Edinburgh Worldwide 27 November 2019
This is a non-independent marketing communication commissioned by Baillie Gifford. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Edinburgh Worldwide Investment Trust (LON:EWI) has a global growth mandate, and is managed by the Global Discovery team at Baillie Gifford.
The trust sits in the AIC Global Smaller Companies sector, with Douglas Brodie at the helm of the portfolio. Douglas looks to identify companies which are small relative to their potential size, rather than small in terms of their capacity for growth.
The managers do not seek to replicate the benchmark index, and the trust has an active share of 99%. As such, EWIT can – and does – experience volatility, although the manager attempts to limit this as much as possible through diversification, currently holding 115 holdings and always having exposure to a minimum of six countries and 15 industries at any one time.
Douglas took charge of EWIT in January 2014, and performance has been strong during his time managing the portfolio. In particular, the last three years have seen the trust drastically outperform with returns of 68.2%, compared to returns of 21.2% and 25.3% from the AIC Global Smaller Companies sector and the benchmark index respectively. In comparison to the (arguably more suitable) peer group the AIC Global sector, the trust’s returns are equally impressive, outperforming by 33.3% over the same period.
Currently EWIT is trading on a discount of 0.5%.
Douglas Brodie and his team at Baillie Gifford have a differentiated approach to looking at global equities. Their focus on immature companies, combined with their long-term investment horizon and willingness to hold on to winners, complements Baillie Gifford’s other global growth Trusts.
EWIT, over the longer term, is the standout trust in the AIC Global Smaller Companies sector. The trust has outperformed every peer over three and five years, in fact offering 20% greater NAV total returns than the second-strongest performer in the sector over three years. This being said, the AIC Global Smaller Companies sector is made up of only six trusts, many of whom could be considered rather idiosyncratic. As such, it is perhaps more relevant to compare performance relative to the global sector, which offers a greater number of perhaps more comparable trusts, albeit investing in much larger companies. In comparison to the global sector, the story remains largely the same and EWIT would sit in the top three (out of 17) of the strongest performing trusts over three and five years (Source: Morningstar).
Given the volatile nature of the high growth potential small cap companies in the portfolio, some might question the attractiveness of the trust’s approach to having structural gearing. However, over the long term we believe that structural gearing – eliminating the risks associated with market timing – is appropriate in the context of a growth trust aiming for the maximum long-term effect. EWIT certainly justifies its place in higher risk portfolios. The shares currently trade close to NAV (discount of 0.5%); should we see the shares slip to a wider discount, it could be an attractive entry point for a long-term investor.
|Exceptional record over three and five years
|Not suitable for short-term or more cautious investors who are wary of volatility
|Low OCF relative to peers
|Trading very tight to NAV
|Highly differentiated investment approach
|Gearing will exacerbate portfolio volatility