The Scottish Mortgage (LSE: SMT) share price has whipsawed over the past few months. After hitting an all-time high of 1,415p in the middle of February, it slumped by nearly a third in the following weeks.
Since then, shares in the trust have recovered some of the losses. However, they’re still trading around 17% below the all-time high.
Over the past 12 months, the trust has returned a 60% and, over the past five years, it’s up 350%. Therefore, long-term investors have been well rewarded.
While past performance should never be used as a guide to future potential, I’ve been evaluating the trust recently to see if it could be worth adding the shares to my portfolio after recent declines.
Scottish Mortgage share price outlook
The Scottish Mortgage Investment Trust is a growth fund. Its managers are looking for the world’s best companies, which generally means buying high-growth entities.
This approach can generate huge returns, as the historical performance of the Scottish Mortgage share price shows. But, unfortunately, high growth stocks tend to be incredibly volatile. That’s the biggest drawback of investing in these businesses. It tends to put a lot of investors off.
This goes some way to explaining why shares in the trust have performed the way they have over the past few months.
Unfortunately, I think it’s likely shares in the trust will remain volatile, purely because of its investment strategy. Finding the next generation of growth companies requires a certain amount of luck and faith. Sometimes, the investments don’t work out.
However, by using a diversified approach, growth investors like Scottish Mortgage profit by focusing on winners and kicking losers out of the portfolio.
Volatility and the prospect of owning fast-growth companies are the two most significant risks hanging over the Scottish Mortgage share price. For example, if one of the trust’s high-profile top holdings suddenly runs into trouble, its shares could plunge.
Like all investments, Scottish Mortgage has its risks. Nevertheless, I’m incredibly excited about its potential. As the world recovers from the coronavirus crisis, I think there’s the potential for a substantial economic rebound. This could benefit some of the trust’s most significant holdings.
What’s more, its biggest holdings, including US retailer Amazon and Chinese technology group Tencent, have substantial competitive advantages.
These advantages should help these businesses reinforce their positions in their respective markets and capitalise on economic growth to the best of their ability.
As such, while I think it’s likely the Scottish Mortgage share price will continue to encounter volatility as we advance, I’m incredibly excited about the prospects for some of the companies in the trust’s investment portfolio.
And with that being the case, I’d buy the stock for my portfolio today. I think it’s a fantastic way to buy a basket of the world’s top growth companies at the click of a button, despite the drawbacks outlined above.
Rupert Hargreaves owns no share mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. 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.