Scottish Mortgage Investment Trust (LSE:SMT) is among the worst performing FTSE 100 shares over the past 12 months. That’s because the value of the stocks it owns has slumped, but it’s also because the fund is trading at a whopping 20% discount versus its net asset value (NAV) — investor sentiment has soured.
So, is this a buying opportunity for investors? It could be.
Three years on
If I’d have bought £500 of Scottish Mortgage shares three years ago, today I’d have £520. That’s because the stock is up just 4%. There is a dividend, but at the moment the yield stands at just 0.56% — it’s not really worth thinking about.
However, it is interesting to note where the share price has been over those past three years. The stock is currently trading for 645p, but at the height of the pandemic when investors piled into growth stocks — including speculative ones — the share price reached above 1,500p.
The fall was swift. In late 2021, the bubble burst and expensive growth stocks plummeted. And so did Scottish Mortgage Investment Trust — that’s because the share price reflects the value of the stocks it owns. The publicly traded investment trust focuses heavily on growth and tech stocks, many of which are listed in the US and China. It is worth noting that half the portfolio consists of unlisted stocks, including Elon Musk’s SpaceX.
Case for growth?
Well, the broad macroeconomic picture isn’t great. Economic growth is slow — particularly in the US, interest rates are high, and there’s evidence of a new credit crunch. These features aren’t positive for growth stocks, which typically don’t make a profit and therefore need to borrow money to fund their development.
Interestingly, and despite this unfavourable environment, the Nasdaq is up 16% over the first four months of the year (down 8% over 12 months). Much of this growth came in the first few weeks on the year when unprofitable software developers, crypto firms, meme stocks and electric vehicle makers all rallied. Some of these gains have been given back, but investors looked to big tech stocks for safety when the Silicon Valley Bank fiasco occurred in March.
The point is, several of Scottish Mortgage’s biggest holdings are trading above where they were at the beginning of the year. Amid a challenging economic environment, there could be some downward pressure to come.
Despite this, there’s one good reason for investors to consider Scottish Mortgage. The fund’s 20% discount versus its NAV does make it attractive — the latest actual NAV date was April 19. This is like buying £1 for 80p. It’s a real discount.
It’s also worth noting that Scottish Mortgage Investment Trust isn’t just an index-tracking fund: its stock pickers have a great reputation.
The trust’s five biggest holdings are Moderna, Illumina, ASML Holding, Tesla and MercadoLibre. Collectively, these stocks represent around a quarter of the portfolio. In many cases, Scottish Mortgage has owned these stocks prior to them becoming the behemoths they are today.
I’d buy Scottish Mortgage for the NAV discount and the trust’s track record for picking the next big winner. In fact, I’m looking to add it to my portfolio in the coming weeks.
