Scottish Mortgage Investment Trust (LSE:SMT) shares have been among the worst performing on the FTSE 100 over the past year. The investment trust — which is heavily focused on growth and has significant exposure to American, Chinese and unlisted shares — reached heights above £14 a share last autumn before tanking.
So let’s take a close look at Scottish Mortgage and explore why I think this stock is a bargain not to be missed.
Diversified exposure to growth
Buying into Scottish Mortgage allows me to increase my exposure to growth shares. The thing is, not all growth stocks do well. In fact, many fail. So buying Scottish Mortgage, which has positions in around 100 companies, provides me with a diversified exposure to growth, albeit only through one transaction. But while Scottish Mortgage is down 38%, many growth stocks have fallen a lot more than that.
However, the trust reflects the value of the stocks it owns. And over the past year, the vast majority of growth stocks have fallen. In fact, all of Scottish Mortgage’s top 10 holdings, with the exception of Tesla, are down over the course of the year.
Environment remains challenging
In 2021, growth stocks as a whole became very expensive. And this, along with a surge in US treasury yields, led to a sell off. But the macroeconomic environment has remained challenging for growth stocks in 2022 and that’s why we’re still seeing Scottish Mortgage shares languish near their 52-week low.
Higher interest rates represent a challenge for growth stocks because it increases the cost of borrowing and thus increases the cost of growth. Moreover, many of SMT’s holdings, such as Chinese electric vehicle (EV) company NIO aren’t actually profit-making yet. So borrowing is normally required.
Why I’m bullish on Scottish Mortgage
Following the growth and tech stock crash at the beginning of the year, while a generalisation, I think its fair to say that many companies in this area are currently trading with more attractive valuations.
So that’s a good starting point. But I also like this fund because of its track record of picking the next big winners. The trust invested in Amazon and Tesla before they were household names and, naturally, the returns were massive.
There has also been a change at the top with former chief James Anderson leaving earlier this year. But the trust’s modus operandi will remain the same.
And despite recession forecasts, I’m backing some of Scottish Mortgage’s holdings to outperform the market. For example, online retailers such as Amazon — a SMT top 10 holding — will likely outperform high street retail, reflecting long-term trends towards online shopping.
The same goes for Tesla and NIO. Recessions bring downward pressure on spending, but I’d still expect to see continued momentum in EV sales over combustion-driven cars.
I’ve recently bought Scottish Mortgage for my pension and, at the current price, I’d buy more.
The post Down 38%, Scottish Mortgage shares are in bargain territory! appeared first on The Motley Fool UK.
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James Fox has positions in Nio Inc and Scottish Mortgage. 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.