US hedge fund Elliott Investment Management has acquired a 5% stake in Scottish Mortgage Investment Trust (SMT).
The announcement made last night (22 March) revealed the activist investor had bought 0.5% of the trust and 4.57% in equity swaps.
Elliott has history in the investment trust space, after it built up a significant stake in Alliance Trust before eventually securing two board seats in 2015.
The hedge fund recently ditched attempts to buy UK electricals retailer Currys.
See also: Scottish Mortgage unveils largest ever trust buyback programme
Dan Coatsworth, investment analyst at AJ Bell, said: “Historically, Scottish Mortgage has often traded on a premium to the value of its underlying assets. Today, the shares trade on an 8% discount, so there is an opportunity for Elliott to make money simply by that discount narrowing.
“The big question is what will make that re-rating happen? Performance is one catalyst and another is to use share buybacks to narrow the gap.”
The move comes days after the SMT board announced a £1bn share buyback programme as it looks to narrow its discount.
Coatsworth also suggested that the timing of Elliott appearing on the trust’s share register, a week on from the buyback announcement, may not be coincidental.
“That’s a chunky commitment and one has to consider if this decision was a defence mechanism should it have discovered Elliott was building a stake,” Coatsworth said.
“Spotting an activist on the shareholder register can prompt a board to get one step ahead by second guessing what they want and beating them to it so as to avoid a public ridicule.
“Part of Scottish Mortgage’s share price weakness was down to the rising interest rate environment as that negatively affected valuations of companies where the story is more about future cash flow than jam today.
“But as the share price fell, there were also suggestions that Scottish Mortgage had been taking too many wild bets on blue-sky companies, ones that had an idea but were miles off making any money.”
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