Some funds will take years to recover the losses incurred in the last three months, but there are others like Edinburgh Worldwide that invest in the sort of stocks that can thrive in the current environment and they have already bounced back.
The Edinburgh Worldwide Investment Trust (LON: EWI) is managed by Douglas Brodie of fund house Baillie Gifford. His focus is on growth stocks that have the potential to disrupt and change the way that established industries operate.
EWI sold off sharply in February and March, but has already made up the losses and in the four months to the end of April achieved an NAV total return of 9.3%, which compares favourably to the loss of 16% in the S&P Global Small Cap index. Brodie’s longer term record is also impressive, as since taking over in February 2014 the fund has delivered an NAV total return of 139% compared to 59% by the benchmark.
The investment trust analysts at Numis believe that Edinburgh Worldwide is an attractive vehicle that is significantly differentiated from other global equity funds. They say that the emphasis on disruptive companies driving innovation has come to the fore during the lockdown and has served to highlight the benefits that the fund’s holdings provide.
A prime example is Teladoc, which offers virtual healthcare services. This concept had previously been met with scepticism by consumers, but its share price has risen by more than 100% year-to-date. Online shopper Ocado has also done well, although others like the online real-estate portal Zillow and consumer credit provider LendingTree have suffered, yet the manager believes that their long-term structural growth drivers remain strong.
Edinburgh Worldwide provides exposure to a diversified portfolio of global smaller companies with a market cap of under five billion US dollars at the time of investment. It targets the most entrepreneurial businesses with the potential for rapid growth that have the scope to deliver multiples on invested capital.
Little emphasis on conventional valuation metrics
There is little emphasis on conventional valuation metrics such as the PE ratio as Brodie believes that the size of the market opportunity and the extent to which it can be exploited is more important. He then looks to take full advantage of the potential by running his winners.
At the end of March the ten largest positions accounted for just over a third of the portfolio and included the likes of: electronic bond trading platform, MarketAxess; therapeutic gene operator Alnylam Pharmaceuticals; electric car maker Tesla; plus Ocado and Teladoc. Around 60% by value was invested in the US, with 16% in the UK and the rest distributed fairly widely elsewhere.
There is a heavy bias in favour of healthcare and technology, which reflects the innovation and pace of development in these areas, as well as Brodie’s understanding of the sector due to his academic background in life sciences.
Edinburgh Worldwide has made a rapid recovery since the height of the sell-off and this has helped it to strengthen its long-term track record. The growth companies that it invests in have done well since the global financial crisis more than a decade ago and the pandemic may give them additional momentum. The shares are currently trading on a small premium to NAV.