Scottish Mortgage suffers a few slings and arrows


April may be the cruellest month but May has been harsh on Scottish Mortgage Investment Trust PLC (LON:SMT).

The shares have fallen from about 1,260p at the end of April to around 1,090p now, which is a fall of 13.5%.

If you bought Scottish Mortgage Investment Trust (SMIT) shares at the beginning of the year around six quid, you are probably not too fussed and if you bought them five years ago at 250p my one question is, what’s the weather like in the Bahamas this time of year?

A 13.5% fall in less than two weeks, however, is possibly a cause for concern and begs the question of whether the trust’s incredible run, which has been based on its ability to pick technology stock winners, is about to hit the buffers.

The Nasdaq 100, which tracks the performance of 102 equities listed on the tech-heavy Nasdaq exchange, has fallen this month to 13,359 from around 13,800 and is expected to open lower again today.

Yesterday saw many big names in the US tech sector take a bath, with falls of 2-3% for Microsoft, Alphabet (Google’s owner), Apple and Amazon, while Facebook tumbled 4.1% and the mighty Tesla reversed 6.4%.

Those six stocks alone account for close to a quarter of the market capitalisation of the more broadly-based S&P 500 index, so tech’s fall from favour is acting as a drag on the market as a whole.

Amazon and Tesla are among SMIT’s top 10 holdings, too, along with Tencent, Illumina, ASML Holdings, Alibaba, Meituan, Moderna, Nio and Delivery Hero.

Some market pundits are ascribing Big Tech’s fall from grace as a realisation that valuations are losing touch with earnings. This has not worried investors in the past but “animal spirits” can be subject to irrational mood swings.

The price/earnings ratio of the Nasdaq is around 36, which effectively means that if you were to buy the typical index constituent lock, stock & barrel, it would take you 36 years to earn back your investment.

A lot can happen in 36 years, especially in the technology world.

“Bouncebackability” now outranking growth

What’s changed is the rival attraction of the “reopening” trade; stocks that are expected to bounce back hard now that life is getting back to something approaching normal after the pandemic (hopefully) recedes.

There are also concerns about the threat of an acceleration in the US inflation rate once the US central bank reduces its fiscal stimulus measures. If inflation picks up, it will hit the spending power of consumers although the typical Apple user would probably give up at least one kidney rather than miss out on the next iPhone model – the more expensive the better for those sorts.

“The inflation story matters for the stock market as rising inflation expectations push up nominal yields and the discount rate on the tech/growth/momentum parts of the market that have underpinned the last decade’s bull run. We saw this yesterday. Tech stocks took a beating and dragged the rest of the market down with them,” said Neil Wilson of

According to Quoted Data’s quarterly round-up of investment companies, the rotation from “growth” to “value” began last November and picked up momentum towards the end of the quarter. “UK equity and property assets had a strong start to the year. Some of last year’s winning sectors, like technology, China equity funds, Japan equity funds, and healthcare, largely took a back-seat,” the commentary in the round-up said.

Despite that, and as mentioned above, SMIT has seen its share price rise by around 80%this year; so much for the rotation away from growth stocks.

The trust has been buying back shares steadily throughout the year, especially in March, although the last such purchase was at the end of March, at a price of 1,128.47p.

Companies supposedly only buy their own shares when they consider them undervalued; according to the most recent valuation, SMIT’s net asset value (NAV) per share on May 7 was 1,202.45p a share but with big exposure to Inc (about 5% of its portfolio) and Tesla (about 4.6%), that NAV will have taken a knock this week.

Nevertheless, the price of the shares does not seem too out of whack with the NAV and with the company apparently prepared to buy back its shares on or around 1,100p there seems little reason for SMIT shareholders to start to panic just yet.


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