Ian Cowie: the sky’s the limit for three Baillie Gifford trusts

Which world record currently being set in science and technology of the future can only be accessed by individual shareholders via investment trusts? If you need a clue, let me suggest you look up to the skies and see...(cue Freddie Mercury) recent news reports about how a private company came to the rescue of America’s government and one of its biggest blue-chip businesses.

• Invest with ii: Buy Investment Trusts | Top UK Shares | What is a Managed ISA?

Yes, that’s right, I’m talking about the fact that 19 people are currently orbiting the Earth, more than ever before. Some relied on Elon Musk’s unlisted Space Exploration Technologies (SpaceX) to get them to the International Space Station (ISS), while two unfortunate souls are stranded up there by Boeing and hoping SpaceX can get them back to Earth next February.

Spare a thought for Suni Williams and Barry Wilmore, who left this planet in June for what was meant to be a 10-day trip before Boeing’s Starliner capsule developed thruster problems. That setback vividly demonstrates the risks of exploring this new frontier.

On a brighter note, this month also saw the first-ever space walk by two civilian astronauts, the billionaire Jared Isaacman and mission specialist Sarah Gillis, who both travelled on SpaceX’s Crew Dragon spaceship. But the most commercially exciting subsidiary of Musk’s extraterrestrial business is Starlink, which currently has 6,350 satellites in low-earth orbit (LEO), and might potentially replace every internet service provider (ISP) on this planet.

• Listen here: 100th episode special: the Terry Smith interview
• Sign up to our free newsletter for share, fund and trust ideas, and the latest news and analysis

While old-fashioned ISPs rely on fibre-optic cables to spin their web, Starlink’s satellites bring internet interconnectivity to the remotest parts of the world, including boats and planes in transit. As LEO reduces latency, or the delay between data being sent and received, it’s obvious where the future lies.

Musk currently controls it alongside a few institutional investors who subscribed to off-market fundraisers for SpaceX and its subsidiary Starlink. The good news is that one of those far-sighted early investors is the fund manager Baillie Gifford, which holds substantial amounts of this unlisted stock in three investment trusts; Schiehallion Fund Ord (LSE:MNTN), Scottish Mortgage Ord (LSE:SMT) and Edinburgh Worldwide Ord (LSE:EWI).

Coming down from the clouds and back to Earth with a bump, it’s only fair to admit that I picked the wrong one. It’s early days yet, and I have no intention of selling up, but the short-term returns speak for themselves.

Please don’t laugh but one of the above investment trusts has soared 52% higher over the last year, another is up 19%, while the one I bought into has delivered total returns of less than 1%. Here’s how I got it wrong and why I’m not too bothered.

The leader is MNTN, whose ticker refers to the Scottish mountain it is named after, and where 8% of the underlying assets are invested in SpaceX; its biggest holding. Unfortunately, from my point of view, MNTN’s second-largest holding is ByteDance, the Chinese company that controls anti-social media including TikTok.

Regular readers will know that I avoid allocating assets to China since selling Fidelity China Special Situations Ord (LSE:FCSS) in April 2020. My main motivation at the time was revulsion against revelations about China’s oppression of its Muslim minority, the Uyghurs. 

• Ian Cowie: why I bought Edinburgh Worldwide rather than Scottish Mortgage
• Ian Cowie: too soon to tell if I chose right Baillie Gifford trust

Another financial reason is the risk that we wake up one morning to learn Chinese premier Xi Jinping has ordered the invasion of Taiwan and all occidental investors’ property has been expropriated, as happened when Mao Zedong won in 1949.

There’s a similar worry at SMT, where 10% of assets are invested in China. Worse still, I will always kick myself for failing to buy into this investment trust 15 years ago, when its then manager James Anderson extolled its virtues over a lengthy lunch in Mayfair but I couldn’t quite believe him. Having missed SMT back then, I remain reluctant to run after it now.

So I went for EWI, which has 10% of its assets invested in SpaceX and a negligible 2% in China. Other interesting top 10 holdings include AeroVironment Inc (NASDAQ:AVAV), one of the biggest manufacturers of unmanned aerial vehicles (UAVs) or, in plain English, drones.

Also in the top 10 is PsiQuantum, a private company which aims to find practical uses for quantum computers; and Staar Surgical Co (NASDAQ:STAA), which makes implantable optical lenses.

Against all that, EWI has been held back by high-profile holdings in the disappointing British biotechnology business Oxford Nanopore Technologies (LSE:ONT), and the food logistics firm Ocado Group (LSE:OCDO). The latter is struggling to outlive the stockbroker’s joke that this business begins and ends with an “O” and it is worth zero.

There is also the trivial fact that EWI’s stake in SpaceX is spread over two tranches of preference shares, listed separately. As a result, it might not be immediately obvious that this investment trust offers the most concentrated exposure to SpaceX.

So, I intend to wait for the latter to make more headlines, raise its revenues and, eventually, turn a profit. At that point for EWI, MNTN and SMT, the sky’s the limit.

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.