The Scottish Mortgage (LSE: SMT) share price fell by 11.7% in May. But that’s part of a larger overall decline. And we might even be seeing the start of a recovery.
From a 52-week high in November 2021, the investment trust‘s shares have lost 48% of their value by the time of writing. Saying that, the shares did start to pick up again in the last week of May.
But whichever way we look at it, the past 12 months have not been kind to Scottish Mortgage shareholders:
Still, a growth share putting in a dreadful year often indicates a great time to buy. It all depends on the reasons for the fall. And in the case of SMT, those reasons seem clear enough.
Tech stocks falling
There’s been a tech stock sell-off in the face of potential recession. In such times, many investors abandon anything risky and flee to safer investments. Here’s the effect it’s had on SMT’s 10 biggest holdings:
| Holding | Percent of fund | 12-month change |
| Moderna | 6.5% | -32% |
| ASML | 6.4% | -15% |
| Illumina | 6.3% | -45% |
| Tesla | 6.2% | +26% |
| Tencent | 4.9% | -41% |
| Meituan | 3.0% | -39% |
| NVIDIA | 2.7% | +6.8% |
| Amazon.com | 2.6% | -26% |
| Alibaba | 2.6% | -56% |
| Kering | 2.4% | -30% |
The first thing I notice is Tesla’s gain over the past 12 months, despite having fallen from much higher levels in early April.
The big slump in Alibaba presumably also shows nervousness over Chinese stocks, with fears that some might lose their US listings.
But overall, the reason for the Scottish Mortgage share price fall is simply that the value of the trust’s holdings have fallen.
So is this a golden opportunity to get into Baillie Gifford’s flagship investment trust at a bargain price?
The fall leaves the shares trading at a discount to net asset value (NAV), but it’s narrowing. At a share price of 812p, we’re looking at a discount of 5.8% based on end-of-May NAV.
Discount purchase
So for 812p today, we can acquire 861.6p in underlying assets. Popular investment trusts, especially ones investing in growth stocks, often trade at a premium to NAV. So SMT might be a buy now. But it all depends on what happens next to those constituent share prices.
And I’m really not sure I like the outlook right now. For one thing, despite falling from its recent peak, Tesla stock still commands a trailing price-to-earnings ratio of over 100. In early April, that multiple stood at over 150. I do think Tesla deserves a premium valuation, but that strikes me as still too rich.
Moderna’s valuation looks more realistic now, on a trailing P/E of around five. But it’s based on a bumper year for Covid vaccines, and analysts are predicting sizeable earnings falls over the next two years. So there’s major uncertainty there.
On balance, I’m torn. I really do feel the Scottish Mortgage share price could be set for a new bull run in the second half of the year. But if I wouldn’t buy its top 10 holdings individually, I really shouldn’t buy the trust.