Baillie Gifford’s Edinburgh Worldwide investment trust is to undergo a restructure following three years of negative returns.
The £630m trust’s share price has more than halved since its peak in 2021, falling 58.7% – almost quadruple that of the 15.9% loss made by its peers in the IA Global Smaller Companies sector.
After a review into this negative performance, chair Jonathan Simpson-Dent said Edinburgh Worldwide needs a plan to “put the trust back on a path for growth”.
Two new managers – Luke Ward and Svetlana Viteva – will be appointed to the trust to implement the action plan alongside existing manager Douglas Brodie.
Part of the strategy changes will involve lifting the size threshold of companies it can invest in. It pledged to limit the size of stocks it buys at $5bn in 2014, yet the market capitalisation of smaller companies has risen sizably over the past decade, it said.
The threshold has risen by over $24.5bn, with the trust now able to buy companies as large as $29.5bn.
Edinburgh Worldwide will also be scaled down from its current 75 to 125 holdings, to between 60 to 100 positions. The larger portfolio was initially intended to reduce risk, but the review concluded that ‘a more focused portfolio could benefit shareholders, allowing for closer scrutiny by the managers whilst still providing diversity’.
Yet James Carthew, head of investment companies at QuotedData, said these investment policy changes were not very drastic. He attributed much of the trust’s underperformance to the fact it’s asset class has been out of favour in a high interest rate environment.
“There is a big difference between what constitutes ‘small cap’ in the US and everywhere else, but permissible market cap size is not what has caused this trust to lag the returns of peers such as Herald. Nor does the change in the number of stocks in the portfolio seem all that radical,” Carthew said.
“However, Edinburgh Worldwide is managed with a particular style and, for the trust to perform, that style needs to return to favour, which I believe will happen in time.”
The trust’s board has also committed to returning up to £130m to shareholders following a share buyback programme that reduced its discount to 2.7%.
