The past 27 months have been a wild roller-coaster ride for Scottish Mortgage Investment Trust (LSE: SMT) shareholders. Since 2019, the SMT share price has soared skywards, delivering market-busting returns. But after a sparkling 2020, SMT had a poor 2021, plus the shares have plunged in 2022. So is this former star stock now a dog, or will it rebound?
The SMT share price soars
Scottish Mortgage is an investment trust with shares listed in London. However, Baillie Gifford’s leading global technology fund doesn’t invest in mortgages or Scotland. Launched in 1909, SMT has two accomplished co-managers, James Anderson (manager/joint manager since 2000) and Tom Slater (joint manager since 2015).
Anderson and Slater invest in high-growth businesses and disruptive companies driven by technology and innovation. They aim for a holding period of at least five years. As a result, SMT’s top 10 holdings include various dynamic growth companies. The trust has annual charges totalling 0.34% and trades at a discount of 1.8% to its net asset value (NAV). SMT has total assets of £20.7bn, making it a UK fund heavyweight.
Thanks to the powerful out-performance of tech stocks, the SMT share price has exploded since 2019. On 23 October 2019, the SMT share price closed at 472p. It then took off on an almost relentless climb. At the end of 2019, it closed at 579p, up 107p (+22.7%) in just over two months. 2020 was an incredible year for SMT, as its share price went ‘to the moon’. By end-2020, SMT shares closed at 1,214p, up 742p in 12 months. That’s a market-thumping return (excluding dividends) of 157.2% in one year. Wow.
SMT slumps, soars, and slumps again
In early 2021, the SMT share price continued its seemingly inexorable rise. It peaked at an intra-day high of 1,418.57p on 16 February 2021, before easing back to close at 1,401p. On 15 January 2021, I warned that SMT had “become a market bubble because of the number of ultra-frothy stocks lurking within it.” I also wrote, “I expect it [SMT] to be a poor performer in the coming years.” Within weeks, the shares slumped dramatically. On 5 March 2021, they crashed to a closing low of 1,017p. They then slumped to an intra-day low of 947.25p on 8 March, before recovering to close at 1,056p.
However, the SMT share price then blew one more bubble. It surged again, peaking at an all-time high of 1,568.5p on 5 November 2021, before closing at 1,528.5p. Unfortunately, since Bonfire Night, SMT shares have gone up in smoke. As I write, they trade at 1,073.8p, down 494.7p (-31.5%) from their record high. After this latest nosedive, here’s how this stock has performed over five time periods:
Five days: +3.5%
One month/YTD: -17.1%
Six months: -19.5%
One year: -16.3%
Five years: +211.9%
Would I buy SMT today?
While SMT’s share price has been a star performer since 2016, it has under-performed and been highly volatile in 2021-22. Investors selling at November’s peak avoided a three-month price decline of nearly a third. On Friday, SMT stock hit its 2022 low of 992.96p, before closing at 1,028p.
Would I buy into SMT at current levels? As an income-seeking value investor, I am hardly a natural buyer of go-go growth stocks. Furthermore, I feel that the bursting of 2020-21’s bubble is unfinished. Hence, I would not buy at the current SMT share price. Indeed, this stock would have to go much lower before appearing on my buy watchlist. But, of course, I could well be wrong!
Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
