The Scottish Mortgage Investment Trust (LSE: SMT) has slumped in value over the past few weeks. From a high of more than 1,400p reached in mid-February, the value of the trust has since fallen by around 20%.
However, over the past year, the performance of the trust is far more impressive. Over the past 12 months, the shares have added a total of 100% — even after recent declines.
As such, I’ve been reviewing the stock lately to see if it could be worth adding to my portfolio after its recent declines.
Scottish Mortgage Investment Trust outlook
Here at The Motley Fool, we’re long-term investors. That means we try to look past short-term market movements to concentrate on a company’s long-term potential. This is incredibly important when reviewing a growth opportunity like Scottish Mortgage.
The bulk of the trust’s assets are invested in tech companies, which are still in the early phases of growth. This means we’ve got to consider what they could be worth in, say, 10 years, rather than what they are worth today.
The manager’s approach has paid off in the past 12 months. The pandemic has accelerated the adoption of technology worldwide. The Scottish Mortgage Investment Trust was one of the few firms brave enough to take on the risk of investing large sums in the companies that have generated large gains throughout the pandemic.
However, this approach won’t be suitable for all investors. The trust’s investments have paid off this year, but they could just as easily have struggled. That’s the big problem with growth investing, it’s impossible to predict the future. Therefore, we never know for sure which companies will be tomorrow’s winners.
Portfolio makeup
The challenges outlined above are the reasons why I’ve never owned a position in the Scottish Mortgage Investment Trust.
I don’t feel comfortable owning a fund that holds positions in stocks I wouldn’t hold directly. I think that’s even more important when investing in growth stocks. Scottish Mortgage owns large stakes in companies I wouldn’t hold directly.
Granted, this has been a mistake over the past 12 months, but that’s why I’m looking at the company today. In some cases, the outlooks for the underlying businesses have changed entirely since this time last year.
Take the trust’s second-largest holding, Amazon, for example. Last year, e-commerce sales as a percentage of overall retail sales in the UK almost doubled. The same trend took place in other developed markets. In every single case, Amazon was able to take the lion’s share of new business. This has dramatically improved the investment case for the company, in my view. And I think one of the best ways for me to own a basket of tech stocks, including the likes of Amazon is to buy the Scottish Mortgage Investment Trust.
That’s why I’d buy the trust today after its recent declines. Despite the recent setback, I think the stock has a bright long-term future.
