Over the last week, I’ve made quite a few moves within my Stocks and Shares ISA and Self-Invested Personal Pension (SIPP). One such move was buying more shares in Scottish Mortgage Investment Trust (LSE: SMT) for my SIPP.
Interested to know why I added to my holding here? Read on and I’ll tell you.
Rebound potential
When markets were volatile last week, the Scottish Mortgage share price took a big hit. That’s because it owns a lot of growth stocks (many of which were crushed in the sell-off).
I think there’s potential for an explosive rebound in the share price at some point in the near future however. Because I believe a lot of the stocks in the portfolio are oversold.
Nvidia – which was the top holding at 30 June – is a good example here. It has experienced a huge fall recently and is currently about 20% off its highs.
Amazon’s another good example. It too has taken a beating and is about 17% off its highs right now.
I fully expect these high-quality growth stocks to recover in the medium term given their incredible prospects. I actually wouldn’t be surprised to see them hit new all-time highs this year.
If we do get a rebound in these stocks, the Scottish Mortgage share price is likely to rebound too.
Interest rate boost
But that’s not the only reason I’m bullish here. Another is the interest rate environment.
It’s now looking very likely that the US Federal Reserve will cut interest rates this year. Some experts believe we could see the first cut next month.
Interest rate cuts should boost the valuations of some of the smaller companies in the portfolio. A lot of these saw their valuations come down sharply when rates rose in 2022 due to the fact that future earnings are discounted more heavily when rates are high.
Trading at a discount
One other reason I like the look of Scottish Mortgage right now is that it trades at a rather large discount to its net asset value (NAV). Currently, the discount’s about 9%.
What this means is that I’m essentially getting ownership of the stocks in the portfolio at a 9% discount to their true value. That appeals to me.
I’m expecting volatility
Now, I’ll point out that I expect the Scottish Mortgage share price to be volatile going forward. Given its focus on disruptive technology companies (which generally have volatile share prices), it’s always going to swing wildly.
I’m comfortable with the volatility here though. Even after my recent purchase, the trust’s a relatively small holding for me at around 3% of my overall portfolio.
I think keeping this trust small’s the best way to play it. With my position size, I can benefit from any potential gains without being exposed to the risk of big portfolio losses if the share price falls again.
