Edinburgh Worldwide 08 January 2025

Edinburgh Worldwide (EWI) is designed to harness the growth potential of innovative, early-stage businesses as they come to dominate industries or develop new ones. As well as listed companies, the trust also invests in private businesses, the most prominent being the trust’s largest holding, SpaceX. The portfolio is managed by Douglas Brodie of the Discovery Team at Baillie Gifford, and since November, by Svetlana Viteva and Luke Ward, who have both been promoted to co-manager.

The move is part of a series of adjustments being made to the strategy in order to improve performance. While EWI has performed exceptionally well at times, since 2022 it has underperformed, and the board and manager have conducted a review into how and why, aided by external consultants. The portfolio should become more concentrated and more diversified by theme, while positions in pre-profit businesses will be limited. Full details are in the Portfolio section. The board has also proposed spending up to £130m on buybacks or other returns of capital, a substantial commitment with total assets at c. £802m at the time of writing.

Following the publication of the board’s proposals, activist investor Saba Capital unveiled another set of proposals. These amount to replacing the directors with their own, offering a cash exit and, it seems, a rollover into a different strategy managed by someone of Saba’s choosing. The board has stated its opposition to Saba’s plan and has confirmed it will hold a general meeting to put Saba’s proposals to shareholders. It encourages all shareholders to vote against the resolutions.

We think EWI has a highly differentiated approach, and it would be a loss to investors to see it disappear. The focus on disruptive businesses, the willingness to invest in unlisted companies, and the exposure it offers to new technologies, drugs, and business models are all differentiating factors. Investing in private companies can only be done in the closed-ended structure, and the trust also uses the ability to take on debt to juice returns. The trust is one of the very few ways UK retail investors can get exposure to SpaceX, which has the potential to be a truly transformative business.

There is no getting away from the fact that returns have been poor over the past two to three years, and this period has brought down the five-year return numbers too. In investing though, there is usually a growing temptation to jettison an approach at the worst time, after the market environment has been bad for the approach and before it shifts back in its favour. It is impossible to come to a view as to whether EWI’s strategy or any new Saba strategy is more likely to perform well over the next five years, as we don’t know what Saba would plan to do. But we do think that the market’s adjustment to higher interest rates is over, and looking forward there is the prospect of at least a slightly easier funding environment to help growth strategies. Meanwhile, operational results at portfolio companies should be critical to how the strategy performs. In that light, the investment in pre-profit businesses, even at lower levels than in the past, is a risk factor to bear in mind, particularly if rates don’t come down as much as currently expected.