Scottish Mortgage Investment Trust (LSE: SMT) is a FTSE 100-listed fund that focuses on growth stock investing with significant exposure to American, Chinese and unlisted shares. The Nasdaq 100 is now in a bear market. The S&P 500 and Shanghai Composite are in deep correction territory. In this context, it’s unsurprising the Scottish Mortgage share price has halved since reaching 1,568.50p in November 2021.
I last covered Scottish Mortgage in February when its share price was 1,063p, concluding it was not the right time for me to buy as further drawdowns looked likely. With the share price below 800p today, is the stock now too cheap for me to ignore?
A star performer falling back to Earth
There’s no denying Scottish Mortgage has been a stellar investment over recent years. The FTSE 100 index is at the same level it was five years ago.But Scottish Mortgage is up 187%, even accounting for the substantial haircut over the past six months.
The outperformance of Baillie Gifford’s flagship fund is largely a result of its concentration in growth stocks. However, many of these investments have suffered as stagflation worries continue to fuel heavy selling in stocks with lofty valuations.
Scottish Mortgage’s top 10 holdings, which constitute over 44% of its total portfolio, have all experienced significant drawdowns in 2022, ranging from -20% to -42%. These positions include big pandemic winners, such as Moderna, Tesla and Nvidia.
Moreover, James Anderson, the Scottish Mortgage portfolio manager for 22 years, retired from Baillie Gifford last month. Anderson’s widely credited for spearheading the fund’s growth from around £1bn of total assets in 2000 to over £16.9bn today.
His loss presents a challenge. Shareholders will closely monitor whether the investment trust can continue to outperform without Anderson at the helm.
Can the stock reach new highs?
The global macroeconomic outlook seems bleak. Inflation rates in many countries are at generational highs, central banks are hiking interest rates, and recessions are anticipated for 2023.
However, Scottish Mortgage takes a long-term view. In Anderson’s words, it concentrates “on the beneficial trends of decades, not the specifics of the current preoccupations of the moment“.
I believe many of the fund’s top holdings will return to new highs once this economic cycle runs its course. What’s more, the Scottish Mortgage share price currently sits at a 7.8% discount compared to the net asset value of its investments. This suggests the stock could be cheap at current levels.
Finally, as an investment trust, it can be nimble in adapting its portfolio. The fund’s lead portfolio manager, Tom Slater, jointly shared responsibilities with Anderson since 2015. This makes Anderson’s departure less disruptive than it might first appear and Slater may well emulate his success with his own conviction stock picks.
Should I buy Scottish Mortgage Investment Trust today?
I see room for further selling in SMT’s key holdings as the bear market stateside matures. However, its share price is considerably cheaper than it was in February. I view the current level as an attractive entry point for me to start building a long-term position in Scottish Mortgage shares over the coming months, capitalising on any dips that may occur.
