Scottish Mortgage Trust discount to NAV is widening: Is it a buy?
The Scottish Mortgage Trust (LON: SMT) share price has gone nowhere this year even as technology stocks have jumped. Its stock has dropped by over 13% from its highest point this year and by over 55% from its all-time high.
Scottish Mortgage discount to NAV
In contrast, the tech-heavy Invesco QQQ ETF stock has jumped by over 32% in the past 12 months, helped by the so-called Magnificent 7. Similarly, the SPDR S&P 500 ETF (SPY (NYSE:)) has jumped by over 11.41%.
Scottish Mortgage Trust is not the only investment trust that is struggling. The most recent data shows that the average UK trust is now trading at a 17% discount to asset value. Also, the Closed End Investments Index has dropped by over 6.5% this year.
Scottish Mortgage’s discount to Net Asset Value (NAV) has been getting worse in the past few years. The discount now stands at -17%, a few points above this month’s low of -21.25. This figure means that the market price of the trust is much lower than the net asset value of all its holdings.
Scottish Mortgage owns some of the best-known companies in the world. It has a huge stake in ASML (AS:), the Dutch company that manufactures huge machines used in semiconductor manufacturing.
ASML stock price has jumped by over 63% from its lowest point in 2023. It remains below its 2022 highs because of the ongoing export control. It is also bracing for fresh competiton from Canon, the Japanese company.
Scottish Mortgage also has a stake in SpaceX, which Ron Baron believes will be valued at over $500 billion by 2030. SpaceX owns Starlink, a company that is making billions of dollars. It is also a big government and corporate contractor.
Watch here: https://www.youtube.com/embed/8znLH0hKy2c?feature=oembed
Further, Scottish Mortgage owns PDD Holdings, the parent company of Temu, the fast-growing e-commerce company. It also owns Bytedance, the owner of TikTok. Other large portfolio companies are Mercadolibre, The Brandtech Group, Ferrari (NYSE:), Nvidia, and Spotify.
The challenge for SMT is that some of the portfolio companies are not doing well. Mordena share price has plunged by over 58% in the past 12 months as demand for Covid-19 vaccine demand waned.
In Germany, Zalando has underperformed as demand for food delivery fell and costs rose. Other struggling Scottish Mortgage portfolio companies are HelloFresh (OTC:), Adyen, Nio, Ginkgo Bioworks, and Meituan.
The other challenge for Scottish Mortgage is that part of its portfolio is still in the private market. This market tends to be highly illiquid, especially in the current era of high-interest rates.
SMT share price forecast
SMT chart by TradingView
The daily chart shows that the Scottish Mortgage Trust stock price has moved sideways in the past few months. It is now consolidating at the 50-day and 25-day Exponential Moving Averages (EMA).
The shares have formed a symmetrical triangle, which is nearing the confluent level. Also, the Average True Range (ATR) has risen to the highest point since March. This is a signal that the shares are becoming more volatile.Therefore, the outlook for the stock is neutral with the key support and resistance level to watch will be at $635 and $750. However, as I warned in my last article, it makes sense to invest in Invesco QQQ instead of SMT because of its huge discount.
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