Scottish Mortgage launches £1bn buyback programme in bid to cut discount

Scottish Mortgage unveiled its biggest share buyback program to date on Friday, as Britain’s biggest investment fund tries to reduce its double-digit discount.

The trust has already bought back £353m of shares in the last two years and will increase buybacks to at least £1bn over the next two years, it told shareholders on Friday.

This is the largest share buyback program ever undertaken in absolute terms in the investment trust sector.

Scottish Mortgage’s board said it was taking “more concerted action” to address the 15 per cent discount to the net asset value (NAV) at which the company’s shares trade.

Buybacks are often used by companies that believe their shares are undervalued.

Scottish Mortgage said its buyback program is a “strong demonstration of confidence in the underlying valuation of the portfolio”.

The investment trust sector has suffered widespread discounts in recent months thanks to rising interest rates, which have boosted returns on cautious investments and weakened the case for riskier assets.

There has been particular concern about Scottish Mortgage’s exposure to unlisted investments and growth stocks.

The trust benefited from its stakes in companies such as Amazon, Nvidia and Tesla during the pandemic, when growth stocks soared.

But Scottish Mortgage Investment Trust The shares plummeted 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 last year.

Tom Slater, lead director at the trust, said: ‘In a volatile period for growth investing, we own a portfolio of established companies achieving rapid expansion, driven by long-standing structural trends.

‘Advances in fundamental technologies are unlocking exciting new products, services and business models. These well-funded public and private companies are shaping the future of the economy.

‘The stock market has not yet fully recognized its progress, which creates the opportunity for us to buy the portfolio for less than its market value.

‘By doing so, we can provide liquidity and increase returns for our shareholders. We intend to seize this opportunity with conviction.”

Jefferies analyst Matthew Hose said he expects buybacks to help reduce discount levels, but “there have been better uses of capital, such as paying down debt or private follow-ups.”

He added: “However, there is now scope for both following a recovery in yield and measures taken to reduce debt, with private exposure (of GAV) and invested leverage (over NAV) reaching 28 per cent.” and 14 per cent, respectively, once the initial £1 billion is completed.’