Edinburgh Worldwide is one of the top performing trusts in its sector over both long and short-term investment horizons. Managed by Mark Urquhart since 2003, at the recent Baillie Gifford investor conference he explained how manages the trust.
Mark Urquhart’s (pronounced urkit) Edinburgh Worldwide (LON:EWI) sits in the AIC’s Global Growth category along with giants such as Alliance Trust, Foreign & Colonial and sector stable mate Scottish Mortgage, all with assets in excess of £2 billion, whilst EWI has less than £200 million.
Of course EWI hasn’t had as long to get where it is. It was founded in 1998, and the management contract has only been with Baillie Gifford since 2003. Whereas, the other trusts hail back to the Victorian & Edwardian eras. It seems that EWI has slipped under the radar screens of more investors than its performance would suggests is appropriate. Let’s take a look……..
Under the bonnet – Where does it invest and what is its process
Baillie Gifford doesn’t operate a house view on what stock to own and how or when to buy them. They prefer to leave it up to their carefully selected managers to decide. To help them there is a large team of analysts who specialise in different sectors and industries across the world from their Edinburgh base.
The trust has a portfolio of around 40 stocks, with the top 10 accounting for just under 45%, and the top 33 accounting for over 90% (see foot of this article for list of holdings). This means should a stock do well it will have a bigger impact on the overall performance than with trusts that run with large portfolios of stocks. Conversely the same is also true should the stock do badly. This is often referred to as a high conviction portfolio as a result.
Urquhart owns his stock choices for longer than most managers at around 5 years. Only around 20% of his stocks are traded each year.
Almost half the portfolio is in the US market, with around a quarter being in Europe. This profile differs from his rivals in the sector, none of which have as high an allocation to the US.
Urquhart manages his stock choices around long term themes, where he searches for suitable stocks.
Stocks & Themes
Urquhart has identified 12 or so long term secular growth themes. We take a look at 5 of them below:
Ubiquitous mobility – Smart phones and tablets are a game changer
Urquhart said “I’d like to start by going back in time. This chart shows how fast we’ve developed in the last few decades. For much of human history survival has been what it is about, and it’s only been in the last decades that human endeavour is what it has been about.
Click on the image to make it larger.
“The railways are what made WH Smith and Charles Dickens because it meant his stories could travel further faster. Thomas Cook began by offering abstinence parties to the coast but they weren’t very successful, so very soon they changed it to alcohol fuelled parties to the coast and they took off.
This change has only accelerated”.
Ubiquitous mobility – this refers to our semi permanent connectivity. Urquhart believes this is a very big change and one we’ve quickly got so used to. “Jeff Bezos, the Amazon boss talks about the internet being at day one, meaning we are only at the very beginning of the change and this is something we agree with him on” Urquhart explained.
He described Smartphone’s and tablets as a game changer. “Within five years most of the phones in the world will be smart and they’ll be able to connect to the internet”.
“This may increase the power of incumbents – why? Because if you have all your apps on your phone you might not want to switch to another environment. Another example is Google, they have 65% or 70% market share in search on a pc, but on mobile it is much higher at around 95%. No one really uses Bing, or Yahoo, so search has become Google”.
Theme 2: Cloud Computing – think of it as the early days of electricity.
“In the early days cities developed their own electricity locally and out of that grew a national grid which freed them from the cost of generating their own power.
“We think cloud computing is very similar to the electricity model a century ago. In the last 20-30 years a lot of businesses and organisations have had to invest a lot of money buying and operating servers. These are powerful computers that provide the backbone to what they do. They’re expensive to run and often inefficient as they’re not well utilized because you need to have capacity for maximum usage. Typically they run at 15% of their capacity”.
Theme 3: Attacking new verticals – LinkedIn
“LinkedIn – is shaking up recruitment by cutting out the middleman. 5-10 yrs ago a head-hunter might be involved in recruiting staff. For the cost of their services they might charge you a third of a years starting salary. A hefty sum for a candidate you don’t know for sure is any good. Linkedin transforms this by allowing candidates and employers to get closer to each other and to know more about each other in the same way that Google and others attack regional newspapers I think we’re seeing the same thing happening in recruitment”.
TripAdvisor – no-one need travel in an information vacuum again.
