It’s been a decent year for Scottish Mortgage Investment Trust (LSE: SMT). The stock’s up 9.7% so far, slightly outperforming the FTSE 100. Over the past 12 months, it’s trumped the index’s performance, rising 17.5%.
After a rough spell over the past couple of years, the investment trust seems to be staging a comeback. I recently opened a position in the Baillie Gifford managed fund. I reckon it has a lot more to give.
I’d buy some shares today if I hadn’t just snapped some up. Here, I’ll outline three reasons why I think the trust could keep rising.
Trading at a discount
Despite a strong first seven months to the year, Scottish Mortgage still looks cheap. That’s because it’s trading at a discount. By that, I mean the market price of the trust’s shares is lower than its net asset value (NAV) per share. It’s currently trading at a 9% discount to its NAV.
The discount it’s trading at has halved over the last year or so. That shows the trust continues to head in the right direction.
Share buybacks
One reason it’s been falling is because of the share buybacks Scottish Mortgage announced in March. By purchasing shares, the trust will boost the net asset value per share.
It outlined its plan to purchase £1bn worth of shares over two years. That’s the largest ever programme announced in the investment trust sector. So far, it’s bought back over £300m worth.
Interest rates
Finally, it’s widely acknowledged that we’ll see multiple interest rate cuts this year. That’s great news for the FTSE 100 giant.
Scottish Mortgage focuses on owning growth stocks. These are companies leveraged with debt to fuel growth.
As you’d expect, high interest rates are a major detriment to these businesses as they make servicing debt more difficult. But in tandem with rates falling, growth stocks should begin to become more popular with investors again.
What’s even better is that Scottish Mortgage holds a number of these sorts of companies that look incredibly exciting.
Speaking of exciting, it also owns a number of private companies. These are businesses I couldn’t buy myself as a retail investor as they don’t trade on a public stock exchange. Its holdings include SpaceX and Stripe.
The downsides
However, that does come with issues. Private companies can be difficult to value. That means they can be overvalued. Should they go public, their valuation could decline. That said, there’s nothing stopping its share price and therefore valuation from rising.
Another concern of mine is rate cuts. If we don’t get as many cuts as we expected this year, that could see investors turn their backs on Scottish Mortgage.
Time to consider buying?
But a cheap valuation, a massive share buyback scheme, and rate cuts are just three reasons why I think we could see the trust continue to rise in the months to come.
At 864.6p, I think investors should consider investigating Scottish Mortgage further. I’m keen to add to my position in the coming weeks.
