Asian man looking worried while studying paperwork at his desk in an office

Image source: Getty Images

Fluctuations in share prices have been observed FTSE 100 From the beginning of 2023. Scottish Mortgage Investment Trust( LSE:SMT ) share price has been particularly cold as concerns over the tech sector have increased.

At 653p each as I write, Scottish Mortgage shares have fallen 10% since 1 January.

Can it be argued that trust shares are now too cheap to lose? After all, as I write, it trades at a 21% discount to its net asset value (NAV) of 824.3p per share.

Strength in depth

For its shareholders, Scottish Mortgage shares offer a convenient way to gain exposure to many hot growth sectors.

As the chart below shows, the trust holds companies operating in several fast-growing sectors. From an electric vehicle manufacturer Tesla In the food delivery business OcadoIt gives investors ways to make money from growth trends that make more money.

These include the development of cleaner energy technologies and energy sources, artificial intelligence (AI) and e-commerce.

Chart showing companies held by Scottish Mortgage Investment Trust

Source: Scottish Mortgage Investment Trust

Encouragingly, the business has cast its net far and wide to build its portfolio. Instead of investing in just a handful of businesses, it has plowed capital into more than 100 listed and private companies.

This helps spread risk, such as Scottish Mortgage’s decision to invest in companies around the world. This protects the returns made by the trust from impairment in one or two areas.

Assessment found

However, in my opinion, the risks of owning Scottish Mortgage Shares still outweigh the potential benefits. Although the trust trades at a meaty discount to its NAV, I think its share price is still in danger of falling.

Many of the tech companies in which it has invested continue to trade at huge valuations.

Earnings forecasts have been trimmed sharply across the region. While many share prices have fallen from the heights reached during the pandemic, a large number continue to trade at sky-high price-to-earnings (P/E) ratios.

More bad news

This is especially true of the steady flow of disappointing news from the tech industry. It is possible that earnings forecasts could be subject to further heavy downgrades.

last week, Samsung It has announced that it will reduce the production of microchips due to declining demand. The South Korean business saw operating profit tank 96% year-on-year during the first quarter.

I am also aware of other bad news on other major Scottish mortgage holdings. take it modern, for example, which is the trust’s single-largest holding. As I type, 7.9% of the trust’s capital is invested here.

Last week, the pharmaceuticals giant said its mRNA-1010 flu vaccine continued to miss key testing criteria. Continued failure here could spell big trouble for Moderna and its investors down the stretch.

As I said, Scottish Mortgage shares give their shareholders huge exposure to many white-hot growth sectors. But, on balance, the risks here are too great to encourage me to invest. I want to buy other FTSE 100 stocks now.

The post Does Scottish Mortgage Investment Trust share a FTSE 100 bargain? appeared first on Motley Fool UK.

Further reading

Royston Wild has no position in any of the shares mentioned. Motley Fool UK recommends Ocado Group Plc and Tesla. The views expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make on our membership services such as Share Advisor, Hidden Winner and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2023

By admin

Leave a Reply

Your email address will not be published. Required fields are marked *