Scottish Mortgage Investment Trust (LSE:SMT) shares have been among the biggest losers this year. The investment trust is down 40% over the last year, and 46% over the past six months.
And it’s not doing very well today either, down over 4% mid-morning, despite the market rising on Wednesday as the US Fed took a hawkish approach to tackle inflation.
But with Wednesday’s excitement over, investors are reminded of Europe’s unenviable situation. Inflation remains high, petrol prices have risen further, there’s a cost of living crisis in the UK, and the war in Ukraine persists.
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However, with the Scottish Mortgage share price heading back towards 700p, I’m looking to add this stock to my SIPP.
What does Scottish Mortgage Trust do?
Scottish Mortgage is a fund managed by Baillie Gifford and traded like any other stock. The trust has significant exposure to American, Chinese and unlisted shares, and focuses on tech and growth stocks.
It is this focus that saw it become one of the UK’s most successful funds in recent years. But this growth and tech weighting was also responsible for its share price crashing over the past 12 months.
The Scottish Mortgage share price reflects the value of the stocks it holds.
Key stocks
Scottish Mortgage’s biggest holding is Moderna. Other top-10 holdings include Tencent, Nvidia, Tesla and Illumina. All of these stocks have performed very poorly over the last year.
SMT’s 10th-largest holding and only non-tech stock to feature in the top 10 is Kering. The French luxury goods group, which owns a host of high-end fashion brands including Gucci, Yves Saint Laurent, Alexander McQueen and Bottega Veneta, has seen its share price crumble too.
Falling valuations
For a long time, I’ve thought Scottish Mortgage and the stocks it owns were overvalued. For example, while Moderna might be making a fortune right now selling its Covid-19 vaccine, it has no other commercial products. So its previous $100bn+ valuation looked very expensive for me.
The same goes for Tesla, which was trading at huge multiples.
Obviously I appreciate that growth stocks are valued on future profitability, but the metrics just weren’t right for me.
However, the valuation has plummeted along with the value of the stocks it holds. I think the current valuation is a good opportunity to buy.
I do think stocks like Moderna and Tesla could still fall a little further, but it has a broad portfolio. It’s also known for picking the next big winners. Some of those could already be in its portfolio. For example, I’m a big fan of Chinese EV maker NIO, which I think is particularly undervalued, especially compared to Tesla.
Risks
As mentioned, I’m a little concerned about the valuations of Tesla and Moderna, among a few others. But the valuation of growth stocks isn’t easy.
China’s Covid-19 policy is another cause for concern. Further lockdowns might hurt the Chinese stocks that Scottish Mortgage holds.
