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25. Uncovering Trusts – Edinburgh Worldwide Investment Trust (EWI) – one of the trusts targeted by Saba
70 Plays3 days ago
In this episode, our director of content, investment trusts Milosz Papst discusses Edinburgh Worldwide Investment Trust (EWI), which aims to generate long-term capital growth from a diversified portfolio of smaller-cap global equities. He highlights how important it is for EWI’s shareholders to cast their vote at the upcoming general meeting in light of Saba Capital’s resolutions to remove the trust’s independent board and replace it with two directors proposed by Saba, change the management of the company from Baillie Gifford to Saba and amend Edinburgh Worldwide’s strategy. He also discusses the recent proposals of EWI’s board to put the trust back on a path to renewed growth and to return a meaningful amount of capital to shareholders.
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About ‘Uncovering Trusts’
'Uncovering Trusts': is a podcast run by Edison analysts released every two weeks. Subscribe to hear analyst interviews on how investment trusts maximise returns while managing risks for investors.
About Edison:
Edison is a content-led IR business. We believe quality investment content should inform all investors, not just brokers. Our mission: engage and build bigger, better-informed investor audiences for our clients.
Edison covers 50+ investment trusts, read about them here: https://www.edisongroup.com/equities/investment-companies/
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Transcript
Introduction to Uncovering Trusts Podcast
00:00:05
Speaker
Welcome to uncovering trusts, a podcast by the Edison group, a content led IR business integrating analyst content, digital targeting and investor engagement. Each episode will uncover the distinct features, the latest developments of a selected listed investment company. So tune in to find some interesting investment ideas and stay on top of what's happening in the sector.
00:00:26
Speaker
I'm your host, Will Manuel, and today I'm joined by Milos Pat, Director of Investment Company Content at the Edison Group, who will talk about the Edinburgh Worldwide Investment Trust, whose ticker is EWI. So Milos, thanks for joining us today. Hi, glad to be back. And yeah, this is indeed a timely discussion, as this company is one of seven UK investment trusts at Saba Capital Management, the US-based activist hedge fund has in its sights.
00:00:50
Speaker
um but Let us maybe talk more about this development a little bit later, along with stressing how important it is for Edinburgh worldwide shareholders, including retail investors with modest positions to cast their
Overview of Edinburgh Worldwide Investment Trust
00:01:01
Speaker
votes.
00:01:01
Speaker
Okay, that's a good idea. um So let's start with an introduction to Edinburgh Worldwide. Sure. Edinburgh Worldwide was launched in July 1998 and is listed on the main market of the London Stock Exchange. Managers Douglas Brody, Luke Ward and Svetlana Viteva, at Bailey Gifford, aim to generate long-term capital growth from a diversified portfolio of smaller capital equities.
00:01:23
Speaker
Although the trust has a global remit, I would stress that the majority of the portfolio is made up of US um- based companies. And what I find of particular interest is that up to 25% of the portfolio at the time of investments may be invested in private companies. Right. So what what are the managers looking for in potential investments?
00:01:43
Speaker
but The trust managers have identified four important traits of potential investing companies. um Innovation to enable significant problem solving and reshaping of their respective industries. and They also look for early signs of a competitive advantage, skilled management with a clear growth strategy and a scalable business model.
00:02:00
Speaker
Now, I would note that progress at a transformational company is rarely linear and therefore the managers invest with the long term horizon. Obviously, not all investments will be successful. So the important element is how right, so to speak, the managers are with the trust best performing positions. so Yeah. So can you provide some examples of companies in the portfolio? Sure. How about a couple each of private and listed investments?
Portfolio Highlights: Key Companies
00:02:25
Speaker
um The largest holding the portfolio is the private company SpaceX, which I'm sure most of our listeners will have heard of by Elon Musk.
00:02:33
Speaker
It is an aerospace and space transportation company, manufacturing advanced rockets and satellites providing global broadband services. CyQuantum is another private company that is building the world's first commercially viable quantum computer. While its business is at an early stage, if successful, its prospects look very attractive in areas such as complex financial modeling.
00:02:56
Speaker
Moving on to listed names, Al Nailam Pharmaceuticals is a US biotech company with a leading position in therapeutic gen silencing. The company has an adaptable and repeatable process which can be applied to any gene affording the company the ability to target larger disease populations. And then Axon Enterprise is another US listed business which sells tasers and body cameras to global law enforcement agencies.
00:03:20
Speaker
I'm the company's expanding into drawn based and counter drawn technology and i believe it is a good example of an investment that processes that attributes add in the world by small successful investments. Interesting i'm just a really good flavor of the trust i can we now move on to some of the more recent developments.
