I just bought more Scottish Mortgage shares for my SIPP. Here’s why

When growth stocks tanked in the recent market sell-off, Edward Sheldon rushed to buy Scottish Mortgage shares. He believes they have considerable potential.

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Over the last week, I’ve made quite a few moves within my Stocks and Shares ISA and Self-Invested Personal Pension (SIPP). One such move was buying more shares in Scottish Mortgage Investment Trust (LSE: SMT) for my SIPP.

Interested to know why I added to my holding here? Read on and I’ll tell you.

Rebound potential

When markets were volatile last week, the Scottish Mortgage share price took a big hit. That’s because it owns a lot of growth stocks (many of which were crushed in the sell-off).

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Created with Highcharts 11.4.3Scottish Mortgage Investment Trust Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

I think there’s potential for an explosive rebound in the share price at some point in the near future however. Because I believe a lot of the stocks in the portfolio are oversold.

Nvidia – which was the top holding at 30 June – is a good example here. It has experienced a huge fall recently and is currently about 20% off its highs.

Amazon’s another good example. It too has taken a beating and is about 17% off its highs right now.

I fully expect these high-quality growth stocks to recover in the medium term given their incredible prospects. I actually wouldn’t be surprised to see them hit new all-time highs this year.

If we do get a rebound in these stocks, the Scottish Mortgage share price is likely to rebound too.

Interest rate boost

But that’s not the only reason I’m bullish here. Another is the interest rate environment.

It’s now looking very likely that the US Federal Reserve will cut interest rates this year. Some experts believe we could see the first cut next month.

Interest rate cuts should boost the valuations of some of the smaller companies in the portfolio. A lot of these saw their valuations come down sharply when rates rose in 2022 due to the fact that future earnings are discounted more heavily when rates are high.

Trading at a discount

One other reason I like the look of Scottish Mortgage right now is that it trades at a rather large discount to its net asset value (NAV). Currently, the discount’s about 9%.

What this means is that I’m essentially getting ownership of the stocks in the portfolio at a 9% discount to their true value. That appeals to me.

I’m expecting volatility

Now, I’ll point out that I expect the Scottish Mortgage share price to be volatile going forward. Given its focus on disruptive technology companies (which generally have volatile share prices), it’s always going to swing wildly.

I’m comfortable with the volatility here though. Even after my recent purchase, the trust’s a relatively small holding for me at around 3% of my overall portfolio.

I think keeping this trust small’s the best way to play it. With my position size, I can benefit from any potential gains without being exposed to the risk of big portfolio losses if the share price falls again.

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When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Legal & General made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ed Sheldon has positions in Amazon, Nvidia, and Scottish Mortgage Investment Trust Plc. The Motley Fool UK has recommended Amazon and Nvidia. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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