Mainstream global equities fund Edinburgh Worldwide Investment Trust (EWI) has delivered a strong performance against its comparative index, the MSCI All Countries World Index, over the last few years, as well as being one of the best-performing Global sector investment trusts. However, its managers at Baillie Gifford have recently changed the investment strategy to focus on global smaller companies. Edinburgh Worldwide now invests in less mature companies with a market capitalisation of less than $5bn (£3bn), and mostly ones with market capitalisations less than $2bn. The trust can also put up to 5 per cent of its assets into in unlisted investments.
- Managers have strong record
- Discount to NAV
- Reasonable charge
- High-growth assets
- High-risk assets
- Volatility
IC TIP RATING
Tip style: SPECULATIVE
Risk rating: HIGH
Timescale: LONG TERM
A number of other Global sector investment trusts have a similar investment approach to the one Edinburgh Worldwide used to have. "The lack of differentiation has potentially contributed to a decline in liquidity of the trust's shares and resulted in greater discount volatility, despite periods of good performance," explains Edinburgh Worldwide's chairman.
Its discount to net asset value (NAV) has often been in excess of 10 per cent over the last 10 years.
But now, for investors wanting a high-risk but potentially high-return investment fund, this could prove to be an opportunity.
The trust is now run by Douglas Brodie, also manager of Baillie Gifford Global Discovery Fund (GB0006059116). This fund is relatively new but has enjoyed excellent performance since its launch, making it the top performer in the Investment Management Association (IMA) Global sector over one year. Edinburgh Worldwide will be run along the same lines.
Between 2007 and September of last year, Mr Brodie ran Baillie Gifford British Smaller Companies Fund (GB0005924773), which is top quartile in the IMA UK Smaller Companies sector over one and three years.
Edinburgh Worldwide now also has a deputy manager, John MacDougall, who runs IC Top 100 Fund Baillie Gifford Shin Nippon (BGS), which has made excellent returns.
The managers will focus on companies with growth potential, particularly those with disruptive, innovative technologies. The number of portfolio holdings will increase from around 40 to between 75 and 125, which will diversify risk.
If Edinburgh Worldwide has similar success to the managers' other funds it could make excellent returns and its discount to NAV of around 6 per cent could close. Its successful sector peer, IC Top 100 Fund F&C Global Smaller Companies (FCS), trades on a premium of 1.67 per cent.
"The Global Discovery open-ended fund has performed strongly over the last few years and we would expect the strategy to perform well in buoyant market conditions," say analysts at Winterflood. "The reverse is also true and investors should be comfortable with the risks involved in this approach and potential volatility. However, over the longer term we would expect the fund to outperform."
The trust also has an ongoing charge of 0.99 per cent in contrast to Baillie Gifford Global Discovery's 1.59 per cent.
The investment trust will not be run exactly the same way as Baillie Gifford Global Discovery. It has debt which gives the potential for better performance, but also for greater losses. The unlisted assets add to the risk. Conversely, these factors could help the trust outperform.
And the discount has already tightened from its 12-month average of 9.73 to 6.15 per cent.
Investors wanting to put their money into a mainstream global equities investment trust are probably better looking elsewhere, such as some IC Top 100 Funds. However, if you have a higher-risk appetite and long-term investment horizon, Edinburgh Worldwide Investment Trust could deliver impressive returns but for the time being is still on a discount. Buy.
EDINBURGH WORLDWIDE INVESTMENT TRUST (EWI) | |||
| PRICE: | 430p | GEARING: | 108% |
| AIC SECTOR: | Global | NAV: | 454.65p |
| FUND TYPE: | Investment trust | PRICE DISCOUNT TO NAV: | 6.15% |
| MARKET CAP: | £210.7m | ONGOING CHARGE: | 0.99% |
| YIELD: | 0.47% | MORE DETAILS: | bailliegifford.com |
| SET-UP DATE: | 10 July 1998 | ||
Source: Morningstar
| 1-year cumulative share price return (%) | 3-year cumulative share price return (%) | 5-year cumulative share price return (%) | |
| Edinburgh Worldwide ord | 27.3 | 35 | 182.4 |
| MSCI Al Countries World Index PR EUR | 5.7 | 13.9 | 81.5 |
| AIC Global sector | 12.9 | 25.6 | 120.6 |
Source: Morningstar, as at 21 February 2014
| 6-month return (%) | 1-year return (%) | 2-year cumulative return (%) | |
| Baillie Gifford Global Discovery A Acc | 16.1 | 42.8 | 73.5 |
Source: Morningstar, as at 21 February 2014
Geographic breakdown (%)
| US | 51.1 |
| Canada | 1.7 |
| UK | 17 |
| Germany | 5.2 |
| Other Europe | 5.7 |
| China | 3.1 |
| Japan | 5.1 |
| Other Asia | 0.9 |
| Australasia | 3.4 |
| Net liquid assets | 6.8 |
