Baillie Gifford’s Edinburgh Worldwide Investment Trust (LON:EWI) will add some rock & roll to your portfolio.
We’re not talking about electric guitars and biting off bat’s heads, but instead investing in naturally volatile young companies with the potential to shape the future. This is a long-term strategy; investors should be prepared to buckle up and ride out sharp swings.
Meeting with Baillie Gifford at their Edinburgh office last week, the Edinburgh Worldwide team described the trust as a ‘rock & roll’ strategy due to the composition of the portfolio.
The managers of this fund have picked some of the best winners of the last decade. However, the portfolio is highly volatile, and trust managers are prepared to ride out significant drawdowns in their holdings.
There is the acceptance that companies take time to create the impact on the world the Baillie Gifford team foresee.
The Edinburgh Worldwide Investment Trust has an investment time horizon of around 10 years. Over this period, they target at least 100% gains in a stock as a base case. Many have risen well in excess of this.
Manager Douglas Brodie explained how the trust first bought Tesla when the EV maker was worth $2 billion. They sold when it was worth £1 trillion. During this period, the stock fell as much as 47% before rebounding. The Edinburgh Worldwide team exited with a 25x total return. Tesla was held for more than 10 years.
The trust held STAAR Surgical through a 64% drawdown which turned into a 7x return.
Seeking sales growth
Edinburgh Worldwide targets companies that have the opportunity for rapid sales growth. The management identifies companies that can achieve substantial sales growth through their ability to shape the future, solve problems, and provide better and cheap solutions.
This approach has helped the strategy achieve sales growth over the past 5 years exceeding that of the S&P Global Small Cap benchmark.
Baillie Gifford’s test track
Edinburgh Worldwide’s strategy allows the portfolio to include companies which don’t meet the criteria of Baillie Gifford’s other strategies due to their size.
When we sat down with Baillie Gifford, they explained how the trust acted like a test track for young growth companies. Should earlier-stage companies succeed in the Edinburgh Worldwide portfolio, they may satisfy the requirements of other Baillie Gifford mandates.
Portfolio
Edinburgh Worldwide’s portfolio is a blend of both private and public equities. The nature of their strategy is perfectly demonstrated in the top holding, Space Exploration Technologies, or SpaceEx. Founded by Elon Musk, this is a privately held company with the aim of colonising Mars.
“It’s rare that you come across companies for which you can genuinely say ‘this might be a generation-defining company’, and with SpaceX everything points to that,” Douglas Brodie said.
Other top holdings include Alnylam Pharmaceuticals – a great example of a company finding its way into other Baillie Gifford strategies after initially being added to Edinburgh Worldwide.
Ocado accounted for 2.8% of the trust as of 30/4/23. Brodie explained this is a long-term holding that has produced excellent returns but faded to near original entry.
Brodie still believes in the company’s ability to become a major part of the global food distribution supply chain and highlights 50% of the economy is consumption, and 50% of consumption is food.