2023 has certainly provided a lift to the Tesla stock price, which is up 65% so far in January. As one of the top 10 holdings in the portfolio of Scottish Mortgage Investment Trust (LSE: SMT), that ought to be good news for Scottish Mortgage shares.
Could this be the start of a broader turnaround for the trust’s shares – and might now be a smart moment to buy them for my portfolio?
Key holding
As an investment trust, Scottish Mortgage owns shares in dozens of different companies. That means that buying into it offers a way for me to increase the diversification of my portfolio.
At one point, Tesla was the biggest single holding within the Scottish Mortgage portfolio. Indeed, the position reached such a size, thanks to a soaring Tesla stock price, that Scottish Mortgage reduced its stake in the carmaker substantially.
Despite that, it remained the seventh-largest holding in the trust’s portfolio at the end of last month, accounting for 3.2% of it. So even a very strong Tesla performance will likely only have limited positive impact on the investment trust share price.
The bigger picture
Indeed, despite the boost provided by a soaring Tesla share price, Scottish Mortgage shares are within 5% of where they stood at the start of this month. Over the past year, they have lost 30% of their value.
With a portfolio that contains a lot of tech companies, Scottish Mortgage has seen its share price suffer as many tech shares have tumbled from their former heights. Despite its surge this month, for example, the Tesla share price is still 43% below where it stood a year ago.
What comes next?
The global economy remains in treacherous waters. But, as Tesla’s strong January performance suggests, some investors are becoming more optimistic about what lies ahead.
That could lead to a rally in some shares, perhaps boosting the worth of Scottish Mortgage’s portfolio. That may help lift the share price.
For now, though, I see Tesla as an individual share doing exceptionally well of late rather than necessarily a sign that the wider stock market is about to take off dramatically.
I’d buy
I do not think that matters much for the investment case of Scottish Mortgage shares, though.
As a long-term investor, I would not buy an investment trust on the basis of a short-term movement of just one share it owns. Rather, I would focus on the overall investment strategy of the fund managers — and valuation.
The Edinburgh-based trust has a long-term track record. While the recent performance of Scottish Mortgage shares has been poor, the approach of aiming to invest in compelling growth stories at an early stage continues to attract me.
The current share price offers me what I think is an attractive entry point. There is a risk that if tech shares stall or start falling again, there could be more price turbulence ahead. Despite that, if I had spare cash to invest, I would buy into Scottish Mortgage.
