Looking at the performance of Scottish Mortgage Investment Trust (LSE: SMT) over the past year, there is a lot of red ink. Scottish Mortgage shares have lost 40% of their value in just 12 months. While that would be a sizeable fall for any share, it is particularly noticeable in the case of a former high-flyer like this one.
But could this fall actually offer me an attractive entry point to add the shares to my portfolio?
Why I like Scottish Mortgage
Before considering the price, it is worth explaining why I would consider buying Scottish Mortgage shares at all for my portfolio.
It is what is known as an investment trust. That is a type of company that pools investors’ funds and invests in a variety of different companies, including some that are not listed on the stock market. So buying shares in an investment trust can offer me the benefit of diversification and also exposure to some shares I could not buy myself.
The trust managers have a track record of spotting growth stories at a fairly early stage. Some investor focus lately has been on a change in management. There is a risk that the fund’s new team will be less talented than its old leadership. However, I think that ignores the fact that Scottish Mortgage shares have been traded for over a century already. Clearly, talented management has helped its recent performance.
But the trust has a long-established investment strategy and I see no specific reason to think it cannot continue to do well under its new management.
Weak share price performance
In fact, I think the 40% fall in Scottish Mortgage shares can largely be pinned on falling share prices in some sectors where it is heavily invested, such as tech.
Ultimately that can be blamed on management in the sense that Scottish Mortgage makes its own investment decisions. It did not take advantage of high prices last year to unload its large tech positions. But I see that as reflecting its long-term focus as a strategic investor. It is not trying to benefit from short-term movements in share prices. Instead, it is trying to buy into growth stories while adopting a long time horizon.
Although the value of its holdings may have declined, has the trust’s portfolio actually become less attractive in terms of its long-term growth potential? I am upbeat about the outlook for many of its tech holdings, which I expect to see continued growth in customer demand. I also think a growing exposure to healthcare companies could be a further growth driver.
My move on Scottish Mortgage shares
It is impossible to time the market perfectly. Often, I think it is difficult to time it at all. That is why I focus on trying to buy shares for my portfolio that I think have a promising future rather than worrying about buying them at the very lowest price. So I do not know whether now is the perfect time for me to buy Scottish Mortgage shares. They could yet go lower.
But I do think, from a long-term investing perspective, the shares could be an attractive addition to my holdings. I would therefore consider buying them at their current price.
