The Scottish Mortgage Investment Trust (LSE: SMT) share price has gained a bit in July. In fact, it’s up 15% since a 52-week low in April.
But the trust is still way down from its 2021 peaks, as US growth stocks listed on the Nasdaq are out of fashion. And that’s mostly where Scottish Mortgage puts its cash.
What a discount!
Here’s an interesting thing about investment trusts. They put their shareholders’ cash into other investments, and they regularly publish the value of those investments.
That value comes in the form of a net asset value per share (NAV). This tells us the underlying value of the assets covered by one share in the trust. So we’d expect the share price to be pretty close to that figure, right?
Well, investment trusts often trade at a fair bit more (a premium) or less (a discount) than the NAV figure.
And for months, the Scottish Mortgage share price has been on a discount of around 20%. Right now, it’s 21%.
That’s cheap, right?
So we can buy a pound’s worth of US and international high-tech growth stocks for 79p. And that’s got to be cheap, yes?
Some will argue that investors will value a trust’s shares based on where they think its assets will go in the future. So if they expect growth stocks to fall further, they might pay even less for Scottish Mortgage shares.
And that seems to make sense. But wait.
Don’t Tesla shareholders already value their stock on where they think its future lies? And aren’t ASML, Moderna, and all the other stocks the trust holds already valued on their future prospects?
Extra pessimism
There are other reasons for a discount or a premium, but a big margin like this makes no real sense to me.
I guess part of it might be that Scottish Mortgage Investment Trust shares are mostly held by UK investors. And we tend to be more pessimstic than our US friends (often to our cost, I think).
But if someone offered me pound coins for 79p, I think I’d be nuts to turn them down. (Though if it was in a pub here in Liverpool, I might bite them first to check.)
For me, the same goes for the Scottish Mortgage share price. I think it looks like a sale price sticker on an item worth a fair bit more.
Not for everyone
Saying all this, Scottish Mortgage shares are not for everyone. In fact, going by my usual liking for safe dividend shares, they probably shouldn’t be for me either.
I expect those growth stocks to still be very volatile. And I could see more wild swings in the years to come. And that’s why I think a lot of investors might be wise to stay away.
But the chance to buy up some of these US stocks at knock-down prices makes Scottish Mortgage shares a no-brainer for me.
The main reason I’m not buying more today is that I think I’ve already bought enough. But it is tempting.
