Elliott Management takes 5% stake in Scottish Mortgage

22nd Mar 2024 12:28

(Sharecast News) - US activist investor Elliott Management has taken a 5% stake in Scottish Mortgage Investment Trust.

In a release after the close on Thursday, the Delaware-based firm disclosed that it has bought 6.5m shares in Scottish Mortgage.

Dan Coatsworth, investment analyst at AJ Bell, said: "Only days since it abandoned efforts to buy UK electricals retailer Currys, activist Elliott Investment has appeared on the shareholder register of one of the most popular investment trusts among UK investors.

"Its 5.037% position in Scottish Mortgage comes at a time when the trust's managers have been on a charm offensive to drive more interest in what they are doing. While the share price has slowly been moving upwards since last October, it still remains 43% below its peak in late 2021.

"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."

Coatsworth noted that only a week ago, Scottish Mortgage announced plans to buy back at least £1bn worth of shares, equal to 9% of the trust's market value at the time of the news.

"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. 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," he said.

Ultimately, Coatsworth said, Elliott will have bought a stake to make money so it might start by focusing on "the quick wins".

"It has form in the investment trust space, having spent seven years battling Alliance Trust in a fight that led to changes to the board of directors, the sale of its investment management subsidiary, a new multi-manager strategy and a narrowing of its discount to net asset value," he said.

At 1145 GMT, the shares were up 1.6% at 878.52p.