Scottish Mortgage Investment Trust update: discount to net asset value narrows

Scottish Mortgage investment trust (LSE: SMT) (one of the components of the MoneyWeek investment trust portfolio) continued to trade at a discount to its net asset value (NAV, otherwise known as the value of the underlying portfolio) in March this year. 

But the discount marginally narrowed from 0.7% to 0.5%, suggesting that the trend of a widening discount could be turning. The trust typically trades at a premium to its NAV, but its share price declined every month from November to February. 

Despite the narrowing of the discount, the trust’s share price has continued to tumble in recent days as investors ditched growth stocks in favour of value stocks. 

Tech stocks, which have come under pressure from rising interest rates and a more hawkish stance from central banks, form a core part of the trust’s holdings.

SMT’s holdings are risky 

As the trust has shed around 30% in the six months, investors may consider the stock to be cheap. But James Fox in the Motley Fool still urges investors to exercise caution and “reconsider the valuation of Scottish Mortgage”.

Some of the holdings in the trust are overvalued, says Fox. The value of Moderna, one of the leading vaccine producers during the pandemic, is uncertain as its profits are predicted to fall from $12bn in 2021 to just $2bn in 2024 once the demand for Covid-19 jabs is expected to dissipate. 

He also cast doubt on the value of other stocks that feature heavily in the trust such as electric car manufacturer Tesla, which hit a valuation of  $1trn at the end of last year, and Chinese tech firm Tencent. 

“Tencent also represents a major holding and the Chinese firm has reported falling revenue growth in recent years,” Fox says. 

But there is no denying the trust has had a very impressive record so far. SMT rose by around 638% in the last ten years compared to just 232% for the FTSE All-World Index, the trust’s benchmark index. 

A glance at SMT’s top ten holdings

Moderna remained the company’s biggest holding, increasing from 6.3 to 7.1%. 

Tesla moved from fourth to second place, accounting for 6.6%. 

French luxury company Kering dropped from eighth place to ninth place, representing 2.4% of the trust.  The trust retained all holdings in its trust in March that it had the month before. 

Biotech company Illumina dropped from third to fourth position, while American multinational technology firms Nvidia and Amazon retained their sixth and seventh spots, respectively. 

Chinese shopping platform company Meituan dropped from ninth place to tenth place, accounting for 2.3% of the fund. This represents a 0.2% fall compared to February levels.