My stock of the week is Scottish Mortgage Investment Trust (LSE: SMT), with a share price rise of 5%.
It does come after a tough year so far though. Despite the week’s gain, the Scottish Mortgage share price is still showing a 12-month fall of 30%.
The investment trust puts its cash into a range of global growth and technology shares. That includes US giants like Tesla, Moderna and Amazon. And those all fell heavily in the first half of 2022.
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The Nasdaq, which is home to a lot of Scottish Mortgage’s holdings, lost more than 30% between its peak in November last year and mid-June.
I do think tech shares were overvalued and that a correction was needed. But I reckon the sell-off was overdone. And the Nasdaq has been climbing again. After a bit of a recovery, it’s now down only around 15% over 12 months.
Scottish Mortgage doesn’t hold only listed stocks. Around 30% of its holdings are unquoted companies. We can only really go on the trust’s own valuations for those. And it marked down a number of them in the first half of the year.
Asset value
There’s another twist to an investment trust’s share price. When things are going well, investors will often push the share price above the value of its underlying assets. It’s then said to trade at a premium to NAV (net asset value).
Conversely, in gloomy times, the market will often dump a trust’s shares and depress the price below asset value. It’s then trading at a discount to NAV. Exactly that happened to Scottish Mortgage Investment Trust this year. And it highlights one of the risks of a high-tech growth vehicle like this.
Big discount
At its lowest, the Scottish Mortgage share price was on a big discount of around 10%. And because it can fall lower, and rise higher than the underlying assets, the trust can be even more volatile than the stocks it holds.
It means I bought something that’s potentially more volatile than Tesla, Moderna, Amazon, and the rest. Gulp.
But that’s offset by diversification, which can dampen the volatility. I doubt I’d invest in any of these stocks directly, as each one carries significant risk. But with that risk spread, I’m happy to hold a small share of each of them.
Long-term buy
The strong Scottish Mortgage share price recovery since mid-June is not my only reason for picking it as my stock of the week. No, I chose it because I think it’s still good value. And because it shows that times of deep pessimism can be good times to buy.
The discount has fallen now that the share price has regained some of its losses, mind. Scottish Mortgage shares now cost around 5% less than their asset value.
I do see this as my riskiest investment. And the high tech growth shares on which it depends could have a rocky ride ahead. But I don’t mind taking that risk with a small amount of my cash.
