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Can you really get Money For Nothing? The Veteran's spotted a potential opportunity...
In the words of Dire Straits, in their self-fulfilling, made-for-MTV blockbuster hit of the same name, released in June 1985.
“That ain't workin', that's the way do it get your money for nothin' and your chicks for free”
See this link (trigger warning for the youth - lyrics reflect 1980's sensibilities - please don't cry)
Most of us can't hope to be rockstars even if many people are trying to reach stardom through the modern incarnation of MusicTeleVision TikTok.
However, there do appear to be opportunities to get your money for nothing in the market if you know where to look...
One example came up in the chat when I posted the following chart.
Nasdaq 100 against Scottish Mortgage Investment Trust (SMT LN), over the last three months 👇
Which leads to an obvious question...
Is SMT undervalued versus the Nasdaq 100?
You may not have heard of SMT, so let's quickly address that first...
The Scottish Mortgage Investment Trust...
Our aim is to invest in companies that enjoy sustainable competitive advantages in their industries, and which are capable of growing earnings and cash flows at a faster rate than the market average.
This is based on our belief that share prices ultimately follow earnings and that a concentrated portfolio of companies capable of above average growth will, over time, deliver above average investment returns.
Portfolio Highlights 👇
The trust's full portfolio can be viewed here but you've probably got the gist. It's all about tech and investing in the future.
So... Is it undervalued?
SMT is trading at a discount to its Net Asset Value - the NAV is simply the resale value of the holdings contained within the investment trust, and an investment trust is simply a closed-end (and usually actively managed) fund with a specific investment remit.
Unlike an open-ended fund such as an ETF the price of shares of an investment trust are sensitive to the rise and fall of its underlying investments - and the supply and demand in their own shares - simply because there is a fixed amount in circulation.
Typically an investment trust would trade close to, or at a small discount to its NAV, the differential effectively pricing in the slippage likely to be incurred in a forced liquidation. However...
Discounts to NAV are not fixed in stone
Occasionally we may see an investment trust trade above or at a premium to NAV, or in this case, SMT trades at a substantial discount.
Scottish Mortgage Trust falls, in fact trades as much as -21.5% below its net asset value according to research from stockbroker Numis.
The valuation gap reflects a period of turmoil at the manager which has seen three of its six directors depart including chairwoman Fiona Mcbain.
Indeed, the discount is the largest it's been in the last decade.
Have we seen the bottom?
But perhaps it is always darkest before the dawn because as Citywire reports, renowned short seller and A-rated fund manager James Hanbury has trimmed his bet against the £9 billion-pound trust, suggesting that this is the bottom, or is close to one as far as the discount to assets is concerned.
The stock has fallen sharply (-58.5%) since it posted an all-time high in November 2021.
As we can see in the chart it hasn't participated in the rally in tech stocks seen in 2023.
That lack of performance is surprising given that SMT still has 5.2% of the fund invested in Tesla, which is up by 72.8% in the last 3 months, and another 2.6% in Nvidia which has added 91.5% since January.
ASML is among the fund's biggest holdings, where it has more than 7% of the portfolio. ASML is up by almost 22% in the last three months.
I also note holdings in Chinese stocks Ant International, Tencent and Pinduoduo which could benefit from the Alibaba break-up news released earlier in the week.
That's not to say that there are no laggards among its holdings because there are, just that there are solid performers and opportunities within it.
Perhaps the final word on the matter (if I can mix my metaphors) should come from this chart which plots SMT against Cathie Wood's ARK Innovation ETF.
SMT was often compared to ARK because of the cross-over between the two funds portfolios. ARKK has bounced by 28.5% as of pixel time whilst SMT remains 5.25% down over the last three months.
At some point, the discount to NAV and the underperformance of SMT versus peers and the wider technology market should be narrowed.
Money for nothing? Not quite, but maybe you can get your tech for cheap...
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