This is a version of an article published in the Telegraph’s Questor column today.

Reports that Elon Musk’s SpaceX hit a $210bn (£161bn) valuation last month have helped downtrodden shares in Edinburgh Worldwide (EWI ) look up to the stars for the first time in three years.

The £586m investment trust is a stable mate of Scottish Mortgage (SMT ), the £12bn FTSE 100 flagship of Edinburgh-based funds group Baillie Gifford. Like its big sister, Edinburgh Worldwide invests globally in a mix of public and private companies that its managers believe have exceptional long-term growth prospects, even if they are not necessarily currently profitable.

It is more skewed towards younger, smaller businesses valued at under $5bn at the point of first investment but, similar to Scottish Mortgage, has a pronounced technology theme with the fund managers backing start-ups at the cutting edge of computing, transport and healthcare.

As with Scottish Mortgage and other Baillie Gifford funds wedded to a high-growth philosophy, Edinburgh Worldwide has given its shareholders a wild ride in the past four years. Following an initial fall as Covid struck in 2020, they soared in the ensuing lockdown-induced internet surge, peaking at 417p a year later. They then crashed to a six-and-a-half year low of 122p last October after soaring inflation and interest rates slashed the values of ‘jam tomorrow’ stocks.

With inflation subsiding and interest rates peaking, the shares have partly recovered to 155p, rising 8% in the past month on a string of positive news for its core holdings.

Leading these were reports that Musk’s unlisted rocket company had bought back some shares at $112, up 14% from $97 seven months earlier. This reassured investors that the valuation of the trust’s hefty 11.8% exposure to SpaceX – at £80m its biggest position by far – was realistic and up to date. 

The share transaction provided a similar endorsement to Scottish Mortgage, which is 4.4% invested in SpaceX with a £615m stake. Its shares are up just over 1% since I backed their recovery in March after Elliott Management disclosed a 5% stake that it has subsequently reduced at a big profit.

Although the Edinburgh Worldwide team runs a diversified portfolio of 95 stocks, this is a high conviction fund with its top 10 holdings accounting for 42% of assets.

SpaceX’s revaluation reflects its success as the backbone of the rapidly growing space sector. Last year it launched 96 rockets, two thirds of all commercial flights. Meanwhile, its Starlink satellite communications business is forecast to make $3.8bn operating profits this year, up from $128m in 2022. It could be spun off and floated on the stock market, potentially crystallising further gains. 

For Edinburgh Worldwide investors who have seen their holdings halve in the past three years, there was also some encouragement in the trust’s half-year results. A 4.6% underlying return in the six months to 30 April lagged the 15% rise in its stock market index, but was positive after losses of 23% and 40% in the previous two financial years.

The shares did much better, returning 13.6% on hopes the trust had turned a corner after big rises in Taser provider Axon Enterprises and military drone maker AeroVironment, although there were setbacks at online grocer Ocado (OCDO), DNA sequencer Oxford Nanopore (ONT) and Graphcore, the unquoted UK chipmaker sold to Japan’s Softbank last week.

More good news followed at the end of June when shares in Alnylam Pharmaceuticals soared over 30% in the US after a trial showed its drug vutrisiran cut deaths and cardiovascular problems in patients with a rare heart disease.

Meanwhile, US hedge fund Saba Capital disclosed a position of 16% in Edinburgh Worldwide. It has timed its investment perfectly, emerging with 5% just over a year ago when the shares traded 24% below net asset value. The discount has narrowed to under 11% as the board has bought back shares and sentiment has improved, giving Saba a handsome return on its geared position. This repeats a similarly successful trade in Scottish Mortgage last year.

While investors would have done well to invest at the same time, Saba’s continued buying suggests there is more to come from Edinburgh Worldwide, which it could push to launch a tender offer allowing investors to sell shares close to asset value.

The outlook for the trust has brightened but the few small interest rate cuts the market anticipates will not return growth funds to their glory days when borrowing costs were virtually zero. That said, the search by fund managers Douglas Brodie, Luke Ward and Svetlana Viteva for the next ‘Magnificent Seven’ remains valid, although investors should be wary of committing too much money to Baillie Gifford if they already hold Scottish Mortgage, for example.

Nevertheless, viewed on its own merits, this looks like a trust making a comeback. ‘Buy’ Edinburgh Worldwide.

Key facts

Market value: £586m
Year of listing: 1998
Discount: 11.5%
Average discount over past year: 14.5%
Yield: Zero
Most recent year’s dividend: Nil
Gearing: 14%
Annual charge: 0.7%