Ian Cowie: here’s my take on Edinburgh Worldwide vote
Our columnist gives his take on proposals from activist investor Saba Capital, which is attempting to oust the boards at seven investment trusts, including one of his holdings.
9th January 2025 12:35
by Ian Cowie from interactive investor
Cui bono? - or “who benefits”? - is a good question for shareholders to ask when a hedge fund wants to shake up seven investment trusts sitting on £4.2 billion assets, replace the fund managers and sack the independent directors.
Never mind the suits on the board or the highly paid stock selectors; they can look after themselves. Whose money is it anyway?
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Put another way, why would a clever chap like Boaz Weinstein, the founder of Saba Capital, come all the way across the Atlantic to requisition special meetings of Baillie Gifford US Growth Ord (LSE:USA), CQS Natural Resources Growth & Income Ord (LSE:CYN), Edinburgh Worldwide Ord (LSE:EWI), The European Smaller Companies Trust PLC (LSE:ESCT), Henderson Opportunities Ord (LSE:HOT), Herald Ord (LSE:HRI) and Keystone Positive Change Investment Ord (LSE:KPC).
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Weinstein is probably best known in New York and the Square Mile for having harpooned the so-called London Whale, Bruno Iksil, whose credit default swaps (CDS) position went horribly wrong and lost JP Morgan Chase an eye-watering $6 billion (£4.8 billion) in 2012. The bank responded by halving the pay of its chief executive Jamie Dimon, who had to rub along on $11.5 million that year. Since then, Weinstein’s other achievements include beating a chess opponent while playing with his back to the chess board and bagging a Maserati in a poker tournament. So, this guy is used to playing for high stakes on long odds and winning.
However, contrary to suggestions in Saba’s opening shot, none of the targeted investment trusts is currently priced at a large discount to its net asset value (NAV) and several have delivered sparkling returns to shareholders. Perhaps unsurprisingly after America’s “Magnificent Seven” big tech stocks shot the lights out last year, USA is actually priced 0.43% above its NAV after achieving an eye-stretching total return of 65% in the past 12 months, according to independent statisticians Morningstar.
Global smaller companies specialists HRI and EWI haven’t been too shabby, either, with one-year returns of 33% and 32%; currently priced at a discount of -1% and a premium of 0.2% to their respective NAVs.
True, the picture is more mixed further down this septet of funds. For example, shareholders in KPC could be forgiven for calling for some “positive change” after this infelicitously named trust lost -10% of shareholders’ money over the past decade, following a negative “total return” of -23% during the past five years, when it cut dividends by an annual average of 61%. Ouch!
Fortunately, that isn’t a problem for this happy EWI shareholder. Stock I bought for £1.52 in January last year topped £2 before slipping back to £1.94 this week.
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Which brings me to my tentative suggestion about what might be motivating Weinstein. No less than 12% of EWI’s assets are invested in Space Exploration Technologies, which billionaire Elon Musk claims might take people to Mars one day.
Never mind such stellar speculation. As pointed out here before, SpaceX has nearly 7,000 satellites in low Earth orbit (LEO) and has already brought mobile telephony and the internet to many parts of the world which cable might never reach.
That means it has the potential to replace every internet services provider (ISP) on this planet, eventually. This hope helped SpaceX hit a $350 billion valuation in a funding round with big institutions and very wealthy individuals last year.
So EWI and USA, plus Baillie Gifford’s best-known investment trust Scottish Mortgage Ord (LSE:SMT), currently give small shareholders like me the chance to invest in an extremely exciting business that would otherwise be the preserve of plutocrats. Of the three, EWI is the most concentrated play on SpaceX.
Without indulging in too much star-gazing or mind-reading, I think that’s what motivates Weinstein to target those two Baillie Gifford trusts – EWI and USA. He aims, quite properly, to pick up potentially valuable assets before they list on any stock market and, quite possibly, achieve exorbitant valuations. That’s also why this EWI shareholder intends to vote against Saba’s proposals.
Whether you agree with my analysis or not is up to you. But every shareholder in these trusts should make sure we exercise our franchise; failing to vote is the equivalent of demanding to be ignored.
Ian Cowie is a freelance contributor and not a direct employee of interactive investor.
Ian Cowie is a shareholder in Edinburgh Worldwide (EWI) as part of a globally diversified portfolio of investment trusts and other shares.
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