And this is why we all play the great investment game trying to solve the "what if?" riddle ... and why we all take it very personally especially when you have a slug of your long term wealth on the table.
I have adopted a bar bell approach to my own investment strategy with SMT being one of my long term holdings on the higher end of my portfolio, and expect to add small increments on an ongoing basis
A couple of options, e.g. perhaps:
Lower the percentage of private v public holdings from say 30% to 20% or even 10-15%, which was the limit set when they first sought mandate permission to move beyond publicly traded stocks, selling a portion of these stocks should then realise a healthy cash profit and crystallise some of the capital gain?
Lay out a multi-year roadmap of expected listings from private to public so that there is a forward view of upcoming liquidity events and a structured way to validate private valuations over time?
Aggregate the private funds held in SMT into a separate listed entity (e.g. like the Schiehallion Fund) that SMT could retain a stake in and through that although tighter valuation and scrutiny from the market - perhaps with a focus in later stage private companies like Space X?
What joins us all together in this forum (whenever we started out SMT journey) is its our hope for a higher share price.
The real question I have is what will actually cause a turnaround in the poor 1, 3 and 5 year performances of SMT against benchmark. I know it’s a 10 year buy and hold but the amazing runs in AMZN and TSLA etc. were all a good few years ago.
For me, the SMT share price is less about the impact of interest rates and inflation, and the re-rating these macro factors have had on portfolio share prices. That’s easy to quantify and it’s seen in the NAV. All things being equal, the SMT share price should be c. £8.30.
Rather, my view is that the principal element that causes the SMT share price to languish is the uncertainty around the valuation of the private companies that make up of c.30% of the portfolio - I would argue that this is the primary reason why the average discount of SMT relative to its NAV has averaged nearly -17% over the last 12 months.
So getting any new piece of point data (like e.g. when Space X might sell some shares) is helpful but it simply does not provide enough sunshine to value a key part of the overall portfolio. Internal valuations done monthly or quarterly aren’t enough (in my opinion) to break through the ceiling on the share price. For the Portfolio Managers to earn their fees, they should be addressing this aspect fully.
Until these valuation elements are dealt with in a more structured way I believe the NAV discount will persist for many more years (or unless interest rates go back to near 0%).
I too was somewhat underwhelmed by the performance of our two managers on yesterday's call.
I submitted 3 questions none of which were addressed. I suspect elements of those questions have been picked up elsewhere on this forum over the past months. Here's what I asked:
Question One:
The central investment hypothesis underpinning SMT is that within a portfolio of high growth, disruptive and highly innovative companies a few stocks will deliver such massively high multiple returns that they will offset the mediocre or negative returns from all the others in the portfolio and thereby meaningfully outperform the chosen benchmark:
1. If the expected timeframe to expect these superior returns is c.10 years, then does the core investment hypothesis still hold true based on past performance over the last decade, i.e. in terms of your own numbers SMT’s 1, 3 and 5 years have now significantly underperformed the benchmark and although the 10 year is still a beat (i.e. 50% higher than benchmark) one assumes that it would only be in the last years (e.g. 8, 9 or 10) of the current cycle where the out performance has come (you do not publish the results for the intervening years)?
2. Put another way unless there is a huge sea change in returns over the next year or so, this 10 year cycle is a fail?
Question Two:
Although there is truth to the growth/disruption narrative being a driver of growth in the SMT share price/NAV, is the primary catalyst not rather the abnormally low levels of interest rates and the easy credit brought on by QE that has persisted for the past decade? If we are returning to the historic mean on interest rates for a prolonged period of time, then the future value of the growth stocks in the SMT portfolio is therefore muted and offers dull prospects for any out performance?
Question Three:
At the end of the day and despite all the good arguments you make about the strength and size (and therefore the valuations) of the private companies in the portfolio, is the discount to NAV not driven primarily by the fact that public valuations are treated with a higher level of certainty than those obtained privately? If so, how then do you close the NAV discount and unlock that value for shareholders?