After halving in value, is the Scottish Mortgage share price too cheap to ignore?

The Scottish Mortgage share price has fallen 50% in six months. Finlay Blair asks if it’s now a bargain he should snap up.

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The Scottish Mortgage Investment Trust (LSE:SMT) share price has had a rocky six months after falling 50%. Despite this, the trust has had a history of strong benchmark-beating performance. The share price is still up 85% in the last five years while the FTSE 100 has remained flat. Does this slashed share price allow me to invest in an exciting and competently managed investment trust at a discounted price?

Why is the share price falling?

Contrary to its name, Scottish Mortgage has nothing to do with mortgages. The trust has holdings in high-growth companies from across the world and has some of its largest positions in Moderna, Tesla and Illumina. This was a successful strategy as tech companies rode the wave of the pandemic recovery last summer.

However, positioning itself towards these high-tech growth shares has also been the reason for the falling share price in recent months.

As rising inflation has gripped economies, interest rates have been forced upwards and debt has become more expensive. This has harmed growth companies that rely on higher amounts of debt to finance expansion of their operations. As a result, share prices in all five of its major holdings are down in 2022 and Scottish Mortgage has suffered.

Alongside this, there’s been a shift in leadership in the latest year, which could alter its future performance. James Anderson, the man who made Scottish Mortgage what it is today, stepped down in April after 21 years at the helm. While the current team is hugely capable, the trust could still miss Anderson.

Signs of hope?

Despite the tough few months for the Scottish Mortgage share price, there are a few reasons I’m remaining optimistic.

I’m a firm believer that it takes several years to truly evaluate the quality of investments. As a result, it would be unfair to judge Scottish Mortgage on short-term results when the bigger picture is more important.

Management has noted that the trust focuses on returning value over five-year periods and has little control over short-term fluctuations. And, up 85% in five years, the stock has returned value over longer timeframes.

With a history of picking big winners, Scottish Mortgage could certainly give me exposure to exciting growth shares from around the world.

What am I doing?

I can understand the attraction of the falling Scottish Mortgage share price. I could get a slice of an exciting investment trust that has performed well in the past for a discounted price.

However, to invest, I would have to have full confidence in the shares the trust owns. And sadly, I don’t. I believe the growth stocks will fall even further from the highs of last year as they continue their battle with inflation and rising interest rates. So, I’m steering clear for the foreseeable future.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Finlay Blair has no position in any of the shares mentioned. The Motley Fool UK 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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