The Scottish Mortgage Investment Trust (LSE:SMT) share price has rewarded investors who bought the dips in 2022 and 2023. It’s almost doubled in value from its lows around three/four years ago. But the stock’s actually down 7% over five years. This is quite volatile for a trust, but it reflects the nature of the companies it invests in.
Well, the Scottish Mortgage share price doesn’t always reflect the precise value of its underlying holdings due to the investment trust‘s discount or premium to net asset value (NAV). Listed stocks are priced in real time, while private company valuations are updated periodically. Market sentiment, investor demand, and structural factors can cause the share price to diverge meaningfully from the sum of its parts.
Increasingly however, the NAV, and by extension the share price, is being driven by a single dominant holding. SpaceX, at 15.2% of the portfolio at the end of January, stands alone at the top — roughly three times the size of the second-largest position — meaning that periodic revaluations of this one unlisted company can single-handedly move the trust’s NAV in ways investors have no ability to independently assess or anticipate.
I believe the valuation attributed to SpaceX would have been $800bn. Using the information in the below table, it suggests that Scottish Mortgage owns around 0.37% of SpaceX. A small but noteworthy holding given that SpaceX is’t publicly traded.
| Share Class | Value (£) | % of Fund |
|---|---|---|
| Class A Common | 395,853,619 | 2.6% |
| Class C Common | 122,097,981 | 0.8% |
| Series J Pref. | 1,009,673,841 | 6.5% |
| Series N Pref. | 811,482,547 | 5.3% |
| Total | ~£2.34bn | 15.2% |
What’s so great about SpaceX?
SpaceX merged with xAI on 2 February, with a combined valuation of $1.25trn — making it the largest private company merger in history. The deal values SpaceX at $1trn and xAI at $250bn, and is structured as an all-stock transaction in which xAI shareholders receive SpaceX shares at a conversion ratio of 0.1433.
This is a significant step up from the $800bn valuation at which SpaceX had opened its most recent secondary share sale, meaning Scottish Mortgage’s holding has materially increased in value on paper.
Looking forward, the numbers being discussed around a SpaceX IPO are staggering, even by the standards of the modern tech market. SpaceX is eyeing a potential listing as early as mid-June, with people familiar with the matter suggesting the company has discussed a valuation of around $1.5trn.
With that in mind, we could see the value of Scottish Mortgage’s holdings increase from around £2.34bn to near £4.5bn in the next four months. In NAV terms, that could lead Scottish Mortgage higher by 16.4%.
The bottom line
There are several things to bear in mind here. If SpaceX represented more than 30% of the portfolio, Scottish Mortgage would have considerable concentration risk. Coupled with its gearing — borrowing to invest — this could make the stock even more volatile.
However, I happen to like SpaceX a lot. I believe it could be the largest company in the world in the next decade, so I’m quite happy with the exposure. Coupled with Scottish Mortgage’s excellent record for picking the next big winner, I believe the stock’s worth considering.
