Scottish Mortgage Investment Trust (LSE: SMT) made headlines with its 2020 rally. Despite the tough market conditions because of the coronavirus outbreak, the FTSE 100 trust saw a meteoric 107% rise.
However, since then, the share price slowed down, with SMT rising just under 5% in 2021. And in fact, this year has seen the Scottish Mortgage share price drop dramatically – it’s down 25% in 2022.
But will the stock recover? And should I be buying some shares today? Let’s take a look.
Why has the SMT share price fallen?
So, let’s start by looking at why the SMT share price has dropped. One reason is due to the uncertain global economic outlook, in part because of rising inflation. An example is the UK. The opening up of the economy post-Covid saw fast growth coupled with massive global supply issues. And, as such, the Bank of England expects inflation to reach around 6% by spring 2022. To combat inflation, central banks raise interest rates. And, in times like these, people can receive higher returns on their savings and therefore are less likely to invest. And growth stocks tend to be hit the hardest. Given SMT’s top holdings include NIO, Nvidia, and Illumina, it is clear to see why the fund’s price has dropped.
On top of this, SMT has been impacted by the recent tech sell-off. With its tech-heavy weighting, the global tumble we have seen in the price of these stocks has negatively reflected onto the Scottish Mortgage share price. Further pressures, such as Chinese regulators, have also fuelled the fall.
Long-term growth
However, management makes no secret of the trust’s aim is to look for long-term growth opportunities. Therefore, volatile periods like now should be of no concern to investors.
Instead, as a more valuable measure, it would be smarter to look at returns over a longer time frame. As my colleague Roland Head highlighted, the trust has delivered 650% returns over the past 10 years. This is an achievement that very few investment funds have managed.
Within this period, the trust has also experienced large falls, for example, a 50% drop after the dotcom crash of 2000. What this shows for me is that I should not be deterred from the fall in the share price. And it may actually present an opportunity for me to buy some cheap stock.
Further, investing in it provides me with access to a variety of assets all under one investment. This allows me to diversify my portfolio. What makes this more appealing is the cheap ongoing charges of 0.34%.
Anderson departure
That said, fund manager James Anderson is set to hand over the reins next month. Given the impressive rise of the stock under his control, investors may be disappointed that he’s leaving.
However, co-manager Tom Slater is set to stay, and most of the management team’s members are staying on. As such, I think Scottish Mortgage is still in safe hands.
Will it recover?
Its track record certainly suggests that the trust will recover. And I like the diversification it brings to my portfolio. I think Scottish Mortgage will recover over the long term. However, the current stock market volatility will particularly affect tech stocks. And given its heavy tech weighting, I think we could see the share price drop even further. As such, I won’t be buying any shares just now.
