Edinburgh Worldwide plans £130m payout in new ‘path for growth’ 

Baillie Gifford-managed global smaller companies trust is seeking shareholder approval to refocus its portfolio and return capital to investors after damaging three years.

Edinburgh Worldwide (EWI ) is seeking shareholder approval to shake up its portfolio and return up to £130m in capital after a damaging three years under Baillie Gifford that has seen its shares almost halve.

Shareholders in the £635m investment trust run by Douglas Brodie, Luke Ward and Svetlana Viteva will be asked to vote on two resolutions at a general meeting next month.

The first will be to amend the company’s investment policy to enable a restructuring around a smaller number of companies to deepen the fund managers’ engagement.

This will reduce holdings to a lower range of 60-100 compared with 75-125 currently. It will also raise the limit on the size of companies the global small-cap fund can make new investments in from $5bn (£3.95bn) to whatever is the largest stock in its benchmark, the S&P Global Small Cap index, which is currently $29.5bn.

The global smaller companies trust, which has about 90 public and private equity positions, is no stranger to holding large stocks. As the managers are not required to sell companies when they grow, the fund’s largest holding is an 11.9% weighting to SpaceX, Elon Musk’s unlisted rocket company, which has soared to a $250bn valuation.

A second resolution will see shareholders vote on the proposed conversion of £499.7m in the company’s share premium account. The board, chaired by Jonathan Simpson-Dent, wants to move the money into distributable reserves to pay special dividends and mount further share buybacks that could return up to £130m to investors in 2025.

This will reward investors for their patience and could also help ease activist hedge fund Saba Capital off the register after it accumulated an 18% stake.

Simpson-Dent (above) said there would be no change to the trust’s vision of backing transformative companies to seek ‘outsized returns’, but after a review there was a need to improve execution. To that end, Ward and Viteva have been promoted from deputies to co-managers alongside Brodie.

‘We have developed a comprehensive action plan to improve execution and are committing to return up to £130m to shareholders following a share buyback programme that has recently reduced our discount and been value accretive for shareholders,’ Simpson-Dent said. ‘We believe this wide-ranging package of changes will put the trust back on a path for growth.’

Deutsche Numis analyst Ewan Lovett-Turner said the board had a difficult choice after the 48% slump in net asset value since 2021 but had refrained from sacking Baillie Gifford at a low point for its growth investment style.

He said the new controls would ensure a ‘more balanced exposure across financial maturity, with a greater focus on companies with positive earnings and free cashflow, effectively reducing the risk of a repeat of being too focused on early-stage companies’.

‘We do not expect these changes to lead to significant rebalancing in the near term, with much of this repositioning already having been implemented,’ Lovett-Turner added.  

Speculation over SpaceX’s valuation has helped the trust rerate in the past three months, with a 12% rally narrowing the discount, or gap between the share price and the trust’s net asset value, to 3.7% compared with a one-year average of 11%.

The three-year decline as growth stocks sold off in the face of higher inflation and rising interest rates has seen the former top performer drop well behind its benchmark. Over 10 years, shareholders’ 120.8% total return compares poorly with the 159.7% from the S&P Global Small Cap index.