The past year has not been kind to Scottish Mortgage (LSE: SMT). During that time, the investment trust’s shares have lost over a quarter of their value. I could now add some to my portfolio at around £7 apiece.
But should I?
Wider downturn
As an investment trust, the performance of Scottish Mortgage shares is closely linked to that of its underlying investments.
Key holdings such as Tesla, Moderna, and ASML have all fallen over the past 12 months. That helps explain why the trust’s shares are also cheaper now than they used to be.
The flipside of that is that if such stocks recover, that could help boost the value of Scottish Mortgage shares. Tesla may be 24% below its price this time last year, but it has had a roaring start to 2023. The shares are up 87% so far this year.
With a diversified portfolio spanning dozens of names, Scottish Mortgage is bound to have losers as well as winners over the course of time. Its heavy tech weighting has seen it suffer as tech valuations have pulled back. However, some tech names have been coming back strongly. If that trend continues, it could boost the value of Scottish Mortgage shares in the near term. Then again, the opposite could happen.
Strategic approach
As a believer in long-term investing, though, my focus is further out.
The Edinburgh-based investment trust has a history stretching back over a century (indeed, the last time it cut its dividend was in the 1930s!) How has it survived and indeed thrived until now?
As its slogan “invest in the future now” suggests, partly it is because the trust has focussed on what is coming down the line – and trying to benefit from it financially.
As the trust noted in its interim results, “financing the development of long-term growth companies is not what interests most investors”. In other words, investor enthusiasm has cooled for early-stage companies that vacuum up vast amounts of capital.
That is still the approach it is adopting though. In the long run, I think it makes a lot of sense. By getting in early, the trust can hopefully benefit if some of its choices turn into very successful companies. That has driven its success over the past decade. Future success — or failure — will depend on what the fund managers buy and at how attractive a valuation. Overpaying for growth stories is a risk.
On balance, though, I think the strategy could work just as well in future. It may take patience – but as an investor, I have no problem with that.
Why I’d buy
After the weak performance in the past year, Scottish Mortgage shares are just 4% above their 52-week lows. They could move lower in the short term, but rather than try to time the market I am looking to what I think could be a great future.
On that basis, £7 a share seems like good value. If I had spare cash to invest today, I would buy.
