I believe that some UK shares are on sale due to market volatility. Macroeconomic issues such as soaring inflation and rising interest rates have pushed the price of many stocks down.
One stock that I believe is a great opportunity currently is Scottish Mortgage Trust (LSE: SMT).
UK shares on the slide
Scottish Mortgage Trust is an investment trust run by a management team focused on finding high-growth opportunities. Essentially, they look for good businesses that could grow to provide lucrative returns for investors.
With many UK shares falling in recent months, let’s take a closer look at the current Scottish Mortgage share price. As I write, the shares are trading for 664p. At this time last year, they were trading for 768p, which is a 13% drop over a 12-month period.
Why I like Scottish Mortgage shares
At present, Scottish Mortgage shares trade at close to a 20% discount to net asset value (NAV). NAV represents the per-share value of a business’s total assets, taking away its liabilities, divided by the total number of shares outstanding. So when shares are lower than its net asset value, this tells me the market value of the stock is lower than the value of its assets.
It is worth noting this scenario can play out for a few reasons. Investor sentiment can change — negative forecasts as well as future challenges for the business could impact this. Essentially, I am able to purchase £1 of Scottish Mortgage shares for 80p.
Scottish Mortgage has an excellent track record of picking the next big growth stock before many have heard of it. I do understand that past performance is not a guarantee of the future.
Finally, the make-up of Scottish Mortgage’s portfolio is exciting for me personally. There is a focus on tech stocks including Amazon, Alibaba, Tesla, Nvidia, and ASML to name a few. The world of technology has experienced huge growth in the last few years and the recent artificial intelligence (AI) boom could mean more is to come. So rather than investing in a number of UK shares for returns, I could add some shares in one stock like Scottish Mortgage for exposure to many top companies.
Risks and my verdict
To start with, 70% of Scottish Mortgage’s holdings are public stocks, which are easy to value as they have a market price. The other 30% is made up of private investments, ones that aren’t traded on the stock market. A prime example of this is Elon Musk’s SpaceX. The issue here is that these private investments may be overvalued and could impact the trust’s performance and returns.
Another issue for Scottish Mortgage, is that of recent boardroom unrest. One of its directors recently expressed dissatisfaction at the firm’s approach to unlisted businesses. Although the director in question is no longer on the board, these types of scenarios don’t exactly help investor sentiment.
Overall I like Scottish Mortgage shares and if I was in a position to do so I would add some shares to my holdings. I believe it is one of the best UK shares trading at a discount. Its performance track record and growth-focused approach, especially with tech stocks, helped me make my decision.
