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The Scottish Mortgage (LSE: SMT) share price is down 45% in 2022. I’ve been a keen advocate of the investment trust in the past. And, despite the fall, I remain one. Here’s why I’d buy Scottish Mortgage today as a long-term addition to my portfolio.
Scottish Mortgage share price history
In a year where many stocks suffered, Scottish Mortgage bucked the trend in 2020 with returns of over 100%. This impressive growth slowed last year, with the stock rising just under 5%. And since the turn of 2022, the trust’s share price has slowly fallen.
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The most important reason for the trust’s fall is due to the performance of its top holdings. This includes Moderna, Tencent, and Amazon. And with these stocks down 46%, 16%, and 38% this year, respectively, it’s clear to see why Scottish Mortgage has suffered.
It also has a focus on growth stocks. As global inflation continues to rise, this is having an impact on these firms. This is because interest rates are raised to counteract inflation. And, therefore, the debt these firms have to fund their growth becomes more difficult to pay off. To make matters worse, growth stocks tend to be hit the hardest during these times as investors move their money to ‘safer’ value stocks. For Scottish Mortgage, this is clearly bad news.
Why I’m still buying
Despite these issues, I would still buy the stock today.
Essentially, one of my main attractions to Scottish Mortgage is the diversity it offers my portfolio. The trust invests in a range of companies. And this diversification offsets risk and exposes me to opportunities that I couldn’t attain using my own funds. Scottish Mortgage can also allow me to gain access to unlisted shares, such as SpaceX. Add this to its cheap ongoing charges of 0.34%, and I’m only further attracted to the trust.
I also think the above are short-term concerns. The trust’s management highlight how Scottish Mortgage focuses on returns over a five-year period. And the trust uses the FTSE All-World Index as a benchmark. Over the last five years, it has returned 67% to its loyal shareholders. While past performance is not an indication of future returns, the trust has also navigated some challenging crises over time. An example is the dotcom crash of 2000, and its resilience and ability to bounce back from crises like these is why I like Scottish Mortgage.
Yet, there are risks surrounding Scottish Mortgage. One of these is the large weighting it has in China. This makes it vulnerable to the potential issues surrounding the country and Covid threats. The possibility of future lockdowns could hurt the stock’s price.
That said, the trust has a track record of investing early in high-growth companies. This has played a key role in its success, with an example being buying Tesla back in 2013 when the firm was trading for just $6 a share.
As such, I’d buy the trust today. As a long-term investor, the above issues do not concern me. And Scottish Mortgage’s diversification and proven resilience lead me to believe this fall in price is a great opportunity. With management’s ability to find high-potential growth stocks, I also think investing now could see me make some healthy returns in the long run.
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