why.
Why have SMT shares sunk?
The main contributor to the demise of the Scottish Mortgage share price is the performance of its top holdings. This includes companies such as Tesla, Nvidia, and Tencent. With these stocks down 43%, 52%, and 21% this year, respectively, this has reflected negatively on Scottish Mortgage.
The fall of these stocks is part of a wider decline seen among growth stocks. Scottish Mortgage has a large focus on such companies. And as global inflation continues to surge, it’s having a negative effect on these firms. This is largely because, in volatile times, growth stocks tend to be hit the hardest as investors switch their funds to ‘safer’ value stocks.
Long-term vision
So, it’s clear to see that 2022 has been tough for Scottish Mortgage shares. However, I’d still buy the stock today as a long-term addition to my portfolio.
Firstly, I like it due to the diversity it offers my portfolio. The trust has over 100 holdings. And of these, over 50 are unlisted shares, such as SpaceX. This is an opportunity for me to access a variety of opportunities under a single investment.
Further, while inflationary issues are wreaking havoc in the market now, this is a short-term concern. Scottish Mortgage’s management is keen to note how the trust focuses on returns over a five-year period. And while past performance is no indication of future returns, the last five years have seen it return 84% to shareholders. This highlights its long-term potential.
Around a fifth of the trust’s holdings are Chinese. And with ongoing Covid concerns, this could pose a threat to the Scottish Mortgage share price.
However, as the fastest growing economy in the world, and therefore ample opportunities, I think its large weighting to Chinese shares will pay dividends in the long run.
I also have faith in the management team of Tom Slater and Lawrence Burns. Both have played an active role in the trust’s success in years gone by. With a keen eye for investing in companies early, as seen with Tesla, I think these two are more than capable of placing Scottish Mortgage in a position to succeed.Â
As such, I’d add the shares to my portfolio today. The diversification that it offers is something I like. And while it may face issues in the near future, it’s proved over time it can reward shareholders. Its heavy weighting to China, coupled with management’s eagle-eyed investment style, could also lead me to see some healthy returns over time.