After a dreadful period between late 2021 and early 2023, Scottish Mortgage Investment Trust (LSE: SMT) shares have been steadily recovering. They’re up 44% in the past 12 months and 13.8% year to date.
Zooming out over five years, the FTSE 100 stock’s risen 71.5%. Admittedly, that’s less than the S&P 500‘s 84.3% gain over the same period, which is disappointing. But at least the share price is getting back to winning ways.
A disappearing discount
This will come as a relief to shareholders (myself included). This time last year, the trust was trading at an alarming 22% discount to its net asset value (NAV).
Fortuantely, I did top up my holding at those lows last year. I invested £1,000 in May and then again in the summer.
In hindsight, I should have bought more shares. It was a colossal 22% discount on a portfolio containing Amazon and Nvidia! But hindsight’s the only 20/20 vision, as they say.
To be fair to myself, the stock was already one of my largest holdings. So I was wary of overconcentration.
Today, the discount to NAV has narrowed to just 7%. A titanic £1bn share buyback programme announced in March gave the shares a jolt, and dovish talk from the Bank of England about a summer rate cut has helped.
Portfolio progress
More importantly for the long term though, operational progress continues at the portfolio level.
Take MercadoLibre (NASDAQ: MELI), the Latin American e-commerce and fintech powerhouse. It’s still reporting blistering growth. Q1 revenue of $4.3bn smashed analysts’ expectations of $3.8bn, while net profit surged 71% year on year to $344m.
For me, this is a business with tremendous optionality. It operates across 18 countries in Latin America, so when there’s weakness in one economy (like Argentina now), other markets can offset this. Growth in Mexico and Brazil, for example, remains very strong.
As well as this geographic diversification, it also has various businesses. It’s a leader in e-commerce, third-party logistics, digital payments, and has a high-growth advertising business.
Meanwhile, its loyalty programme (Meli+), which is similar to Amazon Prime, is encouraging members to spend more.
Argentina’s economy, where inflation is still eye-wateringly high, remains a concern for the region.
Yet management remains bullish: “We are as optimistic as ever about the growth potential of MercadoLibre…we believe that we are uniquely placed to capitalise on the structural shifts that are transforming the region’s commerce and financial services markets“.
Set to rise?
Unfortunately, things don’t look so good at the other end of Scottish Mortgage’s portfolio. There are some big underperformers down there, including NIO, HelloFresh, Ocado and Ginkgo Bioworks. These stocks might never fully recover. Collectively, they could drag on performance.
That said, I think Scottish Mortgage shares can still head higher this year. The IPO market is starting to reopen, which means we might see one or two private holdings go public.
Northvolt, the Swedish battery gigafactory, looks the most likely. But Tempus AI, which uses artificial intelligence to help diagnose and treat diseases like cancer, is also apparently mulling going public.
If so, this would alleviate concerns about the trust exceeding the 30% maximum allocation towards private companies. It might also send the shares back above £10.
