- SMT languishes at a discount to NAV of more than 15%
Scottish Mortgage launched a major share buyback program on Friday, as Britain’s biggest investment firm tries to cut its discount by double digits.
The trust has already bought back £353 million worth of shares in the past two years and will increase buybacks to at least £1 billion over the next two years, it told shareholders on Friday.
The board of Scottish Mortgage said it is taking ‘more concerted action’ to address the 15 per cent discount to the net asset value (NAV) at which the company’s shares trade.
Scottish mortgage manager Tom Slater says the market has failed to recognize the progress of portfolio companies
Buybacks are often used by companies that believe their shares are undervalued.
Scottish Mortgage said the buyback program is a ‘strong demonstration of confidence in the underlying valuation of the portfolio.’
The investment trust industry has suffered widespread discounting in recent months due to rising interest rates, which have boosted returns on prudent investments and weakened the case for higher-risk assets.
There are particular concerns about Scottish Mortgage’s exposure to unquoted investments and growth shares.
The trust benefited from its holdings in companies like Amazon, Nvidia and Tesla during the pandemic, as growth stocks soared.
But Scottish Mortgage Investment Trust Shares fell from around £15 to a low of 628p last May as the era of low interest rates came to an end.
The shares have since recovered to around 792p and are up 17.6 per cent in the past year.
Tom Slater, lead manager of the trust, said: ‘In a volatile period for growth investing, we own a portfolio of established companies achieving rapid expansion, driven by ongoing structural trends.
‘Advances in foundational technologies unlock exciting new products, services and business models. These well-financed public and private companies shape the future of the economy.
“The stock market has yet to fully recognize their progress, which presents an opportunity for us to purchase the portfolio for less than market value.
‘This allows us to provide liquidity and increase returns for our shareholders. We want to seize this opportunity with conviction.’