00:03:39
Speaker
Yes, of course.
Saba Capital's Proposals and Board Response
00:03:41
Speaker
Now, along with six other UK investment trusts, Edinburgh Worldwide is under fire from activist US hedge fund Saba Capital, who now controls around 25% of the share base. Saba proposes to remove the trust's independent board and replace it with two non-independent directors, change the management of the company from Bailey Gifford to Saba, and amend Edinburgh Worldwide's strategy, which may be at an unfavorable stage of the market cycle following a period where small cap growth stocks have derated. so Importantly, at the time of the sub-approach in December 2024, Edinburgh worldwide's board had already implemented proposals to improve the trust's disappointing near-term performance.
00:04:19
Speaker
ah right so what happened to performance Well, despite a strong long-term performance record, in recent years Enver Worldwide has not met its objectives and has lacked the performance of its peers. The trust's bias towards smaller, earlier-stage companies was detrimental to performance due to negative market sentiment, which was exacerbated by geopolitical events and tighter monetary policy following the global pandemic.
00:04:42
Speaker
investors became more short-term focused and favored larger companies with more predictable earnings, while higher interest rates in response to elevated inflation put pressure on the valuations of growth companies. Right, so well what did the board propose?
00:04:58
Speaker
and so Following a detailed review of the trust strategy execution and performance on the 20th November 2024, the board released a circular containing its proposals to put the trust back on a path to renewed growth and to return a meaningful amount of capital to shareholders.
00:05:13
Speaker
The key elements of these proposals were changes to the management team, enhancements to the investment approach aiming to improve decision making and portfolio discipline, a portfolio restructure involving a lower number of holdings, so down from between 70 and 125 to between 60 and 100, and better engagement with industry companies.
00:05:34
Speaker
The proposals also included raising the market cap limit on the largest portfolio company from $5 billion dollars to match the largest constituent of the S and&P global small cap index, um which is Edinburgh Worldwide's comparative index. And then at 2025, capital return to shareholders of up to 130 million pounds.
00:05:53
Speaker
um In terms of the trust management, Luke Ward and Svetlana Viteva were appointed as co-managers alongside Douglas Brody. The two new co-managers are very familiar with Edinburgh Worldwide as they have been involved with the management of the trust since 2017.
Impact of Board's Proposals on Performance
00:06:08
Speaker
And what's happened following the implementation of the board's proposals?
00:06:13
Speaker
ah There has been an improvement in Edinburgh Worldwide's performance with meaningful NEV uplift in recent months. ah The trust managers believe that the performance can continue to improve as there has been a re-acceleration in the portfolio's top-line growth. A greater percentage of portfolio companies have reached the stage of being financially resilient, and evaluations of industry companies remain undemanding.
00:06:35
Speaker
um The managers highlight improvements in the investment process whereby companies are more rigorously stressed test for their upside potential as they get larger and they acknowledge that um they had been too patient with some smaller companies in the portfolio. There's now a more rigorous process before allocating capital to early stage companies and having correct position sizes.
00:06:56
Speaker
Also, the managers are aware that there had been a growing percentage of the portfolio in the top three industries of software, aerospace in defense and biotech, and they have now put controls on exposure to these areas. That all sounds very encouraging.
Shareholder Call to Action
00:07:11
Speaker
ah So let's circle back. What should shareholders do about cyber's approach?
00:07:16
Speaker
ah Yeah, so shareholders should cast their votes. If they wish to retain access to this unique portfolio of long-term growth opportunities, they need to vote against SABAS proposals. Time is of the essence as the Trust General Meeting is scheduled for 11.45 am m on the 14th of February. um The cutoff for submitting votes is 11.45 am m on the 12th of February. yeah But for platforms, the date may be as soon as the 6th of February.
00:07:43
Speaker
um Led by Chair Jonathan Simpson-Vence and the worldwide vote is urging shareholders to vote against all the Sabah resolutions. Simpson-Vence is concerned by Sabah's lack of democratic process and exploiting the fact that the majority of investment trust retail shareholders do not exercise their vote.
00:08:01
Speaker
um He highlights that if the trust is taken over and its strategy changes, rotation holders in particular will find it difficult to gain similar exposure as well. Understood. um Thank you for this very timely session and it's really interesting times indeed for the UK investment trust sector.
Closing and Further Resources
00:08:18
Speaker
ah So you've been listening to Uncovering Trusts, a podcast by The Edison Group. If you want to find out more about EWI and other investment companies that we cover, please visit www.edisongroup.com. Here you'll be able to access all of our recent thematic pieces about SAVA's campaign.