Scottish Mortgage Investment Trust has crashed. Should I buy now?

Scottish Mortgage Investment Trust’s share price has fallen nearly 30% since mid-February. Here, Edward Sheldon looks at what’s going on.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Scottish Mortgage Investment Trust (LSE: SMT) share price has crashed in the last few weeks. After rising to around 1,420p in mid-February, SMT has fallen to 1,038p. That represents a fall of around 27%. However, over the last 12 months, it’s still up about 80%.

Here, I’m going to look at why the share price has crashed recently. I’m also going to discuss whether I’d buy the trust for my own portfolio now.

Inflation concerns hit SMT’s share price

The main reason Scottish Mortgage’s share price has fallen recently is that high-growth stocks (which SMT is full of) have pulled back sharply over the last few weeks due to concerns over inflation.

Right now, many large institutional investors are worried that inflation could lead to higher interest rates. As a result, they’ve dumped bonds (which perform poorly when rates are rising) and this has resulted in a sharp rise in long-term bond yields.

Higher long-term yields reduce the appeal of owning high-growth stocks because they lower the present value of future earnings. That means many investors have sold growth stocks and has hit the SMT share price.

Scottish Mortgage stocks have been hit hard

A second reason SMT has fallen is that many of its top holdings have been hit particularly hard in the recent sell-off.

Tesla, for example, which was the fourth largest holding in the trust at the end of February, has fallen around 30% since its January high. NIO, which was the fifth largest holding at the end of February, has fallen around 40% since its January high.

Given that around 10% of the trust was invested in these two stocks at the end of last month, these pullbacks will have had a big impact on the share price.

Other top 20 holdings such as Zalando, Nvidia, and Spotify have also experienced significant share price declines.

Would I buy today?

After the recent share price fall, I think Scottish Mortgage Investment Trust is worth a closer look. I may buy a few more SMT shares for my own portfolio if the share price weakness persists.

Having said that, there’s still risk to the downside, in my view. Inflation concerns could linger for a while. If economic data (such as today’s US non-farm payroll report) is strong in the near term, we may see another leg down for high-growth stocks. This could hit the SMT share price further.

Meanwhile, even after the recent pullback in growth stocks, plenty of SMT holdings continue to trade at elevated valuations. NIO, for example, is still valued at around $1.4m per car sold in 2020. This means there’s valuation risk.

Overall, I’m bullish on the long-term investment case here, especially after the recent pullback. However, I continue to see SMT as a more speculative holding, due to the fact many of its holdings are high-growth stocks that trade at lofty valuations.

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.

Edward Sheldon owns shares in Scottish Mortgage Investment Trust. The Motley Fool UK owns shares of and has recommended NVIDIA, Spotify Technology, 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »