The past year has been a challenging one for Scottish Mortgage Investment Trust (LSE: SMT). The shares of the former stock market darling have fallen 37%. However, could that be an attractive buying opportunity for my portfolio?
Why the Scottish Mortgage share price has fallen
The reason the shares have fallen over a third in the past 12 months is that the investment trust is heavily exposed to companies that have themselves fallen. As an investment trust, Scottish Mortgage owns shares in a variety of businesses. For example, at the moment, the trust’s second biggest holding is ASML. But the chipmaker has lost 29% of its value since this time last year.
The knock-on effect for the Scottish Mortgage share price is easy to understand. Even so, the share price looks low to me. It is trading at a discount of around 8% compared to the estimated net asset value of its portfolio.
The investment case
Why would I consider owning this investment trust? It offers me exposure to a diversified portfolio of shares.
With my limited funds as a private investor, it is not practical for me to buy all the shares the trust owns. I would not be able to purchase some myself anyway, as they are not publicly traded. Simply by buying Scottish Mortgage shares, I can immediately access a diversified portfolio of companies.
Not only that, the trust has an excellent track record when it comes to spotting winning businesses at an early stage in their development. That is no guarantee of future success. But I think Scottish Mortgage’s experience puts it in a strong position to keep finding winners while they sell for reasonable prices.
Although the shares are down a third over the past year, they are still up more than 50% in the past three years. Over the past five years, they have increased by over 100%.
Why now?
The basic investment case for Scottish Mortgage is not new. But falls in the tech market have hurt its share price badly. There is a risk that there may be more trouble ahead for tech stocks, which could pull Scottish Mortgage shares down further.
Yet I think it could be the right time for me to buy these shares for my portfolio. Rather than trying to time the market to buy them at a bottom, I am looking at what I see as the long-term value potential the shares could add to my portfolio.
The investment trust has positions in dozens of global growth stories, from Tencent to MercadoLibre. While valuations may stay depressed for now, at some point I expect the growth opportunities presented by such a portfolio to become clear again. I think that could bode well for the Scottish Mortgage share price in the years to come.
I would be happy to buy the shares today and hold them for the long term.
