The Scottish Mortgage Investment Trust (LSE: SMT) share price rallied 105% in 2020 and has also been a top FTSE 100 performer over the past 10 years – up nearly 700% during that period. Yet recently the stock’s price has declined and is down 14% year-to-date.
So, after a dent in its previous impressive form, does this recent fall present me with an opportunity for me to buy? Or should I be steering clear of adding SMT to my portfolio? Let’s take a look.
SMT share price fall
Let’s begin by looking at why the trust’s share price has taken such a hit recently. One factor it can be attributed to is rising interest rates. As my colleague Andrew Mackie highlighted, interest rates have slowly begun to creep up again after they were slashed near zero during the pandemic. And this, along with soaring inflation, has had a direct impact on SMT due to its heavy exposure to unlisted and growth stocks.
As these companies tend to be indebted in order to fuel growth, rising interest rates mean these debts will become more difficult to handle. As such, in times like these investors tend to put their money into value stocks.
A further reason for the fall is SMT’s tech-heavy weighting. With its top 10 holdings including ASML, Nvidia, and NIO, this means that when tech companies are doing well (as they were), the Scottish Mortgage share price rises. However, the recent tech sell-off means that these stocks have tumbled in price, reflected in the drop off the SMT share price, highlighting the negative connotations that can exist with its large exposure to the sector.
Long-term outlook
However, there are factors that excite me when looking at SMT. One reason I would consider adding SMT to my portfolio is its long-term outlook. The fund managers aim to beat the FTSE All-World Index over a five-year rolling period, and its history clearly shows that SMT can do so. For comparison, the Scottish Mortgage share price is up over 220% in the last five years, while the FTSE 100 has managed just 5%. Given this, the current dip could just be short-term volatility, therefore presenting me with a good opportunity to buy some shares at a reduced price.
Further, while many of SMT’s big holdings are tech stocks, the trust does allow me to enjoy exposure to an array of sectors within a single investment. For example, another one of its top holdings (8.1%) is pharmaceutical stock Moderna, best-known for its Covid-19 vaccine.
It also provides further diversification through its global investment strategy, an example being its weighting in China. And for me, this is an attractive factor.
Should I buy?
So will I buy? Well, this depends. If I was considering adding SMT to my portfolio for a shorter timeframe than five years – then no. However, as a long-term investor, I think SMT at its current price could be a solid addition to my portfolio. The trust has a proven track record, and the manager’s long-term outlook is one that clearly bears fruit. Even though SMT is experiencing a volatile period, I would look to add some shares to my portfolio today.
