It has not been a rewarding time to be a shareholder in Scottish Mortgage Investment Trust (LSE: SMT). The Scottish Mortgage share price has tumbled by 32% over the past year. So if I bought shares of the former high-flyer a year ago and sold them today, I would have lost almost a third of my money.
But lately I have become more upbeat on the outlook for the trust. In the past month-and-a-half, Scottish Mortgage shares have increased in value by over 25%. Does that mean a recovery is under way – and do I still have time to get in on the action?
Why the share price is rising
The Scottish Mortgage share price chart has shown a clear upwards movement, beginning in the middle of June.
As an investment trust, Scottish Mortgage does not run its own business like a telecoms company or a retailer does. It is an investment vehicle that buys shares in other companies. So a lot of the positive movement in its price simply reflects moves in the prices of its underlying assets. For example, its biggest holding is Moderna. Although the biotech company has seen its shares fall 53% in the past 12 months, they are up more than 65% from where they stood in the middle of June. Not only is that a very impressive performance in itself, it is also good news for Scottish Mortgage as the holding accounts for 8.3% of its total portfolio.
I think the Scottish Mortgage share price may also be benefitting from some value-hunting investors who scented an opportunity after a big fall over the past year. Should I now join them?
Why the share price tempts me
I think the sudden increase in the Moderna share price helps underline why I like the investment case for Scottish Mortgage. For a number of years, it has been willing to take substantial stakes in companies that have promising growth stories. While those can fall a long way, when they do well they can do very well indeed. We saw that with the trust’s position in Tesla. The latest Moderna share price jump echoes the same theme in my opinion.
2022 has seen a changing of the guard in managing Scottish Mortgage. There is a risk that new management could lack the skill of the old leadership. But the reverse could also turn out to be true. On top of that, I think the trust benefits from an investment approach based on finding growth stories at an early stage. There is no particular reason to expect it to abandon that philosophy. It has worked well in the past — and could do so again in future.
The latest upward movement is a recovery of sorts, but it could yet stall or reverse. That largely depends on what happens to the share prices of Scottish Mortgage’s investments. As a believer in long-term investing though, I think Scottish Mortgage’s investing style could potentially produce big returns in the future. Even after the recent jump in the share price, I would consider adding this possible firecracker to my portfolio.
