Staying sharp
After four years of managing EWIT, Mark Urquhart is sharper than ever, says Heather Farmbrough
There is both a quiet understatement and a down-to-earth humour about Mark Urquhart, manager of Edinburgh Worldwide Investment Trust (EWIT), which belies an analytical, decisive mind. Mark has been manager of the Trust since Baillie Gifford took control of its management in November 2003. Immediately, he and his colleagues in the Global Equities Team decided to sell more than 90 per cent of the portfolio, and they did so in just one day. Four years later, the Edinburgh Worldwide Investment Trust is back on track as a dynamic capital growth trust.
EWIT is the most global of all Baillie Gifford's growth trusts, with about 2 per cent of the portfolio invested in the UK. Capitalised at approximately £150m, the Trust is small enough to buy adequately large holdings in smaller companies - as well as being able to invest in large multinationals. The most significant decision when Baillie Gifford took over the management of the Trust was to concentrate on the merits of individual stocks and to pay no attention to index weights.
With regards to the view underpinning investment strategy, Mark says: "The world economy is undergoing an unprecedented change, away from an Anglo-Saxon, European and Japanese consumer-dominated world towards a much more balanced one. I personally think this is much healthier. I don't know how the sub-prime mortgage collapse will turn out, but I would have been much more worried about it 10 years ago. The message to financial institutions should be that credit worthiness is always an issue, and if they are not sure that they can get their money back, they shouldn't be lending it."
As he points out, the global effects can be very difficult to unravel. "There are some situations which are hard to fathom - like the fact that Japanese farmers and pensioners' associations have lost money on sub-prime," Mark says. "How did Japanese farmers come to invest in US sub-prime mortgages?"
But, with the caveat that the mortgage crisis remains relatively confined to specific financial markets, Mark remains confident in EWIT's portfolio's ability to weather the storm. "We always look for businesses with strong cash flows, which finance themselves and which do not necessarily have to borrow. We do not have a lot of exposure to financials who dabble in derivatives. We do have banks that provide mortgages to India - which I think is a much better place to have mortgages than the USA at the moment - and one that provides retail services to customers in Brazil."
Indeed, EWIT also has plenty of exposure to 'picks and shovels' with companies like the mining equipment and compressor company Atlas Copco, tool supplier Sandvik and the Brazilian iron ore firm Companhia Vale Do Rio Doce (CVRD). At the other end of the scale are luxury consumer brands like Porsche and Hermes. There is logic in the mix. "Consumer brands are about the least likely things for emerging companies to replicate," says Urquhart. "If you sell widgets then you're going to be pretty lucky if someone doesn't make widgets more cheaply than you. Brand names cannot be reproduced overnight. Even in China, the best selling cosmetics line is Lancôme, which is owned by L'Oréal."
Turnover has been deliberately low since November 2003, with the exception of the decision to build up a basket of alternative energy and related stocks this year, which now accounts for nearly 5 per cent of the portfolio. Stocks include Q-cells - the second-largest producer of solar cells in the world, John Deere - the US tractor manufacturer, which Mark expects to do well from the increased demand for ethanol as an alternative fuel and increased acreage to feed the global population, and Vestas - the world's leading wind turbine company.
Mark believes that the key to these companies is longevity. "We think that there is a good chance there will be more growth from years five to 10 than in years zero to five. You can shop at B&Q and buy solar panels and the price is not cheap - around £2,000 - but in five years' time it will be much lower. The real change is not just governments but individuals who are seeking to reduce dependence on oil and gas - although when you re-read President George Bush's State of the Union address in which he made a commitment to cutting emissions by 20 to 25 per cent by the year 2020 and you remember that he is a Republican from Texas, the home of oil, you realise that it is quite extraordinary!"
Mark takes a long-term outlook when it comes to performance, but takes an even longer term outlook with the companies he invests in. "Lots of these companies, such as Amazon, just don't give a jot about quarterly earnings. Jeff Bezos, the founder, irritates Wall Street because he won't play its games. He will say: 'I am not interested in short-term earnings - I'm going to build this franchise over 20 to 30 years.'" Indeed, Mark says Amazon is only just beginning. He points to dwindling sales of CDs and books on UK and US high streets, because of the trend for internet shopping, and Amazon's expansion in America into everyday items, such as razor blades, toothbrush heads and even cans of Campbell's soup, which people are bulk buying online. An ability to observe what is happening on a day-to-day basis is a good asset for a fund manager and one suspects that Mark is a sharper observer of what is happening in the world, and what it means, than most.
Investment markets, including currency exchange rates, can go down as well as up and market conditions can change rapidly. The value of an investment in EWIT and any income from it can fall as well rise and you may not get back the amount invested. The views expressed in this article should not be taken as statements of fact and no reliance should be placed on these when making investment decisions.
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