Scottish Mortgage shares are down 36%: should I buy now?

The bursting of the tech bubble has dragged Scottish Mortgage shares down drastically. This Fool assesses if now is the time to buy.

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Scottish Mortgage Investment Trust (LSE: SMT) shares have fallen a whopping 36% so far in 2022. The main reason for the drop is rising inflation and subsequent interest rate hikes, which have weighed on stock market valuations. Over a 12-month period, the situation looks even bleaker, with the shares falling just under 40% in value. With inflation still on the rise, is now the time to buy this stock? Let’s find out.

A rocky road

Red hot inflation has been a key market trend in 2022. With UK inflation reaching 10.1% in July and predicted to rise to over 18% by January, the situation looks pretty grim. Interest rates have been hiked to 1.75% in the UK in an effort to curb rising prices. This is putting severe pressure on growth stock valuations, which is very bad news for Scottish Mortgage. This is because the trust’s holdings are primarily focused on exactly this type of asset.

For example, the trust’s top three holdings are Moderna (8.3%), Tesla (6.7%), and ASML (6.6%). All of these stocks fit into the high-growth stock category and have exhibited high volatility so far in 2022. As interest rates continue to rise, and markets become increasingly uncertain, Scottish Mortgage shares could be in for an ongoing bumpy ride.

Another reason why the shares have suffered is pressure from Chinese regulatory authorities on US-listed Chinese companies. This has sparked the threat of potential delisting, which has vastly reduced investor confidence. Companies like NIO (which makes up 2.9% of Scottish Mortgages portfolio) have seen their shares tank on the potential of being delisted from the NYSE.

Reasons I like the stock

So why do I like the trust? For starters, at 829p, the shares are much cheaper than they were a year ago. In addition to the lower price, I adopt a longer-term outlook when looking at shares. Baillie Giffords’s flagship trust looks to “add value over five-year time frames, preferably much longer”. So, maybe I should discount the upcoming short-term volatility and look further into the future. Although past returns are no indication of future performance, Scottish Mortgage’s 606% 10-year return – compared to a 231% return for its benchmark the FTSE All World Index – highlights the stellar management of the trust.

In addition to this, being an investment trust, it allows me access to a bundle of assets in different industries, all under one investment. This is great for reducing my portfolio’s risk level. It also allows me access to non-listed companies, like Elon Musk’s SpaceX, in which Scottish Mortgage owns a £430m stake.

Am I buying?

I think that in the short term, Scottish Mortgage shares could face more volatility. However, here at The Motley Fool, we’re long-term investors. I think that under £9, the investment trust shares could land me some healthy returns over a broader time horizon – say 10 years. For that reason, I’m seriously considering adding this stock to my portfolio at today’s price.

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 assessed. Consider taking independent financial advice.

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended ASML Holding and Tesla. 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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