The Scottish Mortgage (LSE: SMT) share price has fallen over 16% in the last week, currently sitting at 844p. Extending this time frame, the shares are down 34% year-to-date. This is the opposite to its bullish trajectory in 2020 when it climbed over 106% throughout the year.
With the shares well below the 900p mark, is now the right time for me to add this stock to my portfolio? Or should I be steering clear of the tech-heavy investment fund? Let’s take a closer look.
Understanding the Scottish Mortgage share price
The easiest way to explain the movement of the Scottish Mortgage share price is to take a closer look at its portfolio. While the fund has exposure to many industries, it is heavily weighted towards tech growth stocks. For example, its top 10 holdings include Nvidia (2.9%), Tesla (5.3%), and Tencent (4.9%).
Understanding why this was leading to rising share prices is tied with the broader macroeconomy. During the pandemic, central banks across the world lowered interest rates in an effort to prop up the economy. This led to increased stock market investment, as bond and savings returns declined. This pumped-up stock valuations, especially in high growth tech stocks, and hence the Scottish Mortgage share price soared as a consequence.
However, government spending and supply chain problems induced by Covid-19 have served central banks with a new problem – tackling rising inflation. For example, in the US, the annual inflation rate hit 7.5% in January. The way central banks tackle this is by doing the opposite of what they did in 2020 and raising interest rates. With rates on the rise, investors have been selling out of high-growth positions. Hence, the Scottish Mortgage share price has taken a beating.
What I’m doing now
There is no doubt that Scottish Mortgage is an excellently managed fund, regardless of current price moves. For example, over the past 10 years, it has returned 650% to investors. In addition to this, the fund prides itself on long-term growth, so perhaps I should be discounting this short-term volatility and adopting a broader outlook. In addition to this, it also allows me to have a heavily diversified portfolio of companies under one investment, which could help reduce volatility further down the line.
That being said, the short-term outlook for the Scottish Mortgage share price still worries me. On top of current inflationary pressures, the Russia-Ukraine conflict has led to increased supply concerns. For example, the price of oil has skyrocketed to $130. I expect this to negatively impact many of the businesses that Scottish Mortgage holds, and hence the shares could continue to slide below the current level.
Overall, although the shares could lead to some great long-term growth for my portfolio, I think the Scottish Mortgage share price has further to fall in the short term. Therefore, I will be waiting to add this stock to my portfolio.
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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. 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.
