It has been a miserable 2022 for shareholders in the Scottish Mortgage Investment Trust (LSE: SMT). Scottish Mortgage shares have lost 41% of their value so far this year – and 45% over the past 12 months.
But despite the steep fall in price, I think there is a lot to like about the investment trust. It has a proven track record of spotting compelling growth stories at an early stage. It is invested in dozens of promising firms, some of which do not sell shares to small private investors like me. It has not cut its dividend since before the Second World War, showing a commitment to shareholder returns unmatched by most companies.
I would be happy to buy Scottish Mortgage shares today if I had spare funds to invest. But does that make sense – or should I wait first to see whether it keeps falling? After all, I can buy shares today at almost half what they would have cost me a year ago. Maybe I could have a chance to pick up a stake even cheaper a few months from now if the slide continues.
Tech woes
There is a fair chance the shares could keep falling, I reckon. They have been losing ground over the past few weeks and are currently only 13% above their 12-month low point.
As an investment trust, the value of Scottish Mortgage shares tends to move around broadly in line with its own portfolio. The firm’s heavy exposure to the tech sector could mean that it keeps suffering if companies such as Amazon and Shopify continue to lose value. Shopify is worth barely a quarter of its value 12 months ago.
Why wait?
But trying to time the market can be very difficult and fortunes have been lost before now failing in such an attempt. Rather than using a crystal ball to determine my investment strategy, I prefer to take an approach based on what I think the long-term outlook for a share is then comparing it to the current price.
I think Scottish Mortgage shares look like good value right now. The company is invested in dozens of promising businesses I think could benefit from the ongoing rise of digital tools in the modern world. It trades at a discount to its net asset value. In the long term I expect it to do well. As I think the current price is attractive from a long-term investing perspective, I would be happy to buy the shares today if I had spare cash, rather than wait and try to time the market.
Risks for Scottish Mortgage shares
Apart from the difficulties of market timing, though, there are other risks lurking.
Maybe the tech sector’s previous lofty valuation was simply unsustainable. If tech valuations now stay lower, that could hurt the prospects for Scottish Mortgage shares.
It has also been reducing its exposure to China. That could mean it loses value if it ends up selling shares at a loss compared to what it paid for them.
For a future-focussed investment trust, though, risk goes with the territory. I think these concerns are manageable for me, given the potential rewards of owning Scottish Mortgage shares.
