Edinburgh Worldwide Investment Trust (EWI) surprised the market this week when it announced it had developed ‘a comprehensive action plan to improve execution’ and would return up to £130 million of capital to shareholders next year.

‘Our vision, to identify and manage a carefully selected portfolio of transformative businesses, has the potential to deliver outsized returns for shareholders,’ insisted the board. 

For much of the last three years, the trust has traded at a double-digit discount to NAV (net asset value), which has ‘led to further soul-searching’, according to analysts at Deutsche Numis.

The trust’s shares have fallen 49.7% in the three years to September 2024 compared with an 8% gain for the S&P Global Small Cap index, according to its website.

The dramatic fall may be partly attributable to some of holdings in the trust’s portfolio being unquoted, while others are high-growth or are yet to make a profit.

The trust’s largest holding is Space Exploration Technologies, which accounts for over 12% of NAV, while in the also top 10 is online retailer Ocado (OCDO), whose shares have fallen 42% so far this year due to various headwinds.

However, the board has decided to continue to back Baillie Gifford’s growth strategy ‘whilst some changes to the approach are being incorporated to seek to manage risk and focus the portfolio’, add the Deutsche Numis analysts.

In a circular, Edinburgh Worldwide outlined proposed changes to the composition and structure of the management team to enhance performance as well as a reduction in the number of holdings from between 75 and 125 to between 60 and 100 companies.

The company said over the first half of the year to 30 September it had bought back shares in a move which had reduced the discount to NAV and would be value accretive for investors.

Dan Coatsworth, investment analyst at AJ Bell said: ‘Investor appetite for higher-risk, lesser-known companies diminished when interest rates and inflation shot up, creating a difficult environment for Edinburgh Worldwide to prosper.

‘While risk appetite has started to recover, Edinburgh Worldwide has been left behind and performance in recent years has been disappointing. It’s no surprise to see a reset of the strategy.’ 

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Sabuhi Gard) and the editor (Ian Conway) own shares in AJ Bell.

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