There are four things investors need to know about Edinburgh Worldwide Investment Trust (ticker: EWI).
1. Edinburgh Worldwide is a global small-cap growth specialist.
Edinburgh Worldwide was launched in July 1998 and the current mandate was adopted in January 2014. It offers a unique portfolio of game-changing businesses, up to 25% of which can be private at the time of investment. These include space launch services, quantum computing, AI software, nuclear fusion and advanced materials, molecular diagnostics and military drones. Although the trust has a global remit, most of the portfolio companies are based in the US.
2. Potential investee companies display four distinct traits.
The trust’s managers have identified four important traits of potential investee companies: innovation to enable significant problem solving and reshaping of their respective industries; early signs of a competitive advantage; skilled management with a clear growth strategy; and a scalable business model. Progress at a transformational company is rarely linear; hence, the managers invest with a long-term horizon. Given that not all investments will be successful, the important element is ‘how right’ the managers are with the trust’s best-performing positions.
3. The portfolio contains both listed and private companies.
Space Exploration Technologies, widely known as SpaceX, is a private company owned by Elon Musk. It is an aerospace and space transportation company, manufacturing advanced rockets and satellites providing global broadband services. Launch costs are declining, which is opening up additional growth opportunities.
Psi Quantum is another private company, which is building the world’s first commercially viable quantum computer. Its photonics-based approach enables manufacturing in a conventional silicon chip foundry. While Psi Quantum’s business is at an early stage, if successful, its prospects look very attractive, such as in the fields of atomic level material simulation and complex financial modelling.
Alnylam Pharmaceuticals is a listed US biotech company with a leading position in therapeutic gene silencing. The company has an adaptable and repeatable process, which can be applied to any gene, affording Alnylam the ability to target larger disease populations.
Axon Enterprise is another US-listed business, which sells tasers and body cameras to global law-enforcement agencies. The company is expanding into drone-based and counter-drone technology and is a good example of an investment that possesses the attributes of Edinburgh Worldwide’s most successful investments.
4. Measures have been taken to improve the trust’s performance.
Although outperforming over the long term, in recent years Edinburgh Worldwide has not met its objectives and has lagged the performance of its peers. In November 2024, following a detailed review of the trust’s strategy, execution and performance, the board announced proposals to improve its performance and return up to £130m to shareholders. The key elements included: changes to the management team; enhancements to the investment approach aiming to improve decision-making and portfolio discipline; a portfolio restructure involving a lower number of holdings; raising the market cap limit on the largest portfolio company; and a 2025 capital return to shareholders of up to £130m.
Luke Ward and Svetlana Viteva, who have been involved with the management of the trust since 2017, were appointed as co-managers alongside Douglas Brodie. There is now an enhanced discipline regarding capital allocation towards the smaller portfolio companies, and the number of holdings has been reduced. Importantly, there is now a higher percentage of investee companies that are generating positive free cash flow. Initial results of the portfolio restructuring have been positive leading to a meaningful uptick in the trust’s NAV.
Published 31 January 2025.
