Scottish Mortgage Investment Trust shares are falling! Should I buy or avoid them?

Jabran Khan details the falling Scottish Mortgage Investment Trust shares. He explains whether this is an opportunity to buy cheaper shares for his portfolio or not.

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Scottish Mortgage Investment Trust (LSE:SMT) shares have dipped recently. Let’s take a closer look and see if I should add these cheapened shares to my holdings or avoid them.

Scottish Mortgage Investment Trust shares drop from all-time highs

SMT is recognised as the largest investment trust in the UK. In simpler terms, it is a publicly traded trust that invests in stocks throughout the world in one big pot. SMT’s mantra has been to focus on stronger businesses that provide above-average returns to the trust.

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As I write, shares in SMT are trading for 1,042p, whereas at this time last year, shares were trading for 20% higher at 1,306p. The shares have dropped 32% since the beginning of November from 1,543p to current levels.

When shares are trading at all-time highs, there is always the risk that any market movements or negative news can send shares tumbling. This is what I believe has happened to Scottish Mortgage Investment Trust shares recently. SMT focuses on high growth stocks and had managed to navigate itself to a respected position in the market and yielded impressive returns. I believe recent interest rate rises and inflation has led to many investors moving away from high growth stocks and towards value or defensive stocks. This has hurt the individual stocks themselves, and trusts like SMT.

Outlook ahead and risks

Fund managers Tom Slater and James Anderson have led SMT to new highs and excellent returns over the past decade or so. The SMT share price has been affected by Anderson’s fast approaching departure, on 30 April. Slater is staying on and I believe he will be able to navigate current headwinds.

Many investors may believe the duo’s combined efforts are why Scottish Mortgage Investment Trust has succeeded and provided excellent returns over the past 10 years. I believe under Slater’s guidance alone, the trust will continue to excel and provide positive returns over the long term.

I review past performance as a gauge when determining investment viability. Past performance is not a guarantee of the future, however. But, with SMT, it is hard to ignore such an impressive track record. The Scottish Mortgage Investment Trust share price is up over 200% in the past five years. The fund has returned over 12% annually over the same period too. More specifically, SMT consistently purchased shares in excellent picks that yielded above-average market returns. 

The current macroeconomic outlook with rising interest rates and inflation could still hamper SMT shares in the short to medium term. Those at the top will need to change tack and look at different options as growth stocks seem to be out of favour right now.

My verdict

Despite the falling Scottish Mortgage Investment Trust share price, I would happily add shares to my holdings. The recent blip is a consequence of market movements out of SMT’s control as well as a change in the leadership structure. I believe the fund will continue to provide excellent returns to investors and its share price will also head upwards once more. Historic performance and the new sole leadership support my position that SMT is a buy for my portfolio.

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Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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