13% SP-NTA discount

Since 10 December, HM1's nearly 10% SP-NTA premium turned into a 13% SP-NTA discount. The SP fall was 2.5 times greater than the NTA fall.

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10 December 2021
SP $4.20
NTA $3.83
XJO 7354
SP-NTA premium 9.6%

25 February 2022
SP $2.91 (-30.7%)
NTA $3.35 (-12.5%)
XJO 6998 (-4.8%)
SP-NTA discount 13.1%

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Some underperforming stocks in the portfolio explain why the NTA fell more than the XJO. But what might explain why the SP fell so much more, 2.5 times more than the NTA?

HM1's unique structure means that HM1's share register probably contains a higher than average proportion of ordinary retail investors. Some retail investors typically react to changing events with short-term volatility - sometimes described as a herd mentality. In recent weeks, fears about interest rate rises and fears about the Ukraine crisis may have caused so many HM1 holders to sell that a downwards move in the broader market effectively became amplified. The result was that the SP fell much more than the NTA.

If markets now move sideways for a while, then the current discount indicates that there is more than 10% potential SP upside. Savvy investors may also be attracted to the competitive yield from HM1's fully franked dividend. When market sentiment turns bullish again, then the SP will have more than 20% potential upside, plus a rising market would further boost both the NTA and SP.