Questor is The Telegraph’s stockpicking column, helping you decode the markets and offering insights on where to invest.
A US vulture investor has requisitioned a meeting to replace the board of Edinburgh Worldwide and replace it with two directors, one of whom is an employee of said vulture – Saba Capital.
It then intends for this new board to serve notice on the existing manager and appoint Saba as manager, with a mandate to invest in other London-listed investment trusts. At its heart, this is a choice between taking a short-term gain or the potential for a much more lucrative long-term recovery in the trust’s fortunes.
Saba’s argument that the trust’s short-term returns have been disappointing is undoubtedly true. Questor understands shareholders’ frustration, but feels that a narrow focus on the past three years gives a misleading picture. The existing board has taken action to revitalise performance and there are signs this is working.
Edinburgh Worldwide was launched in July 1998, with Baillie Gifford appointed manager in November 2003. At that time, the net asset value (Nav) was 162.75p per share and its approach was to run a focused portfolio of mostly large cap listed growth stocks.
Ten years later, the Nav was 432.3p, and the trust had generated a total return of 191pc, well ahead of the 132pc return on its MSCI All Countries World index benchmark. The share price had done even better, with a return of 245pc.
However, the board felt the trust investment approach was not sufficiently differentiated from other global growth-focused trusts, so it decided to ask shareholders whether it should reposition the trust towards smaller companies. They said yes.
On February 1 2014, Douglas Brodie took on the job of managing the portfolio, which was now focused on sub-$5bn market cap companies. Given the increased risk associated with investing in smaller stocks, the portfolio was diversified.
Five years later, the new approach seemed to be working well. The portfolio had generated returns of about 14.1pc per annum on average, compared with 10.6pc for its new benchmark, the S&P Global Small Cap index. The share price had breached £10 on occasion, and the board decided to split the shares on a five for one basis.
However, the board was concerned that some of the world’s most exciting growth companies were choosing to IPO much later in life. It asked shareholders to up the maximum exposure to unlisted companies within the portfolio from 5pc to 15pc.
Then, in 2022, the limit was increased again from 15pc to 25pc. On both occasions, shareholders supported the board’s recommendation. This is how Edinburgh Worldwide ended up backing SpaceX, which has since grown to be the largest position in the portfolio (valued at about 7x the amount that the trust invested).