Schiehallion Fund (LSE:MNTN) from the FTSE 250 has soared by an impressive 83% over the past year. Despite this, the investment trust is still trading at a 9.9% discount to net asset value (NAV).
Here’s why I think this stock’s worth considering buying and holding for the next 10 years.
Weighing the world
Launched in 2019 by investment manager Baillie Gifford, Schiehallion invests in later-stage private companies. It gets its name from the Scottish mountain, whose gravitational pull was used in 1774 to estimate the Earth’s mass. An early attempt to ‘weigh the world’.
But what’s that got to do with investing? Well, the name reflects the challenge of weighing/valuing private, later-stage global growth companies.
We spend our time trying to take the measure of businesses that are still, by definition, not fully observable through the daily verdicts of public markets.
Schiehallion Fund
Improving performance
Shareholders will hope this approach can deliver mountainous returns. Unfortunately, on this front, performance has been patchy, at least so far.
Over five years, the share price is down 13%, reflecting the sharp rise in interest rates in 2022/23. Generally, lower rates suit growth companies whose profits are expected to arrive further into the future (like many of Schiehallion’s holdings).
As mentioned though, performance has been strong more recently. In the financial year to 31 January, the NAV return was 32.6% while share price surged 64.8%.
In January, the trust said that NAV return since inception was 77.9%. But according to the latest August factsheet, this has since shot up to 150.6%.
Bearing fruit
To me, this shows that the trust’s strategy of finding transformational growth companies is starting to bear fruit. SpaceX‘s record-breaking $1.77trn IPO represented a 523-fold increase on its original investment.
Italian tech firm Bending Spoons has been another hidden gem. It buys well-known-but-underperforming tech brands at low revenue multiples then slashes operating costs, streamlines operations, and boosts their product offer with AI. Acquisitions include AOL, Eventbrite, Vimeo, and Airtable.
Bending Spoons went public in July, making this a nine-bagger (9x return) for Schiehallion. Meanwhile, UK start-up Wayve recently partnered with Mercedes-Benz to put its autonomous driving software inside the German carmaker’s vehicles. Wayve’s technology is also being used inside Uber robotaxis being tested in London.
Finally, defence drone maker Tekever (now the trust’s third-largest holding) has just raised $580m at a $6.4bn valuation. After 50,000+ flight hours in Ukraine, it’s been selected for the British Army’s drone surveillance programme. It should benefit directly as European governments ramp up defence spending.
Discount
Perhaps the main risk here is a rise in interest rates. This would likely put pressure on private equity valuations, as well as make borrowing more expensive. A sell-off in top holdings SpaceX and Bending Spoons could also hit performance.
Taking a decade-long view though, I’m bullish on this trust. Its portfolio is packed with various high-growth themes, including AI/data (Anthropic, ByteDance/TikTok, Databricks, Wayve), drones/defence tech (Tekever, Anduril Industries), and FinTech (Stripe, Wise, Revolut).
With the shares trading at a 9.9% discount, I think they’re worth a look and maybe tucking away for the next decade.
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Ben McPoland owns shares in SpaceX, Uber, and Wise.
This story originally appeared on Motley Fool
