of Scottish Mortgage Investment Trust ( LSE:SMT ) share price is down almost 40% in 2022. And the global economy remains under severe pressure as a deep recession and high interest rates erode consumer spending power.
But investors in Hargreaves Lansdowne They have been using it as an opportunity to buy a new weakness. Over the past seven days, Scottish mortgage shares are the fifth most traded on the market. London Stock Exchange. In fact, the FTSE 100 Stock accounts for 2.99% of all buy orders.
So should I follow Hargreaves Lanestown Investors and try to take advantage of the recent downturn? Or should I avoid technology-focused investment trusts?
in order to what happened?
Scottish Mortgage is managed by investment manager Bally Gifford. It gives investors exposure to high-growth US and Chinese stocks. Some of the company’s holdings include family names Tesla, Netflix, Spotify And AmazonAlthough it holds shares in dozens of more obscure tech companies around the world.
Scottish Mortgage Investment Trust Top 10 Holdings (as of 31 August 2022)
| Company | % fund |
| Modern | 7.1% |
| Tesla | 6.5% |
| ASML | 5.5% |
| Illumina | 4.3% |
| Tencent | 3.7% |
| Meituan | 3.6% |
| Space exploration technologies | 3% |
| Amazon.com | 3% |
| Northvolt | 2.9% |
| NIO | 2.6% |
| Total | 42.1% |
This makes Scottish debt stocks extremely vulnerable in 2022.
Consumer spending is coming under severe pressure as central banks move to curb runaway inflation. As a result, the strong earnings growth that the market had been expecting for most of the sector has dissipated. So Amazon’s share prices inter alia They fell sharply, causing Scottish mortgage share prices to fall as well.
mNext?
While stocks sold off across the board, tech stocks were particularly hurt by their high valuations. A high price-to-earnings (P/E) ratio reflects investors’ expectations of stratospheric profit growth. So, when those forecasts start to look stretched, their prices come crashing back down to earth.
I worry that Scottish Mortgage’s share price could be set for further decline. This is because many of the investment trust’s core holdings continue to command huge valuations. And given disappointing economic news and hair-raising inflation readings, investor confidence could dip again at any time.
Tesla, for example, trades at 71 times its forward P/E ratio. Other key holdings such as biotechnology business Illumina and semiconductor manufacturing equipment business ASML, Hold multiples of 69 times and 30 times respectively.
The verdict
On the plus side, Scottish Loans shares are now trading at a significant discount to their net asset value (NAV). In fact, it trades a full 10% cheaper than the value of its underlying assets. This could give the company’s stock price more room to rise as the expected economic recovery begins.
I like a lot of shares in Scottish Mortgage Trust. I think Amazon and Tesla, for example, will be big winners when the demand for e-commerce and electric vehicles grows.
But I’m still concerned about some of the sky-high valuations of these growth companies. And I wouldn’t buy many of the other tech companies that own Scottish Mortgage. With the economic outlook still very uncertain, I now prefer to buy other UK stocks.