Scottish Mortgage Investment Trust (LSE:SMT) shares trade at just a fraction of their pandemic highs. The growth-focused investment trust has seen its share price fall from around £15 to just £6.80 over the past two years.
Trying to catch a falling stock is never easy. But perhaps it’s worth giving Scottish Mortgage a little more attention. Let’s explore.
Down 7% in August
Scottish Mortgage shares dipped 7% in August. At one point the stock had fallen 10%. So, why is this?
The factors contributing to this decline are rooted in a combination of broader market trends and the unique composition of Scottish Mortgage’s growth-centric portfolio.
Around 13% of assets are still invested in China, this includes listed holdings food delivery giant Meituan and e-commerce firm PDD Holdings, as well as the better-known Tencent and NIO. The UK-based fund also has an unlisted stake in TikTok owner ByteDance.
In August, Chinese equities came under pressure amid more concerns about the health of the Chinese economy. This was partially initiated by Country Garden, which missed interest repayments on bond holdings earlier in the month.
As such, investor sentiment around the Chinese economy is at a multi-decade low. Combined with a pullback in the Nasdaq, it’s not been a good month for Scottish Mortgage.
It’s all about potential
Scottish Mortgage’s portfolio reflects the value of the stocks and companies it owns shares in. And given the high failure rate of growth companies, it provides investors with exposure to this high-potential sector with a lower risk profile.
The inclusion of a diverse array of growth companies allows investors to tap into sectors characterised by innovation, transformative technologies, and promising business models.
However, this approach recognises that not all growth companies will achieve the anticipated success, yet the carefully selected mix within the portfolio optimises the overall risk-return equation.
| Holding | Weight |
| ASML | 8.33% |
| Moderna | 6.67% |
| Tesla | 5.35% |
| Nvidia | 4.53% |
| MercadoLibre | 3.98% |
| Amazon | 3.14% |
| Kering | 2.77% |
| Ferrari | 2.63% |
| The Brandtech Group | 2.39% |
| Meituan | 2.34% |
Looking at the top 10 holdings, there are several interesting changes from earlier in the year. Firstly, the larger weighting towards Nvidia which reflects the company’s surge in 2023. Secondly, the growth of Ferrari stock to become a top 10 holding — the share price is up 53% over 12 months.
A big discount
Scottish Mortgage might be trading at a discount versus a year ago, but it’s also trading at a 19.3% discount versus its net asset value (NAV).
Net asset value accounts for the per-share value of a company’s total assets minus its liabilities, divided by the total number of shares outstanding.
Essentially, a discount means that the market value of the stock is lower than the value of its underlying assets.
So, does this mean Scottish Mortgage is a good investment? A discount to the NAV is a good sign, but it doesn’t mean the share price won’t fall further.
However, as a long-run investor, I see plenty of potential when buying at the current entry point, noting the trust’s track record in picking the next big winners, the strength of the AI boom, in addition to its current discount.
I hold Scottish Mortgage stock in my SIPP, and I’m looking to buy more.
