Baillie Gifford £595m trust likely to increase debt

Baillie Gifford £595m trust likely to increase debt

The managers of the £595m Edinburgh Worldwide investment trust, which is managed by Baillie Gifford, are considering to increase the level of debt in the trust.

Edinburgh Worldwide invests in early stage companies in the areas of technology and biotechnology. It has returned 164 per cent over the past five years, compared with 87 per cent for the average trust in the AIC Global sector in the same time period.

The managers of the trust can use gearing, which means borrowing money to make more investments, of between 5 and 15 per cent, with the current level being 8 per cent.

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The management of the trust takes the view that 10 per cent is the "neutral" level of gearing, that is, the level at which the managers of the trust do not believe they are taking a strong view on the direction of the market.

This means that the trust will "perhaps" increase the level of gearing in the coming months, the managers said.

The effect of gearing for investors is that if the managers borrow the money and use it to make investments that go up, then the investor gets more money.

For instance, an investor putting in £100 at a gearing of 10 per cent would effectively have £110 invested minus the cost of the interest on the borrowed money.

But if they invest the money badly and don't make any return the £100 will have to be used to pay the interest, so investors get an even worse return.

The current 8 per cent is the result of positive market movements and the trust having issued £80m of new shares over the past year.

Market performance means the value of the investments rises, pushing down the percentage of the trust’s assets that are bought with borrowed money, while the issuance of new shares means the proportion of the trust’s capital that is made up of borrowed money is lower.

The Edinburgh Worldwide investment trust trades at a premium to net assets of 1.2 per cent.

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