Earlier this week, the share price for the Scottish Mortgage Investment Trust (LSE:SMT) hit fresh 52-week lows at 658p. Even with a slight rally back, they are still trading comfortably below 700p. The trust is down 30% over the past year. Although there are good reasons for the fall, I’m considering picking up some Scottish Mortgage shares. Here’s why.
Reasons for the fall
In the short run, one driver for the move lower has been the instability caused by the failure of Silicon Valley Bank (SVB) in the US. Alongside some other smaller banks, the run on SVB has caused US stocks to fall. From the last report, Scottish Mortgage holds 32% of its exposure in US companies. So I can see why investors have been selling the trust.
Over the past year, it has also been hurt by the exposure to tech names such as Tencent and EV-maker Tesla. Despite a partial rally back in these stocks to start 2023, the performance last year acts as a drag on the overall fund. Both Tencent and Tesla still rank in the top 10 holdings for the trust.
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Concern still ahead
I don’t think we’re out of the woods yet with regard to the recent bout of volatility in the stock market. As such, I do see risk ahead in the next month or so for Scottish Mortgage shares.
Granted, most of this is likely to be focused around banks and the stability of financial institutions. But for the stock market, any uncertainty is probably going to keep a lid on the market going higher. As the trust is focused purely on equity investments, it doesn’t have much to hedge it from a move lower.
Optimistic potential
Despite the doom and gloom, I see various reasons to consider buying the stock. During periods of fear, investors can sell a share beyond it’s fair value. This is difficult to quantify, but it’s easier to do with a trust like Scottish Mortgage.
The trust publishes a net asset value (NAV), which reflects the current value of the stocks held. Logically, this value should match up to the share price and market cap. Yet at the moment, the share price trades at a 16% discount to the last available NAV figure.
In theory, if the true NAV as of right now is the same as the last reported figure, the share price should rise by 16% in the long-term to reach back to the fair value.
Another point worth flagging up is the benefit of buying the trust versus me trying to pick stock all by myself. Don’t get me wrong, I’m an active investor. But if I can add to my portfolio one stock that in turn is invested in 50-100 stocks, it makes sense. The fund managers are effectively managing my money for me.
On this basis, I’m seriously considering picking up some Scottish Mortgage shares in coming weeks.
