Over the last five years, Scottish Mortgage Investment Trust (LSE:SMT) has been a fantastic stock to own. In fact, the share price has climbed over 200% during this period. Yet, in the last couple of months, performance has been pretty abysmal. Since last November, the stock has lost nearly 30% of its price. What’s going on? And is this an investment I want to make for my portfolio?
Getting walloped by the growth market sell-off
Despite having a fairly diversified portfolio of stocks under its belt, Scottish Mortgage Investment Trust can thank most of its impressive historical performance to a handful of companies like Tesla, Moderna, and Nvidia.
Unfortunately, that’s also the reason why the stock has taken such a brutal hit of late. With rising uncertainty about the pandemic, inflation, and a growing geopolitical situation in Eastern Europe, volatility is on the rise. And some of the first shares to be hit are those with the loftiest valuations.
Looking at the individual performances of these three stocks, they are each down 22%, 54%, and 12%, respectively, since November. Given that the share price of Scottish Mortgage Investment Trust is driven by the underlying performance of its assets, I’m not surprised to see it take a similar double-digit hit. And I doubt this will change while investor uncertainty continues to plague the stock market.
A slice of optimism
Despite this short-term volatility, the investment managers and analysts running the show in the background have a pretty impressive track record of identifying high-growth opportunities early on.
There is obviously no guarantee that past performance can or will be replicated in the future. But I remain optimistic that the same expertise can leverage today’s volatility to generate even more long-term growth and value for patient investors.
What’s more, the recent decline has pushed Scottish Mortgage Investment Trust’s valuation below the net asset value of its portfolio. Admittedly, the discount is only a measly 1.8%. But it serves as a further indicator that panicking investors may be overselling positions.
Time to buy?
Buying shares in Scottish Mortgage Investment Trust is the equivalent of making an investment in each of the businesses in its portfolio. This can be quite an advantageous approach to investing, as it automatically improves portfolio diversification despite being a single position. And opens the opportunity to invest in promising private businesses as well.
However, as I said earlier, the share price of this trust is ultimately driven by the underlying performance of its portfolio. And despite the rapid decline seen in its top-10 holdings, there are several businesses that continue to trade at pretty lofty valuations.
As such, I think further price declines could lie ahead in the coming months. Therefore, I’m keeping Scottish Mortgage Investment Trust on my watchlist for now.
Zaven Boyrazian 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.
