Vantage Point: Volatility  

Are Scottish Mortgage shares now a buy?

More than one hundred re-valuations of the stakes in these assets took place in the first three months of 2022, as the managers sought to adjust the valuations to reflect the changed world. 

Ewan Lovett-Turner, head of investment companies research at Numis Securities, says this is a positive as it means the (lower) valuations probably already reflect the changes in real world economic circumstances, so there should not be surprises in future. 

But with the share price having fallen so far, could now be the time for clients to dip their toes back in to what is now the second largest investment trust in the UK?

Just under 30 per cent of the capital is deployed in the technology sector, while 16 per cent is invested in biotech.  

Mick Gilligan, who runs the managed portfolio service at Killik and Co, says that while the deteriorating valuation has made the shares “more interesting”, he is not yet ready to buy, as he feels the interest rate rising cycle is not yet complete, and this makes it difficult for growth shares to perform. 

He adds: “If we see a further derating in growth stocks then I would expect to see this impact the valuations of those venture capital type holdings that are value-based on quoted market comparatives.” 

China syndrome

There have been some signs that the managers of the trust are revising some of their more bullish assumptions, with Slater, the lead manager, recently telling our sister publication the Financial Times that regulatory concerns around China are relevant, and that it was a mistake to sell US tech holdings to buy more in China.

Anthony Leatham, head of investment trust research at Peel Hunt, takes a more optimistic view, saying that while the nature of its investments means volatility will always be high, now could be a good entry point.

He says: “Scottish Mortgage is clear in its pursuit of the world’s most exceptional growth companies, but achieving this objective is not straightforward. Big winners over the past 10 years have included Tesla, NVIDIA, Amazon and ASML. If we focus on Tesla, over the life of SMT’s ownership, the shares fell more than 30 per cent on seven occasions.

"The past few months have been a painful experience for growth investors but, unless we are going back to an offline world, piling back into fossil fuels or turning our back on personalised medicine, the momentum behind some of the world’s largest tech-enabled disruptors appears structural.