24 Nov 2009 | Person To Person

Edinburgh Worldwide Investment Trust - Cruise Control 

Under Mark Urquhart, Edinburgh Worldwide’s portfolio has come to reflect his view of a brave new world, writes Heather Farmbrough

In the six years since the board of the Edinburgh Worldwide Investment Trust appointed Baillie Gifford as manager, the trust has been in the capable hands of the unassuming Mark Urquhart. Friendly, optimistic and an approachable man, he also comes across as very logical which no doubt helped him to win a Kennedy Scholarship as well as gaining an MA in politics from Oxford and a PhD from the University of Edinburgh. This logic underpins the portfolio of the trust. It is, as one of his colleagues says, a conviction portfolio.

It seems to be based on what we need or what the world will need, with a few concessions to those things that we think we want, such as Porsches and Hermès handbags. Four years ago, Mark told Trust that he believed, “We’re moving away from a world dominated by Anglo-Saxon, European and Japanese consumers towards a much more balanced world.” His view is even stronger now. “I happened to be in China around the time that Lehman Brothers collapsed last September: the atmosphere was so different. The whole Chinese consumption story has been pretty much unchanged throughout this episode.”

Hence holdings in Tencent, the Chinese Internet services portal, and New Oriental Education & Technology Group. “This is a fascinating company with a charismatic leader that does training courses for school children and young adults, with quite a lot of English language training. Being able to speak English is still seen as such a large door opener and many Chinese parents will do everything for their child’s education, so there’s an almost insatiable demand for it,” says Mark.

Shares in other companies are benefiting less directly from the boom in China and Asia. Not just luxury brands but the Swedish engineer Atlas Copco, which makes industrial compressors and L’Oreal that owns Lancome, and is one of the biggest selling brands in China.

But it’s certainly not all about China. The portfolio includes names that many of us in the West would find it increasingly difficult to imagine life without: Amazon, Google, eBay and Apple. Mark has invested in these for some time, not because they are technology stocks, but because the companies are well managed and good at selling their products and services. He says: “We’d much rather be in Apple with its pricing power, its desirability and just an incredible ability to make the right product. They don’t get bullied into the latest fashions. As someone once said, ‘you just take it out of the box and it works’. My son has just finished his first year at school and they’re all using iBooks in the classroom. His mum’s got an iPhone and he’s getting used to that brand. He thinks it’s the future.”

There is a strong play on scarce minerals, from Vale (the mining company CVRD) to Petrobras, the Brazilian oil exploration company and food, agriculture and biotechnology. There’s also quite a strong emphasis on alternative energy with Vestas Wind Systems and solar energy producers First Solar and Q-cells, too.

Mark clearly enjoys his work, admitting that it’s much easier to be nimble running a trust capitalised at around £100m than one of the size of, say, Scottish Mortgage. “One of the Chinese stocks we’ve just bought is BYD, an electric battery technology company. Although there are not many shares on the market, we can have a reasonable sized holding,” Mark adds.

Although this is a relatively small trust, it does have quite a concentrated portfolio with around 40 stocks. This contrasts dramatically with the trust that he took over in November 2003, which had more than 100 holdings. It seems quite strange to square the quietly spoken family man with the ruthless fund manager who turned over more than 90 per cent of the portfolio in one day soon after he had taken over as manager. He now aims to keep portfolio turnover close to 20 per cent a year, allowing him the flexibility to capitalise occasionally on long-term opportunities presented by short-term market movements.

This long-term outlook came into its own last year when, as Mark says, “The world behaved very irrationally, or at least in a way I found hard to understand – financial explosions in New York, London and other established financial centres – yet shares in the places furthest away were seen as the most risky.”

With around half of the portfolio invested in or linked to companies operating within emerging markets and economies, there was an impact on performance at the end of 2008. As Mark says, “Last year we took it hard because our portfolio was tilted to the changing economic power in Asia. The important thing was not to panic, not to let the fear reach you, and stick to the fundamentals. And that’s what we did pretty much. Much of the portfolio has bounced back and we’ve had a better time this year with the same stocks.”

Imagining Mark panic is actually quite hard. One suspects that whatever markets might throw at him, he’d remain calm. A good pilot, actually.

Mark graduated BA in Philosophy, Politics and Economics from Oxford University in 1992. He spent a year at Harvard as a Kennedy Scholar in 1993 before completing a PhD in Politics at Edinburgh University in 1996. He joined Baillie Gifford in 1996 and was an Investment Manager in the Japanese Investment Team, until joining our Global Equities Investment Team when it was established in September 2003. Mark became a Partner in 2004.

Investment markets, including currency exchange rates, can go down as well as up and investors may not get back the amount invested. Edinburgh Worldwide’s risk is increased as it holds fewer investments than a typical investment trust. This means that changes in the share price may be greater than those for investment trusts that hold more investments.