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Scottish Mortgage shares had an awful 2022. Time to buy?

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Image source: Getty Images

2022 has been a disappointing year in many ways. Certainly it has been unrewarding for shareholders in Scottish Mortgage Investment Trust (LSE: SMT). As the chart below shows, Scottish Mortgage shares have performed horribly over the past 12 months.

Does that mean now could be the right moment for me to make a move on the stock?

Why was 2022 so bad?

Before considering what comes next for Scottish Mortgage shares, it is helpful to understand why they did so badly this year.

As an investment trust, the firm invests in a range of companies. So if I buy Scottish Mortgage shares I will gain exposure to a large variety of different businesses. That can be good if those firms do well. But it could also mean my shares fall in value if the underlying investments perform poorly.

That is basically what happened last year. Companies such as Tesla, Amazon and Meituan have seen their share prices fall across 2022. Scottish Mortgage shares have tumbled in their wake.

Scottish Mortgage has been hit in two main ways. Its heavy tech exposure has meant that as firms like Tesla have fallen, it has also suffered. But its exposure to Chinese companies like Meituan has also hurt it.

A number of Chinese companies have seen their valuations slide this year. Scottish Mortgage has now reduced its exposure to some of its long-term Chinese holdings such as Alibaba and Tencent.

Looking ahead to 2023

So what comes next? Although many tech share prices have already fallen heavily, they could keep falling. Take Amazon as an example. Its share price has plummeted in 2022. But it trades on a price-to-earnings ratio of over 70. That hardly looks cheap.

Meanwhile, Chinese growth stocks have been a key part of the trust’s strategy for many years. Reducing its exposure to China could end up helping Scottish Mortgage’s performance. But it could also hurt. After all, from a long-term perspective, China remains one of the big global growth stories.

Scottish Mortgage installed new management this year. That could mean a shift in investment strategy, for better or worse. It has a great track record of identifying promising growth stories at an early stage. One benefit of investing in dozens of businesses is that it can afford to make some big mistakes, as long as just a few of its choices perform very strongly.

But it remains to be seen whether it will benefit next year from outstanding performances by some of the companies in which it has invested.

I’d buy the shares

So recovery may not happen in 2023. Indeed, Scottish Mortgage shares could continue to lose value.

Despite that, if I had spare cash to invest today, I would buy the shares for my portfolio. I think the trust’s approach to uncovering value in early stage growth stories could help propel its shares higher in coming years.

I am a long-term investor. On that basis, I see the share price crash in 2022 as a buying opportunity for my portfolio.

The post Scottish Mortgage shares had an awful 2022. Time to buy? appeared first on The Motley Fool UK.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended and 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.

Motley Fool UK 2023