Scottish Mortgage Investment Trust (LSE: SMT) has been one of the biggest UK stock market winners over the last decade. The SMT share price has risen by 780% over the last 10 years, compared to a gain of around 35% for the FTSE 100.
Of course, past performance is no guarantee of future gains. However, I like Scottish Mortgage Trust’s strategy and I think there’s a good chance it could continue to do well. That’s why I’m considering taking advantage of the trust’s recent share price slump to buy SMT for my portfolio.
What’s going on with the SMT share price?
The Scottish Mortgage share price has fallen by around 25% since hitting a record high of 1,568p in November. A 25% drop is a hefty loss, but I think it’s worthwhile keeping this in context.
SMT shares are still worth 90% more than they were two years ago. And the stock has only fallen by 10% over the last 12 months. After such rapid growth, I’m not surprised to see Scottish Mortgage shares pulling back.
My only concern is that much of the trust’s growth since 2020 has been driven by the sharp rise in tech and pharma stocks such as Moderna, Tesla, Tencent, and Nvidia. Many of these shares have been falling in recent weeks. But some valuations still look quite full to me.
I think it’s possible that some of SMT’s holdings could have further to fall. If they do, they could take SMT’s share price down lower, too.
Forget the short term, I’m looking at the next decade
However, I see this as a short-term risk only. Scottish Mortgage says its strategy is focused on “five year time frames, preferably much longer”.
I’m interested in buying this stock for my retirement portfolio. That means I’m looking 10-20 years ahead. On this time frame, I’m very attracted to Scottish Mortgage. The reason for this is that the trust does something I can’t do myself, even though I am an experienced investor.
Scottish Mortgage’s focus on “global technological change” means that it researches and invests in businesses all over the world. In addition to stock market investments, the trust also invests in privately-owned companies.
Not all the trust’s picks are successful, but some of the big winners are very big indeed. SMT invested in Tesla at around $7 (adjusted for a stock split) in January 2013. Nine years later, Tesla’s share price is around $1,000. SMT has sold much of its Tesla holding, but is still one of the EV pioneer’s largest shareholders.
Scottish Mortgage: one final thought
Scottish Mortgage uses some borrowed money to try and increase its shareholder returns. The trust recently secured $400m of new lending. These loans have an interest rate of about 3% and won’t need to be repaid for between 30 and 40 years.
Normally, I’d only expect huge global businesses to be able to borrow cheaply for such long periods. This suggests to me that the trust’s lenders are very confident in Scottish Trust’s long-term prospects.
That’s a view I share. I don’t have a strong view on the outlook for SMT over the next year. But over the next decade, I feel that the trust’s long-term strategy is likely to continue delivering attractive returns.
For this reason, I’d be happy to start building a position in SMT for my portfolio today.
