The Scottish Mortgage Investment Trust (LSE: SMT) share price has fallen by more than 10% in recent weeks. This appears to have triggered a wave of buying by investors at Hargreaves Lansdown, where SMT was the most-purchased share last week.
I reckon Hargreaves’ clients could be right to back this growth-focused investment trust. Scottish Mortgage’s share price has risen by 1,740% over the last 20 years. Of course, past performance is not a guide to future performance. But SMT has some attractions that have made me consider the stock as a potential buy for my portfolio.
2 reasons why I’d buy
As a stock-picking investor, I don’t normally buy funds or investment trusts. But there are several reasons why I would buy Scottish Mortgage.
First of all, SMT does something I cannot do myself. The trust carries out in-depth research on growth businesses all over the world. At the end of October, its portfolio contained more than 100 investments. Around 50% were in the US, with nearly 20% in China and about 20% in unlisted private companies.
There’s no way I could ever build a global growth portfolio like this by myself. It just wouldn’t be possible.
The other reason is that Scottish Mortgage’s recent share price dip has left the stock trading below its book value. In other words, I can buy its shares for less than it would cost me to buy all the shares in the trust separately.
Is the Scottish Mortgage share price still too high?
Buying shares below their book value is a popular value investing technique. The main risk I can see here is that SMT’s book value is too high. Many of the companies in the portfolio have seen huge share price growth during the pandemic.
For example, the trust’s two largest holdings on 31 October were Moderna and Tesla. Both US stocks have risen by more than 1,000% over the last two years. Are these gains sustainable? I think it’s too soon to say. But, as I explained recently, I think Tesla’s share price is at risk of a correction.
SMT shares: what I’m doing
The valuation of Scottish Mortgage remains a concern for me. Are the shares likely to fall further before returning to growth? I think it’s possible.
My other concern is that fund manager James Anderson is retiring in April 2022. He has run Scottish Mortgage since 2000, so he’s led the fund through an incredible period of growth.
A change of management is always a risk. But Anderson’s replacement, Tom Slater, has worked closely with him since 2009 and has been joint manager since 2015. So I’m confident he’s likely to maintain a consistent investment strategy.
I don’t expect to see a repeat of last year’s share price gains in 2022. But I do expect Scottish Mortgage to maintain its successful long-term record of investing in disruptive growth companies. I’d be happy to buy its shares for my portfolio today, with a view to holding them for the next five-10 years.
