Since November, shares in Scottish Mortgage (LSE: SMT) have fallen over 50%. Over 12 months, the share price has lost 34% of its value. Could the share now be a bargain for my portfolio?
Why invest in Scottish Mortgage?
Before considering the price, I think it is worth explaining more about why I would consider investing in Scottish Mortgage at all.
The company is an investment trust, meaning it pools shareholders’ funds to buy stakes in a range of companies. That is attractive to me for a couple of reasons. It offers me diversification across a wider range of companies than I might be able to achieve if I invest my own, limited, funds. It also lets me get exposure to some companies I could not buy shares in. For example, Scottish Mortgage owns shares in SpaceX.
On top of that, Scottish Mortgage has had an excellent track record in recent years of spotting growth stories like Tesla and MercadoLibre and investing in them at an early stage. Despite the weak performance of the Scottish Mortgage share price over the past 12 months, it has still almost doubled in five years, showing a 94% increase in value.
Assessing the Scottish Mortgage share price
An investment trust can benefit from its managers investing wisely in promising companies. That can help push its own value up over time. But a trust’s valuation gets affected by the value of its own investments. It does not always match them exactly but, in broad terms, the Scottish Mortgage share price will move up or down in line with the value of its own investments.
That helps explain why the shares have been tumbling lately. Some of Scottish Mortgage’s biggest shareholdings have seen their values fall. Indeed, over the past year, its three largest holdings have all seen their shares prices fall — Moderna by 14%, ASML 19% and Illumina 39%.
In the short term that looks alarming. But buying into a share like Scottish Mortgage is not about short-term results, in my view. If I chose to buy it for my portfolio, it would be because I felt the firm had the ability to identify attractive growth stories in which to invest.
Over the long term, if the trust managers did that well without overpaying, I would hope the Scottish Mortgage share price would benefit.
My next move
Although the longstanding fund manager retired last month, I continue to think Scottish Mortgage has a good nose for growth. Its investment principles have been honed over decades and so if anything I think its future performance could actually end up being even better than what came before.
If leading tech shares keep falling, that could bring the Scottish Mortgage share price down even more. For now I continue to see some tech shares as overvalued, so I am not in a hurry to add Scottish Mortgage to my portfolio.
With some tech valuations still high in my view, I do not see the trust as a bargain. But I find its investment strategy attractive. So if the Scottish Mortgage share price falls even further from here, I would consider buying it for my portfolio.
