Scottish Mortgage Investment Trust (LSE: SMT) shares have been on the comeback trail. They’ve risen 25% over the past year and 38% since May 2023. In the 18 months prior, they plunged 58%.
Here, I’ll outline why I’d invest in this FTSE 100 investment trust in my ISA if I hadn’t done so already.
NAV discount
The first reason is that the trust is trading at a discount. This refers to a situation where the market price of the trust’s shares is lower than its net asset value (NAV) per share.
The inverse can also be true, meaning the shares trade at what’s known as a ‘premium’. Scottish Mortgage shares have traded at a premium in the past and will very likely do so again.
Currently though, the discount to NAV is 9%. It was double that around a year ago, so this is heading in the right direction. Yet it’s usually better to invest in the assets at a potential discount rather than a premium.
Share buybacks
In March, the trust announced a massive £1bn share buyback programme to run up to two years. Buybacks can help stabilise the share price, boost the net asset value per share, and demonstrate strong confidence in the underlying valuation of the portfolio.
The trust still has about half of that sum left to continue buying back its own shares. So this is a positive.
Private companies
Scottish Mortgage aims to invest in the world’s most transformative companies. Unfortunately, a growing number of these are private.
Moreover, by the time they do list, they’re often massive, meaning public investors are missing out on the juicy early gains. Just look at SpaceX — the trust’s largest unlisted holding — which is now valued at a record $210bn in the private market!
One issue with private holdings though is that they’re trickier to value since they’re not regularly traded. Therefore, a risk is that the trust might be overvaluing them, even with third-party input. If that’s the case, it suggests the discount’s warranted.
On the other hand, the valuations may actually prove to be too conservative.
Regardless, I think the private holdings are a key long-term attraction. They give investors like myself exposure to companies with game-changing potential that aren’t available on the stock market.
Here are five unlisted portfolio firms that I’m excited about:
| SpaceX | Leading rocket and satellite company |
| Stripe | Provides payments infrastructure for the internet |
| Databricks | Operates a cloud-based data platform |
| Rappi | Latin American super-app |
| PsiQuantum | Attempting to build and deploy the world’s first useful quantum computer |
IPOs are coming back
The fourth reason I’d invest is that initial public offerings (IPOs) are happening again after two and a half years. Scottish Mortgage had just one portfolio company go public last year. In 2022, it had none.
However, holding Tempus AI had its IPO in June and the healthcare firm’s share price has held up well, so far. This is positive for the trust’s valuation process.
Manager Tom Slater recently said: “There’s a real backlog of companies that we have in the portfolio, which are IPO ready, ready for public markets, but they’ve almost been waiting for the right condition. And I believe we’ll start to see activity pick up over the coming months and years.”
The Scottish Mortgage share price remains 43% off its all-time high. If I didn’t already own shares, I’d snap some up for my ISA at 870p today.
