So far in 2022, Scottish Mortgage (LSE: SMT) shares have fallen over 35%, dwarfing the small 2% loss of the FTSE 100. The investment trust has been a top performer over the last decade, proving its worth to investors. However, a deflated economic outlook has seen it suffer year to date.
The last month has seen the stock recover some of its losses, rising 8%. With the shares trading for around 815p, is now the time to buy?
A tough year
The main reason for Scottish Mortgage’s underperformance this year is due to the type of stocks it holds in its portfolio. The trust targets high-growth companies, including names such as Tesla, Nvidia, and Tencent. And with inflation rising globally, 2022 has seen these stocks suffer.
Firstly, this is because the economic uncertainty caused by inflation tends to see growth stocks take the hardest hit as investors move their money from these riskier investments to ‘safer’ value stocks.
Secondly, to combat inflation, interest rates are pushed up. With growth stocks tending to borrow big, in order to grow, this also means the debt on their balance sheet becomes tougher to pay off. Combined, this has seen the Scottish Mortgage share price suffer.
Not all bad news
Despite its struggles this year, I’m still keen on Scottish Mortgage shares.
To start, instead of looking at the dip in its price as an issue, I’m looking at it as an opportunity. The trust’s management team makes it clear that Scottish Mortgage aims to maximise returns over a five-year period. It uses the FTSE All-World Index as a benchmark for this. And safe to say, it’s outperformed this in the latest five-year stint.
As a long-term investor, this suits me. This focus nullifies any short-term headwinds. And the trust has proven this by surviving multiple crises such as the dotcom bubble and the 2008 financial crisis.
I am also drawn to Scottish Mortgage because of the diversity my portfolio receives from a single investment. The trust has a global portfolio, including unlisted shares, all for a cheap ongoing charge of 0.32%. For me, this is perfect.
One issue I see is its weighting in China. This makes up around 20% of Scottish Mortgage’s holdings. And with the country still struggling to keep a lid on Covid-19 cases, this could be an issue. We’ve seen the impact this has had so far reflected through supply chain concerns. Should this continue, this could drag the Scottish Mortgage share price down.
However, over the long term, I think its Chinese focus will bear fruit. It’s the fastest growing economy in the world. And I have full belief in the management team to pick out future winners. While it may see the trust suffer now, from a long-term perspective this doesn’t bother me.
At 815p, I’d happily snap up Scottish Mortgage shares. Its investment strategy aligns with my needs. And the diversity it offers is a great boost for my portfolio. Trading for nearly half of its 52-week high, I’d buy Scottish Mortgage now and hold for the years to come.
