Edinburgh Worldwide board reassured Baillie Gifford on the right track

After a positive half year new chair John Simpson-Dent tells shareholders improving fundamentals and increased M&A should see the global smaller companies trust recover.

The new chair of Edinburgh Worldwide (EWI ) has told shareholders that improving fundamentals and increased M&A activity should finally rerate the Baillie Gifford global smaller companies trust after its thumping in recent years.

John Simpson-Dent, who has replaced Henry Strutt as the head of a board that took fund managers Douglas Brodie and Svetlana Vieteca to task in January for three years of big losses, said that while high interest rates were challenging, he and the other non-executive directors were increasingly encouraged that market fundamentals would reassert themselves.

The £545m growth-style trust, which has a 28% allocation to private, unquoted stocks, saw its underlying asset value rise 6.4% over the six months to the end of April and the shares climb 13.6%, trailing the S&P Global Smaller Companies index benchmark’s 15%, interim results this month showed.

With five-year shareholder returns now showing a 26% loss versus a 42% gain for the benchmark, Simpson-Dent emphasised that a long-term perspective was important as the board did its job of holding the managers to account.

‘Whilst it is encouraging to see early signs of Edinburgh Worldwide’s net asset value [NAV] improving and its discount narrowing, the board is highly sensitive to the fact that maintaining a long-term perspective can be difficult in volatile markets,’ he said.

Two holdings benefited from takeover offers, with US software company Hashicorp receiving an acquisition offer from IBM at a 28% premium to the price the managers paid 12 months earlier, and Shockwave Medical, which Johnson & Johnson bid for at over nine times their entry price.

Brodie (pictured) and Vieteca said they would not be surprised to see the M&A theme extend over coming periods given the opportunities that abound, with the pair exiting nine positions at a £25m loss in favour of smaller holdings as they balanced ‘patience against the need for capital for ideas already executing well’.

This included UK listed companies, online estate agent Rightmove (RMV) and high-performance polymer supplier Victrex (VCT).

The managers said that while AI will transform huge swaths of both business and consumer activity – and the GLP-1 weight loss drugs have had a similar impact on the healthcare sector – their own smaller companies will see their relevance increase as their offerings improve and resonate with customers, they emphasised.

They pointed to the top performers, such as Axon Enterprises, which makes Tasers and body-worn cameras for law enforcement, and AeroVironment, the leading manufacturer of small-scale surveillance and tactical drones for the military.

‘They share a public sector customer base that is increasingly embracing technology to both drive operational and budgeting efficiency at deep scale whilst simultaneously protecting frontline operatives – a “better and cheaper” combination that resonates deeply currently,’ they said, adding that they were also embracing AI.

One noteworthy holding was private company PsiQuantum – which is also in the Scottish Mortgage (SMT ) portfolio – that is building the first utility-scale quantum computer in Australia.

Developments in the quantum computing area might represent a seismic shift in the computing architecture, they said, adding that it’s not ‘hyperbole to suggest that PsiQuantum can realistically become the most valuable and society-impacting company’ in the portfolio.

At yesterday’s close of 143p, the shares had fallen almost 9% this year to date to stand on an 11% discount to net asset value. The non-dividend payer has slumped 57% in the past three years but has generated a total return of 82.7% to shareholders over 10 years. 

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