This year has been dire for Scottish Mortgage (LSE: SMT) shares. After a modest 4% rise in 2021, 2022 has seen the stock come tumbling down due to inflationary pressures. Year-to-date, Scottish Mortgage fallen 32%. The last 12 months have shaved 36% off its value.
However, the trust’s investors will be delighted with the last month as the stock has risen a solid 13%. Here’s why I’d buy the trust today.
The story so far
2022 has been far from easy for the trust.
The main contributor to the downfall of Scottish Mortgage has been the performance of its top holdings. This includes the likes of Tesla and Amazon. And with these stocks down 28% and 20% year-to-date, respectively, it’s clear to see why Scottish Mortgage has suffered.
The trust has a large focus on growth stocks. And these tend to fare the worst in volatile times as people opt for ‘safer’ alternatives. As interest rates are hiked to combat inflation, investors are able to get better returns on risk-free investments. As a result, these growth stocks miss out.
However, the last month has seen the trust fight back against these pressures. A large driver behind this is the rally its top holding Moderna has made in the last couple of months. With this rise, some may be beginning to regain faith in Scottish Mortgage.
Where next?
So, after a turbulent year, where will the trust head for the rest of the year?
I’m not sure. And to be honest, I’m not that fussed. The reason for this is because I buy for the long hold. Management makes it clear that Scottish Mortgage focuses on returns over a five-year period. While past performance is no indication of future returns, the last five years have seen the stock profit shareholders with a 109% return. This easily trumps the returns of its benchmark FTSE All World Index, showing the strength of the stock.
What I also like about it is the diversity it can provide for my portfolio. Under a single investment, I’m gaining access to over 100 companies. For me, this is perfect. An added bonus is the access I get to unlisted companies, such as the exciting SpaceX. Such holdings make up over half of the trust’s portfolio.
I’m also a fan of management’s ability to pick out stocks ahead of the curve. After all, Scottish Mortgage did buy Tesla back in 2013 for $6. For all I know, it could have the next big thing already in its holdings.
The biggest threat for it is rising interest rates. These are expected to be hiked further as we head towards the end of the year. And this will only continue to dampen the performance of growth stocks.
Yet despite this, I’d still buy today. With a long-term outlook, these short-term issues don’t worry me. The trust has proven its potential over the last five years. And with the diversity it offers my portfolio, I think this fall presents an excellent opportunity to buy.
