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DorestLSE - sure, not every buyback bolsters a share price in the longer term.
Just as not every buyback is done for the same reason initially.
Diageo has very little in common with SMT, so I don’t see how you can usefully extrapolate from one to t’other.
As for preferring a special dividend, in effect you’ve been given one right now - thanks to the near 13% share price uplift since 15 March.
If you think there are better opportunities out there, now might be a good time to take the money & run.
Personally, I don’t see it that way & will definitively be staying put.
“… is the SMT buyback coming from borrowing or have they been sitting on a £1bn cash pile”
Part cash. Majority trimming publicly traded investments where they view immediate opportunity for growth is seen as more limited.
Trimming the publicly traded investments will skew the balance towards the private investments - up to 28%.
My view is that they have sight of an IPO, which will balance it down again and boost NAV.
I understand what you say but I have a few other long term holdings with disappointing results following buy backs such as Diageo which has been buying back shares for a couple of years and it hasn't done anything for the share price (and this was before the recent profit warning) . In reality I would prefer a special dividend if they have excess cash and I can decide where to invest it. Artificially boosting share prices is often about executive bonuses. Incidentally is the SMT buyback coming from borrowing or have they been sitting on a £1bn cash pile?
DorsetLSE - there are probably two main schools of thought with buybacks.
Either: managers are running out of growth opportunities & see buybacks as a short term way to boost the share price.
Or: managers genuinely believe their shares are currently undervalued & use buybacks to signal this to the market.
Whichever people believe here, the short term impact is that with fewer shares in issue, the price rises. So SMT value creation, rather than destruction, for now.
Personally, I believe the size of the buyback programme is the gamechanger here, as it’s far greater than any previous scheme. And it’s not as if the shares are being bought back at a particularly high price for now. Which is probably why they’ve gone in hard early, whilst the price remains relatively subdued. They’ve already bought back over £40m worth in the first week.
Once again by signalling a buy back the share price rises which makes the buy back less effective and ultimately it's destroying value. So I am thinking that the recent share price rise is not a true reflection of where SMT is heading as the underlying assets haven't changed. Time to trim my stake a little more perhaps.
Stocksr- I don’t think the managers will “have adjusted their investments to more profitable equities.”
That’s not their style.
What HAS changed (& is largely responsible for the recent SP re-rate) is the big boost in share buybacks. Plus news that an activist investor, renowned for improving performance at another trust, has acquired a 5% stake.
Yes Zinc, I've been looking at charts all month, and against my better judgement bought today, about 5% of my available cash, I think it's past the bottoming out, so have every confidence in an upward surge, hopefully the managers have adjusted their investments to more profitable equities
Thrfrogster - I guess we'll never know their precise motivation. But whatever - from where I'm standing, it's hard to read any negatives into it.
Elliot's may have the same motives as previously with ATST or they may just see it as an opportunity for the hedge fund to make a quick buck. After all, it doesn't take a massive price increase to make a significant return when your stake is 5% of the fund.
As small shareholders there is not much we can do but stay onboard for the journey. Hope the price goes up in the meantime
StrictlyZinc - whatever attracted Elliott Associates to SMT, given their history they presumably view it as a fund whose recent underperformance they can help reverse. Otherwise, why increase their holding to 5%?
Doesn't necessarily mean they're right of course, but at least they've succeeded with others in the past.
Timing is interesting on this Elliot stake..
I wonder what their motivation is....they are activists after all.
So let’s assume that rather than being a millstone, the unquoteds include some real gems that are soaring in performance and value. How can Elliot’s get some of the action? They can’t without buying SMT.
The market always assumes the unquoteds are too risky and a drain on the share price. What is Elliot’s know better ??
I now wonder if the buyback decision was at Elliotts' "instigation"? The timing was very aligned...
Still ruing top slicing last week but hey ho that’s the game. Hopefully NAV is also on the up.
Laallee - thanks for this - an interesting development!
I see it as quite positive & it'll certainly keep SMT's managers on their toes.
Alliance Trust's SP has gone up from around 500p in 2015 to 1225p today. And it has way outperformed its benchmark over the last 5 years:
www.trustnet.com/factsheets/T/id56/alliance-trust-plc/
Contrast that with the 10 years prior to Elliott's 2015 intervention, when Alliance Trust rose less than 70%. Admittedly this earlier period includes the 2007/8 financial crisis, but even so.
Questions abound as Elliott takes 5% stake in Scottish Mortgage
Arrival of activist US hedge fund on the register of the Baillie Gifford global flagship revives memories of Elliott's successful campaign against Alliance Trust a decade ago.
Gavin Lumsden
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GAVIN LUMSDEN
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Elliott Associates, the much feared and respected US activist hedge fund, has emerged with a 5% stake in Scottish Mortgage Trust (SMT).
In a post-market disclosure to the stock exchange, the Delaware-based investment firm revealed it had bought nearly 0.5% of the Baillie Gifford flagship’s shares with a further 4.57% in equity swaps to take it just over the 5% threshold.
Founded in 1977 by Paul Singer, Elliott is best known for buying distressed emerging market bonds and pursuing Peru and Argentina through international courts when they defaulted on their debts. Closer in time and space, last month it made a takeover approach to electrical retailer Currys (CURY)
In the UK investment company market, the firm is fondly remembered, by most, for its campaign against Alliance Trust (ATST). After building up a 14% stake in the underperforming global equities fund, it obtained two seats on the board in 2015 before ousting chief executive Katherine Garrett-Cox and starting a process that saw her financial services empire dismantled and the company’s adoption of the multi-manager structure under Willis Towers Watson we know today.
As if SMT might be getting out of the complacency hole it dug itself a couple of years back.
Kind of similar CaptainPicard, sold 65% off and put into boring stuff as we are getting closer to early retirement. Just left with 5% of total portfolio in SMT (38k)
Before we, Inc me, get ahead of ourselves.. There could be a load of short investors readying themselves to take some nice profits..
One bit of less than positive news....?
Hopefully not.. 🤞🤞😆
Thanks LLoL, weirdly rather than feeling too hurt about losing out on some of todays gain I feel a little relieved to have turned those shares into Premium Bonds. Boring and likely to erode a little due to inflation there but it is safe and locked away. I still have a lot of SMT shares and I back the investment portfolio but as you say, if you are checkkng the share price on a sometimes hourly basis you are in too deep. I feel confident SMT will keep going strong. I really hope it does. I have learned to make sure your investment portfolio has diversification. I plan to use the money for private education for my son. I will need the money very regularly to hand in 5 years time. Hard to say where the SMT sp will be then. Best to bet on more than one horse and maybe have some locked away in cash too!
CaptainPicard - I think your actions perfectly illustrate risk management.
Every investor's circumstances are different. And to some extent - along with your personality - they're likely to determine attitude to risk.
Life's too short to have sleepless nights worrying about the investments you manage. So by taking action to address this, you've done exactly the right thing. So what if you could have got a bit more? You'd have still had that worry in the meantime. And you broke even at the end of the day (probably better, once dividends are factored in).
Plus, valuable lesson learnt. Always ask yourself BEFORE investing how comfortable you'd be if you lost some/all of the money. If the answer's "not very", invest less. Or choose something altogether safer.
I feel your pain. For once I am truly grateful I stuck with my plan and didnt sell
All this share needed was for me to sell some! Always the way! I sold half when I was just over break even. Feeling positive and comfortable now. I think I was over-invested before.
Gotoutjustintime - I certainly see their buyback programme as a positive. And so does the market for now.
It's no coincidence SMT closed at 781p on 14 March and is currently hovering around 859p, following their buyback RNS on 15 March.