The latest interim accounts for Edinburgh Worldwide (LON: EWI), Baillie Gifford’s global small cap investment trust, reveal that it’s been another tough period for the growth-oriented portfolio. Over the six months to the end of April it made an NAV total return of -7.5%, compared to a 1.5% decline in the S&P Global Smaller Companies index.
As with the firm’s other funds there is little resemblance to the benchmark, so it is not surprising that the performance differs, although it is disappointing that it continues to lag. The managers believe that the problem is the inflationary and geopolitical environment that is causing investors to focus on the short-term rather than the potential of the various holdings.
Writing in the accounts, they say that they are unashamedly long-term investors with their analytical radar tuned towards high-potential, early-stage growth opportunities.
“For such companies, it’s the fundamental path of progress that ultimately matters most not the prevailing stock market narrative. That progress naturally takes time to manifest but we remain confident that the holdings in the portfolio represent a collection of some of the most exciting and transformational long-term investment opportunities available.”
Portfolio And Perspective
It is quite a diversified portfolio in terms of the number of different holdings, although the ten largest account for 40.1% of the assets, with technology and healthcare making up almost 70% of the exposure. The two largest positions at between seven and eight percent are: Space Exploration Technologies, an unlisted company involved in rocket manufacturing and Alnylam Pharmaceuticals, which specialises in therapeutic gene silencing.
Like many of Baillie Gifford’s other funds, Edinburgh Worldwide also has a considerable exposure to unlisted companies, with the allocation to this area standing at 20.9% of total assets at the end of April. These are revalued on a three-month rolling cycle, with one-third of the holdings reassessed each month, plus additional valuations following certain ‘trigger events.’
The managers believe that innovation and the application of technology sit outside the conventional business cycle, although they acknowledge that businesses are currently adjusting to a higher cost of capital environment. They think that ‘companies that offer or exploit deep productivity-enhancing solutions will come to the fore.’
Long-Term Buying Opportunity?
Edinburgh Worldwide invests in a diversified portfolio of global smaller companies that offer significant long-term growth potential. The focus is on stocks with a market cap of under five billion dollars at the time of investment and the potential to deliver multiples on invested capital.
The broker Numis describe it as an attractive vehicle that is significantly differentiated from other global equity funds. They say that it has been a brutal period for growth investors, particularly in the small cap end of the spectrum, however they believe the investment case remains compelling over the long-term.
It has been a really tough time for investors with the shares falling from a high of over four pounds in February 2021, to just 145 pence at time of writing. The poor performance has opened up a 20% discount to NAV, which Numis believe is an attractive entry point for long-term investors who are comfortable with the risk.