Scottish Mortgage slump offers rare chance to buy shares at discount

Sam Benstead
·3 min read
Stock market crash
Stock market crash

Shares in Britain's largest investment trust have fallen sharply to a rare discount to the value of the stocks it holds, presenting a buying opportunity for long-term investors, according to experts.

More than £1bn has been wiped off the value of the FTSE 100-listed trust in the last two days as the shares tumbled 10.9pc. At yesterday's £12.03 closing price, the stock is now at a 5.1pc discount to the value of its assets, a rarity for shares in the top-performing trust.

Investors have sold off the shares on fears over a rise in inflation, which would hurt the high-growth companies like ecommerce giants Amazon and Alibaba and electric car maker Tesla that Scottish Mortgage backs.

Higher inflation eats into the value of the future profits offered by "growth" companies, while having less of an impact on "value" stocks, which tend to be bought based on the value of their profits today.

There is an emerging consensus that the American government's $1.8 trillion (£1.3 trillion) stimulus plan, coupled with pent-up consumer spending power ready to be unleashed when Covid-19 restrictions end, will lead to an upsurge in the pace of price rises.

But the rare discount on shares in Scottish Mortgage, which has more than doubled investors' money over the last year and returned 481pc over the last five, represented a chance to buy more, according to Nick Wood of wealth manager Quilter.

"Investors should consider this a buying opportunity given the long-term track record the team has exhibited, as well as the quality of the portfolio," he said.

Ben Yearsley of Shore Financial Planning added for long-term investors, buying the shares at a discount was the right approach. "It is an anomaly and probably won’t last long," he said.

Shares in the trust have tended to trade at a premium to the value of its assets and its largest discount over the last 12 months, of 14.6pc as stock markets tumbled last March, was quickly recovered.

Simon Elliott, of stockbroker Winterflood, said the trust's board had always been quick to act when the shares fell to a discount. "Its board has always been quick to buy back shares to close any discount, so it may not last long,” he said.

Jason Hollands, of fund shop Bestinvest, said investors who bought into Scottish Mortgage's long-term, growth-oriented investment approach should use the opportunity to buy more shares.

"If you are ready to back the managers over a long period then today could be a good time to buy shares," he said.

"The risk is that we now see a big move into ‘cheap’ value shares, but no-one know for certain if that will happen."

Mr Yearsley also acknowledged that risk. "Technology firms such as Amazon and Alphabet will remain great companies, but their prices could be too high in a world where returns from safe government bonds keep rising," he said.

Shares in other investment trusts run by Scottish Mortgage manager Baillie Gifford, which share its growth-focused approach, were also hit hard yesterday.

Baillie Gifford US Growth fell 7.1pc, Pacific Horizon was down 8.3pc and Edinburgh Worldwide lost 6pc.