Edinburgh Worldwide Investment Trust: the next generation of companies set to prosper

As with any investment, your capital is at risk. Past performance is not a guide to future returns

For a Key Information Document for the Edinburgh Worldwide Investment Trust please visit our website at www.bailliegifford.com

Richard Lander (RL): Hello and welcome to this latest programme from Baillie Gifford. Part of our ongoing series of webinars with the managers of its investment trusts. I’m Richard Lander of Citywire and today, I’m talking to Douglas Brodie, one of the comanagers of the Edinburgh Worldwide Investment Trust. A very warm welcome, Douglas. Thank you for joining us today. I notice the title of today’s session is ‘A New World Order and the Next Generation of Companies Set to Prosper’. A very bold and definite title. From your point of view, what is changing most dramatically in the global environment and why does that matter for the trust that you run?

Douglas Brodie (DB): Hello everyone. I often think investing is really about trying to distinguish between constants and variables and those constants are those things that you can clearly incorporate into your investment approach and the variables are things that you must adapt to. I think really, over the last five years, we’ve seen this strange blurring of the lines between those two things. Those perceived constants of globalisation, harmonious trade. It began to make way for real geopolitical tension. That east versus west axis, even to the extent that that now really feels like the norm. More recently, you’ve had the arrival of the Trump mark two in the US administration, and I think investors are really being forced to question things that generally again, been taken as a given.

Be that free trade being replaced by tariffs. Recasting of alliances. A real challenge to US institutions. Be they federal, judicial, or indeed, academic. It’s been a potent mix, for sure. Markets have had to grapple, I think, with an awful lot and I think at times, they’ve found it really hard to distinguish what is policy and what is posturing. There’s been a period of uncertainty, possible the greatest challenge to that whole notion of US exceptionalism. Seemingly, a willingness by the US, to give up being the de facto global super power. Stepping back from all that noise, what are you left with? You’ve still got geopolitical simmering. New alliances being cast. A real pressure, I think, for more self-resilience.

Both at the corporate level through supply chains and reshoring efforts, but also, at the national level. The importance of access to key technologies or defence. All that is occurring on the backdrop, as we keep hearing, of AI-based technologies really set to make a lot deep change. That’s creating opportunities and challenges. I think all of that together, is the melting pot for this new world order. If you turn that towards EWIT, what do we do? We are focusing on innovative entrepreneurial companies. Those companies out there applying technology and the best human capital to really solve big problems. It’s companies dynamically building for the future.

To that extent, we think they really carve their own path forward. They tend to be the master of their own destinies much more. They carry less overt cyclicality. They tend to be more nimble businesses and almost like the speedboats to the oil tankers that are the larger businesses.

RL: To that extent, you are and have long been focused on these early-stage disruptive businesses. You mentioned the speedboat and the oil tanker. So, it’s your firm belief that these are the companies that are going to effect that change in such a slightly strange world as we have at the moment.

DB: I’d agree, it is becoming a slightly strange world. I think we are entering a period where, frankly, growth will be harder to come by. Whether or not that’s a cyclical hit from tariffs or just pure constraints of a deglobalizing world. It puts a primacy on companies that are building, innovating in areas of robust and growing structural demands. That may be companies that are unlocking that demand through their own technological progress. Take SpaceX as a clear example of that. They are transforming and radically inducing demand for a technological shift. You may see that demand in areas that just sit outside of the current [unclear 04:36].

A lot of healthcare. If you come up with innovative novel therapies that treat untreated patient populations, you will find a receptive audience. There will be companies, frankly, that are radically transforming their offerings by infusing AI and we’ve got examples of that. It’s also companies that can cater directly to this changing world. For me, this is probably the bit within EWIT that has changed the most over the last three to four years. I think we were very in-tune with that ratcheting up of geopolitical tensions. Companies coming up with technologies that would really cater to a less secure world. A more resiliency craving world. We have a holding in a business called AeroVironment which does drones.

We’ve seen the importance of that technology in Ukraine and now, every country wants access to leading drone technology. We have an investment in a business called Echodyne, which is doing very low-cost radar and threat detection. Radar units basically the size of iPads at radically lower price points. We have a relatively new position in a business called Xometry, which acts as a marketplace between people that want industrialised parts and the milling and machining companies scattered around the US and globally, who could supply them. That’s very much in keeping with companies now looking to reshore demand in a very highly value-added way.

Clearly, with the exposure that we’ve got to that commercialisation of space. SpaceX. Astranis would be another one. That’s almost the most geopolitically important frontier for the next decade. We think we’re well-positioned to cater to either ongoing demand or where that nature of demand is moving to.

