Scottish Mortgage Investment Trust (LSE:SMT) shares are one of the best ways to gain exposure to growth stocks as a British investor. And let’s face it, the FTSE isn’t exactly filled with exciting growth opportunities.
The publicly traded investment trust focuses heavily on growth and tech stocks, many of which are listed in the US and China.
Growth stocks, in general, didn’t perform well in 2022. And that’s reflected in the falling Scottish Mortgage share price. The SMT share price reflects the value of its holdings.
The trust’s five biggest holdings are Moderna, Illumina, ASML Holding, Tesla and MercadoLibre. Collectively, these stocks represent around a quarter of the portfolio.
Growth stocks tank
In broad terms, growth stocks started to look expensive in 2021, with multiples far in excess of what investors were willing to pay. This eventually engendered a sell-off, triggered by a surge in US treasury yields.
However, in 2022, global economic conditions haven’t been conducive for growth. Interest rates have been raised in response to the inflationary environment, and that’s not positive for growth stocks as it increases the cost of borrowing.
As many growth stocks aren’t profiting-making, their value reflects future earnings potential. As such, they need to borrow to grow. Higher borrowing costs either raise the cost of growth or cause firms to delay new projects.
We’re also entering a recessionary environment. Clearly, this isn’t positive for the vast majority of stocks.
Will things improve in 2023?
Several factors that negatively influence growth will remain into early 2023. Interest rates will likely decline in the second half of the year, but borrowing costs will remain above the levels we’ve seen over the past decade.
Economic growth is also not expected to pick up in early 2023, especially in many Western nations, as inflation continues to act as a drag on economic activity.
However, there are some potential upsides. For one, China is opening up and abandoning zero-Covid. Although, the next couple of months could be challenging as the virus spreads.
Should I buy Scottish Mortgage shares?
I already own some Scottish Mortgage stock in my pension. However, I’ve been looking to buy more for my Stocks and Shares ISA.
I’m a long-term investor, so these short-term fluctuations shouldn’t bother me too much. But, naturally, I’m looking for the best entry point.
The stock is already down 44% over the past year, and has rarely been lower than it is now over the past three years. As such, I think now could be a good opportunity for me to buy more of this trust.
Although there could be more pain in the next few months, I’m broadly confident on the medium term. And after a challenging year for growth stocks, many of the companies in SMT’s portfolio are already trading with attractive multiples.