Scottish Mortgage Investment Trust (LSE:SMT) shares were among the most traded by Hargreaves Lansdown investors last week.
In fact, 0.98% of all stock purchases on the platform were in Scottish Mortgage — that’s fifth on the leaderboard. Meanwhile, the trust accounted for 0.99% of stock sales.
It’s apparent that in value terms, the size of these stock deals were smaller than the average. Scottish Mortgage purchases represented 0.74% of the total value of buying deals placed by Hargreaves’ clients.
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Meanwhile, shares sold accounted of 0.82% of the value of total sales on the platform.
Long story, short, Scottish Mortgage is well traded, and some investors seem to lack confidence in the trust’s ability to deliver going forward. It’s unclear whether this is short selling.
However, I’ve recently bought shares in Scottish Mortgage for my ISA after holding out for some time. So why do I think now is the time to buy?
Valuations
As an investment trust, Scottish Mortgage invests in dozens of different companies. While I tend to focus on value stocks, the trust focuses heavily on growth and tech stocks, many of which are listed in the US and China.
The trust’s five biggest holdings are Moderna, Illumina, ASML Holding, Tesla and MercadoLibre. Collectively, these stocks represent around a quarter of the portfolio.
The vast majority of growth stocks, the above included, saw their share prices plummet over the past 18 months. And, naturally, that’s been reflected in the Scottish Mortgage share price.
This alone isn’t a good reason to invest. Stocks can be cheap for a reason. But there’s certainly a consensus that valuations are a lot more attractive now that they were before the correction. And this is the starting point for my investment in Scottish Mortgage — I don’t want to pay for overvalued stocks.
Likewise, it’s worth noting that Scottish Mortgage is currently trading at a 9% discount versus its net asset value (NAV). Sometimes the NAV can be challenging to calculate, especially when the trust owns non-listed shares. But, broadly, this should be considered a positive.
Solid track record
Scottish Mortgage is known for picking the next generation of big winners. It bought companies that we now consider as household names before most people had heard of them.
This is reflected in the fact that over five years, the stock is up 66%, despite being down 37% over the last 12 months.
That’s not just a ‘growth stock thing’. Ark Innovation, the flagship portfolio of the ‘best investor’ of 2020, Cathie Wood, is down 11% over five years (down 55% over 12 months).
Scottish Mortgage is clearly well managed. And I don’t see that changing despite its joint manager James Anderson retiring.
Why now?
The macroeconomic environment, characterised by higher rates and slower growth, aren’t conducive for the stocks Scottish Mortgage invests in.
But as an investor, I’m looking six-12 months into the future, as a minimum. And towards the end of the year, I see the macroeconomic environment improving.
I’m also expecting the trust to receive a boost from China’s reopening after the current wave of the virus passes. Chinese stocks have been depressed for some time largely due to Covid restrictions. Stocks like NIO — which the trust has shares in — will likely see the benefits of the relaxation this year.