“Ten years ago we had to rely on printed travel guides that were expensive and that went out of date almost as soon as they were printed. There is an authenticity with Trip advisor because reviews are recent and when plentiful give some comfort that they’re too numerous to be corrupted”.
Theme 3: Improving Healthcare – Reducing what has become too big a burden upon many national economies
Mark Urquhart, Manager Edinburgh Worldwide Investment Trust.
“In the UK 8-9% of GDP is spent on healthcare, in the US its almost double that around 18% of GDP. With people living longer that burden is increasing. Urquhart looks for companies that utilize the application of technology to take advantage of this by cutting costs”.
Some stock examples include:
Intuitive Surgical – Robotic surgery which reduces time in hospital.
Robotic surgery is much less invasive, with recovery time far shorter because the incision is smaller and the surgeon can control it better. This leads to reduced recovery time spent in hospital which
Theme 5: Increasing Automation –
Automation moving from large scale to smaller companies and into the home
“The idea that Robots, I grew up in 70s watching Tomorrow’s World. Fantastic progress has been made in the automation of factories and of production. I went to see one in China a couple of years ago and it was dully automated, BMW, but what hasn’t happened is in the domestic use of Robots but I think that might be about to change”.
Two companies I invest in that are examples of this are:
Stratasys – Global leader in 3D printing – changing how goods are produced.
3d Printing basically turns traditional models of production on its head. Rather than starting with a piece of plastic or metal that you cut and you shape it this busilds it up from scrap, that has great advantages such as less wastage. With traditional manufacturing, even with the efficiencies developed in recent years wastage of materials can be as high as 60-70%. 3D uses only what it needs as it builds the product up from nothing.
Secondly, small scale manufacturing becomes economically possible with production runs as small as one being possible.
It allows much greater personalisation – prosthetics fixing exactly.
Teeth in the dentist. The old model was to get a mold of your teeth that was then sent off and you would get back a pretty accurate, though not wholly accurate representation of your teeth. Now with 3D printing you can scan and print the tooth out immediately.
It won’t replace all manufacturing but for intricate, persoanalised and small scale production it will be very popular.
iRobot – the inventor of the Roomba – why does anyone need to push a vacuum?
“I bought this for my household a couple of years ago and now we don’t know how we managed without it. It’s priced similar to a Dyson”.
WhichInvestmentTrust.com View
We like managers who have not only been in place for some time but that have a track record of consistently beating their peers.
Running a tight portfolio of 40 or so stocks means that this trust will be more volatile and is likely to experience wider swings than some of its sector peers, but for long term investors with an appetite for such risk, Mark Urquhart has demonstrated an ability to return more than his peers or the index to which he is compared to. On average he outperforms his index by 4.2% per year over 3 and 5 years.
Allied to this his stock selection and geographical bias can make holding this trust complementary to holding existing global growth trusts.
Although its discount to NAV has come off a wee bit it is still available on a very attractive discount of -10%. We think this is very attractive, and we believe that Edinburgh Worldwide investment trust should be considered by many more investors than who use it at present.
Edinburgh Worldwide joins the WhichInvestmentTrust.com Buy-List of preferred investment trusts.
Edinburgh Worldwide Investment Trust Metrics
Share Price
379 pence
Dividend Yield
0.50%
5 year dividend growth p.a. = N/A
Total Assets/Market Cap (Million)
£235m / 185m
Gearing
7%
Managed by Mark Urquhart since 01/11/2003
AIC Sector/Date Founded
Global Growth / 10th July 1998
On-going charge & how much of the charge is the managers fee
1.02% / 0.95% on first £50m, then 0.65% on anything in excess.
Managers direct holding: Not known.
Discount to NAV
-10%
12 Month Average Discount to NAV
-12%
Financial year end: 31/10/2013
Domicile: UK
Total Return 1, 3, 5 & 10 years
+39%
+44%
+86%
+212%
Global Growth Sector Total Return 1, 3, 5 & 10 years
+22%
+38%
+65%
+136%
FTSE World Benchmark Total Return 1, 3, 5 & 10 years
+22%
+38%
+65%
+136%
Click on the image to make it larger.
Click on the image to make it larger.
The post Edinburgh Worldwide – A too often overlooked success appeared first on WhichInvestmentTrust.com.