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

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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.

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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.

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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.