So who’s had their eye on Scottish Mortgage Investment Trust (LSE: SMT) shares, trying to spot the bottom? I have, though I should know better than to even think about market timing.
When the discount reached 20%, I thought the price surely couldn’t fall any further. But it did.
It seems that being able to buy 100p worth of underlying assets for 80p wasn’t enough. And the discount grew as far as 22% at one point.
Moving up?
The last week has seen a small move up, but it’s hard to tell if that means much yet. And the discount seems to be hovering between 20% and 22% day to day.
So what might help send Scottish Mortgage shares back up again? It looks like it’s mostly down to US sentiment.
After all, the bulk of the growth shares that the trust holds are listed on the US Nasdaq index. And that’s taken a fair old beating over the past 12 months.
Interest rates
The Federal Reserve is due to make its next interest rate decision later on 3 May — so eyes peeled for that. The Fed has a way to go to reach UK rates. So there’s a fear that another hike could hit US growth shares even harder.
There’s more than just the Nasdaq at play here though. Scottish Mortgage holds close to 30% of its funds in unlisted assets. It has a stake in in SpaceX, for example, whose latest rocket blew up just after launch. That was a success, apparently.
That can be a benefit of an investment trust. It can give us a way to hold assets that we couldn’t otherwise buy. But it raises a risk too.
Poor liquidity?
A lack of liquidity can hurt, if a trust has too much cash in assets that it can’t easily sell. That famously helped bring about the demise of Neil Woodford, who had far too much in such things at a time when people wanted their cash out.
I don’t see too much of a problem at Scottish Mortgage though, if it sticks to its 30% level. But it does add uncertainty. And it could hold back confidence until the outlook for growth stocks improves.
So what should investors do? Well, I can see the Nasdaq recovering sooner or later. I really don’t think that US markets have permanently turned away from the likes of Tesla, Moderna, ASML, Mercadolibre… and all the rest of the trust’s top holdings.
Any more falls?
How much cheaper could Scottish Mortgage shares get? Well, I think there’s a fair chance we could see more falls before things start to turn.
But my take is to forget the timing, and the ups and downs, and just try not to think about it.
For me, it’s all about one thing. If I think a stock is good value, it goes on my list of options for my next buy. And a top-up of Scottish Mortgage Investment Trust shares is very much on my list.
