The Scottish Mortgage (LSE: SMT) share price had a knockout 2020, soaring over 106% during the year. This brought with it much attention from the market and helped the shares climb higher in 2021, peaking at an all-time high of 1,543p in November. However, since the start of 2022, the share price has fallen over 15%. Could this slump mark the next great buying opportunity for my portfolio? Or should I be staying away from SMT? Let’s take a closer look.
Why is the Scottish Mortgage share price falling?
The primary driver behind the falling Scottish Mortgage share price is tied to the current state of the UK economy. In 2020, the Bank of England cut interest rates to just 0.1% in an effort to stimulate the struggling economy. This monetary policy served its purpose. However, a faster-growing economy, coupled with massive supply shortages of the pandemic, meant that prices have been steadily rising. The result of all of this is inflation. For example, the UK Consumer Price Index (the measure of prices of goods in the economy) rose 5.4% year-on-year in December 2021.
So how does this affect the Scottish Mortgage share price? Well, inflation is tackled by central banks raising interest rates to restrict the economy. In a nutshell, this means people can receive higher returns on their savings and hence are less likely to invest in stocks. During these times, high-growth stocks are usually hit the hardest.
Looking at the Scottish Mortgages portfolio, it’s heavily comprised of just this type of stock. For example, its top 10 holdings include NIO (2.5%), NVIDIA (3%), and Illumina (5.5%), which are all high-growth stocks. As inflation continues to climb around the globe, the Scottish Mortgage share price could be at an increased risk as high-growth stocks decline.
Long-term growth
That being said, here at The Motley Fool, we are interested in long-term results. Regardless of the short-term headwinds Scottish Mortgage is facing, I still think it could prove a strong long-term addition to my portfolio.
For example, as my fellow Fool Charlie Keough points out, over the past five years, Scottish Mortgage shares have climbed over 220%. Comparing this to the 5% growth in the FTSE 100, the investment trust’s long-term management becomes evident.
In addition to this, the nature of an investment trust allows me to pool my money into a variety of assets all under one investment. Down the line, this could significantly help reduce volatility and provides exposure to many different sectors and geographies.
Should I buy now?
Rising interest rates are a threat that Scottish Mortgage must contend with over the coming months. However, the trust isn’t designed to deliver short-term gains. As such, I would be willing to discount the short-term volatility of the shares.
What’s more, the current lower price could provide me with a discounted entry point. Therefore, I would consider adding the shares to my portfolio for long-term growth.
Inflation Is Coming: 3 Shares To Try And Hedge Against Rising Prices
Make no mistake… inflation is coming.
Some people are running scared, but there’s one thing we believe we should avoid doing at all costs when inflation hits… and that’s doing nothing.
Money that just sits in the bank can often lose value each and every year. But to savvy savers and investors, where to consider putting their money is the million-dollar question.
That’s why we’ve put together a brand-new special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation…
…because no matter what the economy is doing, a savvy investor will want their money working for them, inflation or not!
Best of all, we’re giving this report away completely FREE today!
Simply click here, enter your email address, and we’ll send it to you right away.
Dylan Hood 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.
This post was originally published on Motley Fool
