Business & Investment

Scotland Mortgages Decrease 25%: Why And What Next?

The very popular Scottish mortgage trust has fallen by more than 25% in three weeks as it struggled to sell global technology and growth stocks.

Rising US bond yields and inflation concerns have pushed the £ 16bn fund’s share price down another 4.5% to 1,040p today. As a result, a corps of British investors remains with a 26% hair-growth slump from the peak of 1,415p in mid-February.

SMT has risen 73% in the last 12 months, but investors are afraid to fall further as it goes against growth stocks during the pandemic recovery.

Tesla (pictured), run by Elon Musk, currently holds the largest portfolio of Scottish mortgages.

High-growth US and Chinese stocks, which make up the majority of Scotland’s mortgage portfolio, have sold out in the past few weeks as long-term bond yields have become less attractive.

Higher yields significantly reduce the attractiveness of stocks that are valued in response to high expected returns in the future.

Institutional investors have sold Treasury holdings because of concerns that inflation could lead to higher interest rates, which could lead to poorer performance in US and other developed market bonds.

The fall in Scottish mortgages contributed to the FTSE 100 index’s fall of 0.75% yesterday to 6,624. However, the stock market has generally not collapsed as funds have switched from growth stocks to value stocks and circulating stocks, and to diversified stocks such as commodities and real estate.

Having traded at a modest premium for most of the last 12 months, the trust itself plunged 6% to the bottom of the index, offering an 8% discount.

According to Hargreaves Lansdown figures, the discount is currently 2.75% and the stock price is 1,073p, but the 12-month average is a premium of 0.5%.

Rachel Winter of Killik & Co said Scottish mortgages are the

Rachel Winter of Killik & Co said Scottish mortgages are the “loved ones” of the stock market

According to Rachel Winter of Killik & Co, very popular trust was one of the “loved ones” in the stock market last year, doubling between February 2020 and February 2021.

She said this impressive performance was partly due to her significant position in Tesla, where shares have risen more than 300% in the last 12 months.

“Tesla recently informed the market that it had invested $ 1.5 billion in cash in Bitcoin, which raised concerns for some of its investors,” she added.

“Bitcoin has fallen 18% from its recent peak, and Tesla’s share price has fallen, which is damaging Scottish mortgages.

“But despite the recent decline in mutual fund prices, long-term investors will still enjoy huge profits.

“On the other hand, a fallback to the 200-day MA can be seen as a potential buy signal for some.”

Rare opportunity?

Trusts are rarely discounted, but the premium isn’t particularly high these days, as the fund’s share price closely reflects its net asset value (NAV).

The trust has achieved remarkable results in recent years as growth stocks dominate global returns. SMT has increased by about 75% in one year and by a whopping 343% in five years.

This is compared to a 100% increase in average confidence in the AIC global sector and an 88% increase in the FTSE All World Index.

Mike Neumann, Head of Investment Management at EQ Investors, agreed that both current and new investors may see current discounts as an interesting entry point.

He said:’The fall in stock prices has outpaced the fall in the tech market. The stock was trading at a small premium in early February.

“Some market integrations are sound and promising. Analyzing the underlying trends driving cash flow in these businesses remains positive in the long run.

Scotland's mortgages have fallen 10% since the beginning of 2021, but long-term performance is strong

Scotland’s mortgages have fallen 10% since the beginning of 2021, but long-term performance is strong

Meanwhile, Alex Moore, head of the Lasborns group survey, said that despite the short-term performance degradation, management like the Scottish mortgage consisting of James Anderson and Tom Slater He said it was not gradual.

“When fund managers take a long-term view of their holdings, it makes sense for investors to do the same,” he added. “Rising inflation expectations are having a negative impact on stock prices for companies that were trading at relatively high valuations.

“These names aren’t limited to the technology sector, but the sector has been a strong performer over the last decade since 2020.

“There were moments in the market like 2016 and 2013 when value names and more cyclical companies outperformed.

“For trusts like Scottish mortgages, this can actually increase the chances of buying a lower level existing name or a new idea that trades at a cheaper valuation.”

Strong holding

In addition, despite the current negative outlook for high-growth stocks, trust managers identify companies that will benefit from long-term structural trends and changes.

‘this “Short- to medium-term stock price slumps are unlikely to change investment treatises in holding companies or higher-level industry themes,” Moore said.

Alex Moore of Rathbones said this performance drop could be an opportunity

Alex Moore of Rathbones said this performance drop could be an opportunity

The trust includes a number of companies that will benefit from the ongoing digitization of the world, such as Amazon and ASML, but also some Chinese companies, such as Tencent and Alibaba. Return to pre-pandemic level. “

She added: ‘The last two weeks have shown why having a diverse portfolio is so important. Those who are overexposed to high-growth stocks will have experienced a sharp decline lately.

That said, the blockade is accelerating the adoption of new technologies, which is expected to continue after the blockade is over. It’s important not to be over-exposed to technology, but it’s also a mistake to stay completely away from technology.

There is also the fact that the trust also includes many unquoted companies that have not yet realized their potential.

Neumann, for example, emphasizes Lilium, a German electric vertical takeoff and landing airliner manufacturer.

“Lilium is in talks to publish through a merger with US SPACQell Acquisition. Qell has begun discussions to raise new capital for the transaction to value the combined entities for more than $ 2 billion. “He said.

“Stripe owns another portfolio, and investors value Stripe at a $ 115 billion valuation in’liquidity’trade. In this transaction, the shares of a private company are sold after they are first issued.

“It’s more than three times the $ 36 billion stripe we got when we raised money from venture companies such as Andreessen Horowitz, General Catalyst and Sequoia in April 2020.”

Overall, most investors may remain bullish on Scottish mortgages and long-term investment cases of their holdings, especially after recent pullbacks.

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Scotland Mortgages Decrease 25%: Why And What Next? Scotland Mortgages Decrease 25%: Why And What Next?

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