Scottish Mortgage Investment Trust (LSE: SMT) was a standout performer in the post-pandemic bull market, with its share price soaring over 100% in 2020. This explosive growth continued into 2021, when the shares topped out at their all-time high of over £15.
However, the choppy macroeconomic climate of 2022 soon put an end to this bull run. In fact, since the start of 2022, the shares have tumbled over 40%. In 2024, the returns have been flattish so far, with the shares sitting at 775p each as I write.
Past returns are no indication of future performance, but with the shares sitting at almost half their 2021 levels, is this investment trust just too cheap to ignore? Let’s take a closer look.
Tech volatility
Much of the reason for Scottish Mortgage’s demise is tied to the macroeconomic performance of the last 18 months. After the Covid-19 pandemic, inflation figures shot up, prompting a hike in interest rates globally. This was bad news for high-growth stocks that often rely on leveraging debt to fuel expansion.
When this debt becomes more expensive, the bubble often bursts and share prices can come tumbling down. Scottish Mortgage predominantly holds high-growth technology stocks, so this trend drastically impacted its performance.
Looking forward, macroeconomic outlooks remain uncertain. With UK interest rates currently sitting at 5.25%, I think it will be years before we see a low-interest-environment again. For this reason, I think investors will continue to favour stable, defensive stocks as opposed to higher-risk growth stocks. Because of this, Scottish Mortgage shares could struggle to pick up steam.
Why I still like the stock
That being said, I’m tempted to snap up some shares at under 800p.
Currently, the stock trades at a net asset value (NAV) discount of 10.5% per share. NAV per share is the total value of all Scottish Mortgage’s holdings divided by its total shares outstanding. Essentially, it’s the value of its holdings on a per-share basis. The discount represents this figure as a proportion of its share price.
When investment trusts trade at a discount to their NAV, it can often be a sign that their shares are undervalued. After all, at the current share price, every 89.5p I invest is technically worth £1.
In addition to this, Scottish Mortgage shares give me access to 99 companies in one investment. This is great for diversifying my portfolio and benefitting from gains in multiple asset classes.
Additionally, I get access to unlisted private companies. One I particularly like the look of is Elon Musk’s SpaceX.
What I’m doing now
I don’t see Scottish Mortgage shares regaining their 2020 momentum any time soon. However, at under 800p, I think the shares look pretty cheap. Looking at their historical returns and NAV discount reinforces this trend in my eyes.
While the stock must continue to deal with short-term macroeconomic challenges, I prefer to take a long-term view. I think buying now, with a view to holding for at least five years could be a great move. Therefore, if I had the cash I’d buy the shares today.
