Innovative companies from around the globe are powering the impressive performance of Edinburgh Worldwide Investment Trust (EWI), whose share price surged 43% higher and net asset value rocketed 31.6% north to 718.89p in a stellar year to 31 October 2017.
Outperforming the benchmark S&P Global Small Cap Index, the capital growth focused trust’s emphasis on innovators and attractive assets that could draw bids arguably leaves it fit to deliver strong future returns.
You can pick through results from Baillie Gifford-managed Edinburgh Worldwide, and scan through its portfolio of disruptors ranging from electric car maker Tesla to online luxury fashion retailer Yoox Net-A-Porter, right here.
FINDING FUTURE WINNERS
Manager Douglas Brodie (pictured below), and deputy managers Svetlana Viteva and Luke Ward, focus on spotting companies that value innovation, and have the capability to develop commercial opportunities around it, which they believe is the key to unearthing the market leaders of the future.
As Brodie explains: ‘Our remit is to unearth what we believe to be the most innovative, forward-thinking young businesses; those companies that are typically below the radar of many investors but which have the ambition to be much larger and the capability to reshape their respective industries.
‘It’s a challenge we relish but one that requires patience combined with the ability to craft an investment case over many years, potentially decades.’
Brodie says the commonalities among Edinburgh Worldwide’s diverse band of holdings include the fact 'they typically have entrepreneurial founder managers still involved with the business and, perhaps most importantly, they share a belief that what they offer, be it drugs, lasers or software code, is substantially superior to what was available before.
‘This innovative disruptive streak is what distinguishes many of our holdings and we believe it is testament to the current environment being rife with new tools and technologies which can be harnessed by nimble, entrepreneurial companies.’
Drivers of last year’s positive performance included a trio of US-headquartered concerns. Gene silencing company Alnylam Pharmaceutical sparked up on evidence that its leading drug candidate can reverse the effects of TTR Amyloidosis, a serious disease that manifests through often fatal damage to nerve and cardiac tissue.
Online loan market place LendingTree’s very robust growth ‘hints at the emerging network effects and scale advantages that are common traits amongst dominant online marketplaces’, according to Brodie.
IPG Photonics, a manufacturer of fibre-lasers used in metal processing, ‘has seen a marked acceleration in growth rates recently as adoption of fibre-lasers, a product category they pioneered, broadens out’.
‘Whilst it’s pleasing to see many of the holdings grow and garner greater investor attention, we believe that many of the best performing holdings still offer the prospect of very significant future returns,’ teases the Baillie Gifford man.
‘This reflects on many of these businesses being still comparatively small and immature relative to the size of the opportunity that they are looking to address.’
At the year end, the company held three unlisted equity investments: Oxford Nanopore Technologies, Unity Biotechnology and new holding Spire Global.
With its rapidly growing network of orbiting nano-satellites, Spire is attempting to solve large problems in weather forecasting, aircraft tracking and maritime monitoring.
During the year, Edinburgh Worldwide was a forced seller of two unlisted holdings, Skyscanner and Souq, taken over by Ctrip.com and Amazon respectively.
‘Although these were sold at a profit, this was a disappointing outcome for us as we had hoped that these would be long term holdings with the potential for more significant upside returns,’ says chairman Henry Strutt.
‘The ability to invest in unlisted equities through a closed ended vehicle is one of the notable benefits of the investment trust structure and a differentiating factor versus open ended peers. The loss of a holding, listed or unlisted, due to a merger or takeover, is usually one of the notable headwinds faced by the managers in achieving significant returns over the long term.’
Since Edinburgh Worldwide’s financial year end, another of its investee companies has been taken over, being UK microchip designer Imagination Technologies.