Video ID:
9261
Job Number:
7164
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Description:
Anzelm Cydzik interviews Mark Urquhart on the Edinburgh Worldwide Investment Trust plc.
Duration:
00:08:26
Recorded Date:
2 May 2013
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Transcript:
Edinburgh Worldwide Investment Trust
April 2013
Anzelm Cydzik interviews Mark Urquhart
Please be aware that due to changing stock market conditions and currency exchange rates, the value of an investment in Edinburgh Worldwide Investment Trust and any income from it can fall as well as rise. You may not get back the amount invested and past performance is not a guide to future performance.
The views expressed are those of the manager and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect personal opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.
Anzelm Cydzik: I’m joined today by Mark Urquhart, portfolio manager for Edinburgh Worldwide investment trust. Mark, welcome.
Mark Urquhart: Thanks Anzelm
AC: Could you please just quickly outline Edinburgh Worldwide’s objectives.
MU: Of course yes. Very straightforward, we’re looking for capital growth over the long term. We try to do that through a concentrated portfolio of roughly around 40 stocks, we don’t have any constraints in terms of geography or in terms of sector, it’s the 40 best ideas that we can gather and that we think will perform over 5 and 10 years.
AC: Ok, so moving on to more broader themes then. In terms of the global outlook at the moment, do you have any particular macro thoughts at present, and are they influencing your thinking at all?
MU: Yes, I think the last couple of years have been quite interesting. The prevailing macro backdrop has been a pretty gloomy one; obviously there has been the very well publicised problems in Europe and the Eurozone in terms of the sovereign debt crisis, you’ve had interesting issues in the United States with the fiscal cliff and the sort of ‘will they, won’t they’ thriller and likewise some of the fast growing emerging markets have not been growing as fast as they would have expected. However, in total contrast and what interests me is at the bottom up you’re seeing a lot of companies growing very, very nicely and rapidly, you know I’m talking rates of 15, 20 even 25% so I think what’s going on is that there’s a lot of change going on in the world, in particular in some of the technology areas and that’s throwing up a lot of opportunities. There’s also a secondary shift in terms of where consumption is happening so the geography of growth is looking quite different, so I think the macro pessimism is quite interesting because I think it’s depressing some of the valuations on some of those high growth stocks.
AC: So in terms of the high growth stocks that your finding at the moment Mark, any particular examples you would like to highlight for us?
MU: Yes, just to pick out a couple; if you look at something like Google, Google is dominant as we know in desktop search, it’s what we all use it for but it’s got a lot of other businesses and a lot of other areas of growth. So a couple I would highlight; mobile is turning into a fantastic opportunity for Google. As you know, the number of smartphones, the number of tablet computers has exploded in the last few years and people are searching ever more on those and Google’s market share is actually higher. YouTube is a Google owned company, it’s starting to monetise its video content very nicely and for this we’re only paying 15 times earnings which is at or near the market multiple, Google is growing in excess of 20%, I think it’s competitive position is strengthening and it’s one that we’re really excited about. An example from a very different industry would be something like PPR which is a luxury goods holding company; it owns brands like Gucci, Bottega Veneta and has recently been acquiring a few more in that area. It’s doing very, very well, the consumption patterns in luxury are a definite example of that trend I was talking about of different consumers, so ten years ago luxury goods were really consumed in Japan, Western Europe and America, now it’s the Middle East, it’s Brazil, it’s China, it’s Indonesia. The number of people buying these goods has exploded but at the same time they want to buy the heritage so there seems little threat to us of domestic competition to these strong European brands.
AC: So in terms of the interesting stocks you just touched upon there, what would be the sort of pitfalls that might befall them?
MU: Well clearly in terms of the technology area, the debate is always about disruption, what’s the next big thing and can someone come along and take away say Google’s market position or Amazon in e-commerce. That’s something we think about a lot but we actually think that the move to mobile is strengthening many of these competitive positions – if you think of your own use of a smartphone, most people have two or three screens of apps that they use a lot and there’s a lot of evidence emerging that say in e-commerce people have Amazon, they have eBay and they maybe have one or two others. Take yourself back to the physical retail world, that’s like having a high street with four stores in it, it’s a fantastically strong competitive position and the willingness of consumers to navigate round that or to go to different routes seems to be diminishing so for now we think that actually that the competitive positions are strengthening. On the other example, luxury goods, the pitfalls are the obvious ones I think, that consumption growth runs into something of a wall; we’re not seeing that at all at the moment, you know Asia is doing well, Asian tourism to Europe is exploding, China is talking of a hard landing of 7-7.5% which the Chancellor of the Exchequer would be very pleased with I think in the current environment. Secondly, there is the threat of new entry, can Asian companies themselves create some of those aspects of luxury and start to be a competitive threat – I don’t think so because your talking of businesses that have been around since the 1840s or the 1880s and that’s the aspiration that they’re selling is that very longevity.
AC: So how do you avoid becoming complacent about some of your holdings, you obviously talk very positively about some of them?
MU: Absolutely, yes. So we’re constantly challenging ourselves, you’re constantly asking the question ‘What is the market valuing in this business?’, ‘What are the changes?’. We accept that there will be mistakes, so a good example would be Nintendo which the Trust had owned for several years, we thought it was very innovative, it had a very interesting culture, it had created the DS handheld, it had invented the Wii and the motion sensor control but then along came smartphones, along came Angry Birds, along came a complete change in the business model and Nintendo hasn’t responded to that – they’re still selling games that are £20/25/30 that you plug in the back physically into a console so we’ve sold that share, we were disappointed that management didn’t respond. You have to be open to things changing and to looking at the stocks in the portfolio in that way.
AC: Well, in terms of other themes within the portfolio, you’ve talked about luxury, technology, are there any other predominant themes in the portfolio and how are you playing those?
MU: Yes, so another quite large exposure we have would be to what we term loosely improving healthcare and I think everyone knows that in most societies healthcare is an increasing burden with the aging population, demographics are very well known, it’s most extreme in America where healthcare is 18% of GDP which is an unbelievably large figure but it’s creeping up elsewhere and these trends are not going to change. So what we’re looking for are companies that help to apply new solutions and new approaches to healthcare and perhaps take some costs out of that system, we think that’s key. So a couple of examples there would be Intuitive Surgical which does robotic surgery – the key there is that the patient is in hospital a lot less so the number of bed nights, which is the prime cost in most hospital systems, is greatly reduced therefore the overall cost to the system is lessened. The second one would be Illumina, which makes the machines that are used in genetic testing and I think that’s going to be a massive change in healthcare, that we have a lot more knowledge about the individual patient’s genes therefore how to treat them, you can avoid costly treatments that don’t work because of their genetic predisposition or you can change the way that people are diagnosed with those genetics, so those types of businesses I think are an interesting area to invest in for the next few years.
AC: Mark, thank you.
MU: Thank you.
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