No takeovers please says Edinburgh Worldwide chairman – Edinburgh Worldwide Investment Trust says that, for the year ended 31 October 2017, its NAV increased by 31.6% and its share price by 43.0%. The comparative index, the S&P Global Small Cap Index, increased by 13.4% in sterling terms during this period. Henry Strutt, the chairman, says that the fund’s good relative and absolute performance was driven by a number of holdings, most notably Alnylam Pharmaceuticals, a gene silencing company, LendingTree, an online loan marketplace, and IPG Photonics, a manufacturer of fibre-lasers used in metal processing. All three companies are headquartered in the United States.
This year’s significant outperformance helps restore the fund’s long-term record. Now, since the broadening of the investment policy, at the end of January 2014, to target less mature entrepreneurial businesses at the time of initial investment, the NAV, when calculated by deducting borrowings at fair value, has increased by 65%, the share price by 71% and the comparative index by 59%.
The chairman says that they were forced sellers of two unlisted holdings, Skyscanner and Souq, which were acquired by Ctrip.com and Amazon respectively. Although these were sold at a profit, he thinks that this was a disappointing outcome as they had hoped that these would be long term holdings with the potential for more significant upside returns. He points out that the ability to invest in unlisted equities through a closed ended vehicle is one of the notable benefits of the investment trust structure and a differentiating factor versus open ended peers. he then goes on to say that “the loss of a holding, listed or unlisted, due to a merger or takeover, is usually one of the notable headwinds faced by the managers in achieving significant returns over the long term.”
Manager’s report extract
Douglas Brodie, the manager tells the story of the stocks contributing to returns in greater detail: “The longstanding holding in Alnylam Pharmaceuticals made a notable contribution to performance as it revealed a highly positive outcome for its most clinically advanced drug candidate; a significant achievement that paves the way for this drug to be approved in the coming months. This is the first example from its extensive drug pipeline to successfully navigate the clinical trials process and it significantly validates the core gene-silencing technology platform that underpins the business. The initial success has been in an inherited disorder called TTR Amyloidosis, a serious disease that manifests through chronic and often fatal damage to nerve and cardiac tissue. With limited treatment options hitherto available, the evidence that Alnylam’s drug reversed the disease offers a profound benefit to this critical patient group. We have written before on the changing landscape of drug development. What has long been a process dominated by serendipity is becoming increasingly rational. The synchronised efforts of science to unlock the molecular basis of disease alongside novel highly targeted intervention will bring profound changes in healthcare. Alnylam embodies much of this change; a technology that explicitly links the growing appreciation of genetics in driving disease with the ability to intervene directly at the genetic level. Novel, high potential therapeutic platforms are comparatively rare, perhaps the drug discovery industry might see a handful of these every decade or so, even rarer still is for one company to have robust proprietary ownership of the technology. The combination of these two observations makes us excited about the ongoing potential of Alnylam, both therapeutically and commercially.
Other notable contributors to performance include LendingTree, the online marketplace for US consumers to efficiently access financial products, and IPG Photonics, manufacturer of fibre-lasers used in various metal processing applications. LendingTree’s very robust growth hints at the emerging network effects and scale advantages that are common traits amongst dominant online marketplaces. With an offering that benefits borrowers through choice and transparency, combined with a broad base of lenders that increasingly recognise the power of targeting borrowers through digital channels, we see significant scope for the business to grow and further strengthen its emerging advantage. IPG Photonics has seen a marked acceleration in growth rates recently as adoption of fibre-lasers, a product category they pioneered, broadens out. This is being driven by the company’s success in producing lasers that operate at increasing power levels, a development that has seen the technology move away from comparatively simple applications, such as metal etching, towards mainstream industrial processes such as welding. With a growing range of applications, we see a role for fibre-lasers in helping to drive the automation of production lines around the world, a development that could underpin many years of growth for the business.”
EWI : No takeovers please says Edinburgh Worldwide chairman