Since its post-‘Liberation Day’ low, the Scottish Mortgage Investment Trust (LSE:SMT) share price has recovered 22%. And although it has never quite captured the highs of late 2021, compared to June 2020, it’s up 33%.
A very public row
But the trust has stakes in two of Elon Musk’s companies — Tesla and Space Exploration Technologies (SpaceX) — that could be affected by Thursday’s (5 June) social media spat between the ‘first buddy’ and President Trump.
As the two were publicly trading messages, Tesla’s stock tanked 14%. Although the fallout didn’t help, I’m sure some of this could have been due to the earlier news that the electric car maker’s UK sales were 36% lower in May compared to a year earlier.
Okay, the British market accounts for a small proportion of cars sold. But this trend mirrors a similar pattern in other parts of the world. Ironically, it’s Musk’s close relationship with the US president that’s sometimes blamed.
At 31 March, Scottish Mortgage’s stake in Tesla accounted for 0.8% of the trust’s assets. All other things being equal, a 14% fall in the EV maker’s stock market valuation would reduce the trust’s share price by only 0.11%.
On the other hand…
More significantly, it has a 7.8% exposure to SpaceX, worth £1.07bn. It’s the biggest holding in the trust’s portfolio.
And Trump’s threatened to remove government subsidies and contracts from all of Musk’s businesses. Since 2008, the space exploration group has received more than $20bn from NASA and the Department of Defense.
But Musk didn’t seem too bothered. He posted on X: “In light of the President’s statement about cancellation of my government contracts, @SpaceX will begin decommissioning its Dragon spacecraft immediately”.
Of course, this could all blow over soon. All brothers — that’s how one US interviewer recently described their relationship — fall out from time to time. But given the ferocity of the exchanges, it’s hard to see how.
Nothing to see here
However, despite Scottish Mortgage’s exposure to SpaceX, shareholders don’t appear concerned. On the day after the public row, its share price was largely unaffected.
But that’s one of the advantages of an investment trust. Risk is spread across several businesses, often in different countries and industries. Indeed, Scottish Mortgage has holdings in 95 companies operating in five continents. It seeks only to invest in the world’s “exceptional” growth companies.
Currently, the shares trade at a 10% discount to its net asset value (NAV). This implies the trust’s undervalued. But it has a large exposure (26.2% of assets) to unquoted companies — including SpaceX — which can be hard to value.
If the space group’s shares were publicly traded, I’m sure they would have plunged on Thursday. But in the absence of an active market of buyers and sellers, it’s difficult to accurately measure their value from one day to the next. Having said that, if SpaceX went out of business tomorrow, over £1bn would be wiped off the trust’s asset value.
But ignoring Musk’s businesses, the trust’s impressive track record is one reason for long-term growth investors to consider taking a stake. In the 10 years to 30 April, its share price has increased 260% and its NAV has soared by 318%. It benchmarks its performance against the FTSE All-World Index. Over the same period, this increased by 177%.
