After increasing by 66% in the past five years, it may seem odd to describe Scottish Mortgage (LSE: SMT) as disappointing. But partly that depends upon what timeframe one looks at. If I had bought the shares at their November 2021 high, for example, I would have seen the Scottish Mortgage share price fall a painful 42% until now.
The first half of this year seems to have brought renewed optimism around the shares. So far in 2024, they have moved up by 13%.
Although that is good, I see some reasons to believe the shares could grow further from here. Below are three.
1. The shares trade at a discount
Each day, Scottish Mortgage publishes its net asset value – basically the breakup value of its holdings. Recently, the share price has been at a discount of around 11% to this value.
If the stock simply closes some of the gap between what it sells for and its intrinsic value, that could see the price rise.
That said, some of the trust’s investments are in shares not traded on a public stock exchange and therefore don’t a clear daily share price, like SpaceX. So their actual value could be less than estimated – although equally it may be higher.
2. Strong position in AI
Look at the list of its holdings the Edinburgh-based investment trust regularly publishes and two of the three biggest positions are claimed by Nvidia and AMSL. Together, those growth shares account for 15.9% of the trust’s portfolio value.
That could be seen as a risk. Nvidia this week became the world’s most valuable listed company. If its stock tumbles, I expect that would negatively impact the Scottish Mortgage share price.
Looked at from a more positive angle, though, the holdings demonstrate that the fund managers identified the potential of the AI giants ahead of a lot of other investors.
If the lucrative AI chip market keeps growing, Scottish Mortgage’s ownership of such stocks could help push up its own share price.
3. Proven strategic focus
Over the past several years, some investors have been concerned that the retirement of a former trust manager could spell the end of the trust’s glory days.
For an actively managed investment trust, there is always a risk that poor investment decisions could lead to value destruction not value creation.
But I think Scottish Mortgage’s clearly articulated investment strategy, with its focus on growth opportunities, could continue to do well in future just as it has in the past.
Using that strategy to identify emerging areas of consumer or industrial demand, looking at companies that may benefit from them, and choosing the ones that have the most appeal could help the trust identify more blockbuster successes like Nvidia. If that happens, I think it will be good news for the Scottish Mortgage share price.
At the current price, if I had spare cash, I would be happy to use some of it buying the shares.
