Edinburgh Worldwide (EWI) has published its annual report, confirming the dramatic doubling last month in the valuation of SpaceX, its biggest holding. In so doing, the results for the year to 31 October underline the strength of the investment trust’s argument against Saba Capital, the 30.7% shareholder that is attempting to seize control of its board for the second time in a year.

The fact is, however much Saba attempts to muddy the waters with its challenging questions over the trust’s partial sale of the SpaceX position last October, Edinburgh Worldwide is far better off in the hands of Baillie Gifford. After all it was the Scottish investment partnership that brought investors SpaceX, rather than the activist hedge fund which, while it knows how to make a turn on undervalued closed-end funds, has no track record of identifying and investing in world-beating private businesses such as Elon Musk’s rocket company.

SpaceX uplift bigger than we thought

The report shows that the $800bn valuation of SpaceX in a share sale by staff in December led to a 98.6% hike in the £786m trust’s investment in the company, even more than we calculated. SpaceX now accounts for 16% of the portfolio, up from 8.5% at 30 November.

The big uplift pushes unquoted companies to 27.6% of Edinburgh Worldwide’s assets, above a 25% limit, which means it will be unable to put more money into unlisted stocks until that level comes down. That could easily be remedied, however, if one of the private companies floats, for example, SpaceX, which is reportedly considering a $1.5trn initial public offer that would transform the trust’s fortunes.

Equally important for shareholders weighing their vote for the 20 January general meeting called by Saba, is the impressive 947% return the trust has made on SpaceX since it first invested in 2018.

Saba, which presumably wants to have itself appointed as fund manager if it succeeds in replacing the board, given that was its intention a year ago, could probably never have accomplished this feat.

True, the period in which the trust has owned SpaceX has been very painful for EWI shareholders who saw their shares peak at 409p five years ago before crashing to a low of 130p in October 2023. Even after a recovery to the current 227p, shareholders have suffered a 40% loss over five years.

Back on growth path

Nevertheless, the annual results provide a good case for giving the company and its fund manager the benefit of any doubts and a second chance. Even without the latest valuation boost from SpaceX, Edinburgh Worldwide’s investments generated a 29.7% 12-month return well ahead of the 12.8% gain in the S&P Global Small Cap index. Shareholders received a 30.2% return as the discount – or gap – between the share price and the trust’s net asset value (NAV) narrowed slightly to 7.2% from 7.6% in response to the potential threat from Saba winding down the company if it gained control, as well as £42.6m of share buybacks by the board.

This rebound came in the first year of the trust’s “Path for Growth” in which the board, chaired by Jonathan Simpson-Dent, charged the Baillie Gifford investment team with tightening up their portfolio construction, reducing the proportion of loss-making start-ups, while not losing sight of the goal of backing exceptional companies like SpaceX.

Having endured so much, this is not the right time for shareholders to abandon the strategy. Amid the geopolitical and economic turbulence caused by US tariffs, growth investing has not lost its allure, even if “value” investors have enjoyed a period of higher inflation and interest rates.

“Against this hard-to-predict and still evolving backdrop, the stock market has placed a renewed emphasis on companies that can grow on their own merits, regardless of the macroeconomic environment,” said fund managers Douglas Brodie, Luke Ward and Svetlana Viteva.

Their efforts to spot pioneering companies has been rewarded, they say. Not just at SpaceX, whose Starlink satellite business is set for further growth having acquired global mobile spectrum from EchoStar last year, but also at Alnylam, the gene-silencing drug developer that was the other top performer during the year and is the third biggest holding at 5.7%.

Lower down the portfolio, the managers highlighted a 1.1% position in MP Materials. It also did well as the US government took a strategic stake in the magnet maker and the defense department backed a 10-fold expansion of its manufacturing facilities.

While there have been setbacks at US restaurant chain Sweetgreen, which was sold, and glass lens maker RxSight and UK online grocer Ocado, there were more winners than losers. Portfolio turnover rose as the managers sold 29 companies where their conviction was waning and added 17 new holdings, eight of them in the second half.  

Time to vote

All this growth-seeking activity is at risk if Saba’s proposed directors are elected. Nominally independent, they would be more likely to change EWI’s global smaller company investment strategy, leading to a slump in the shares and a widening in the discount as investors rush for the exit. That’s why QuotedData has recommended that shareholders line up with the board once again and vote against all of Saba’s resolutions.     

One thing EWI shareholders can thank Saba for is that a merger proposal with Baillie Gifford US Growth (USA) is off the table, at least for now, as Simpson-Dent said following Saba’s rejection the combinations was “not being progressed at this time”. Hopefully, EWI will survive and see SpaceX achieve its full potential.