DL: To turn back to the trust itself, rather than the companies you invest in, it’s been a painful few years for your investors and for you, as well. I’m sure you feel it. What happened and why do you think we’re at a pivotal turning point now?

DB: As you highlight, the last couple of years have been challenging. It’s been well-characterised in terms of the high inflation, the high-interest rate environment. For a strategy that focuses on young, innovative companies building for the future, it’s frankly been the perfect storm for us. We also acknowledge some mistakes during that period. We feel this. We are shareholders too. I have a significant portion of my wealth tied up in Edinburgh Worldwide. There’s an element of all those things that concocted to make that difficult backdrop. We feel that’s very much in the rearview mirror. You’ve had pockets of enthusiasm in stock markets, but as it’s been observed, that tends to be quite narrow.

It tends to be centred on all the AI infrastructure. The so-called Magnificent Seven. That has, frankly, absorbed a huge amount of risk seeking capital from equity markets. It’s a theme that I think has been worked very hard. They are great businesses, but do they make great investments from here? That’s probably the debate the stock market is having. We sense things are turning. Investors are having to look more broadly for returns. They have to because the themes that they’ve been working with have been quite heavily exploited. What we see when we look out there, is really those frontiers for innovation are very much alive and well.

AI and all that infrastructure has a role to play in that, but those frontiers are just far, far, far broader. We see that shine through in the metrics of the portfolio. Markedly superior growth rates of both the revenue and profit level. We see it building in narrative behind the companies and frankly, we see it in progress that they’re making.

RL: You weaved in there that you have made mistakes. Every good portfolio manager has to admit to that. You’ve also talked recently, about process changes that you introduced at the end of last year. Can you tell us a bit more about those and how you hope they’ll make the portfolio more resilient going forward?

DB: Through last year, we did a lot of soul searching around areas we could adapt for the future. We worked closely with our internal risk function around that. We evaluated a decade’s worth of data, looking back at pretty much, every decision that we’ve made. There were some clear lessons from that. Really, the financial immaturity across our portfolio of some of our most early-stage businesses. That was increasingly a correlating source of risk. Just to distil it down, the earlier stage companies, in aggregate, had been more of a drag than we were expecting. The returns that we had delivered had more skewed towards later stage companies.

This was just beyond a one or two-year effect. This was a long-term observable pattern. We’d also observed that the portfolio had become a bit narrow in terms of the range of exposures. The most significant process enhancements we did, we dropped in a portfolio construction group to better manage the portfolio. We came up with a framework to think about the stages of maturity of these companies. That really breaks the stages of growth up into five clear cohorts. For those earliest two cohorts, those companies with the most to prove earliest on their path, we’ve introduced controls to better monitor those businesses. Both in terms of the progress and how they carry exposure at the portfolio level.

Really trying to instil [marker 10:00] better competition for capital at the earliest stage when we invest. Alongside that, we had various other rules around portfolio diversification across industries and geographies.

RL: You mentioned there, it’s getting more diversified. You’re perhaps, going up the chain a little in terms of profit and cash generative names. Is this a lasting evolution in your approach or is it going to change again because the very nature of the companies that are coming into your prevue are changing?

DB: I would say the framework that we’re looking to deploy is a long-term feature that we’ve embedded in how we run the portfolio. To be very clear, we have always had significant exposure to profitable companies. Maybe the bit people have to wrap their head around is we run a much broader spectrum of maturities than most fund managers. We go from very early-stage businesses to businesses that are beginning to prove themselves, to companies that are executing at scale and capturing and delivering on that opportunity. I’d summarise and make a point that where the changes were made, it was about the very early-stage businesses that we invest in and better competition for capital there.

That was the signal that we detected and really, where we made the changes. I’d also just remind viewers that we’re often labelled as a smaller companies focused trust, small-cap, to use the industry parlance. We deliberately don’t have a market-cap limit on our companies once we’ve had them in the fund. We can run these to very large positions and it’s making sure that we’re best positioned to do that. Yes, it’s smaller company investing, but with a pretty big twist.

 RL: To stay on the note you mentioned there, competition for capital, are you finding the range of companies that want to pitch to get your capital is getting more innovative or less innovative?

DB: I think the businesses that we see and the ideas that we come across are as exciting as they have ever been. Innovators and entrepreneurs, if you go out there, they have access to a toolkit of technologies that is unrivalled. They have not had access to these scaling tools. Be it AI. Be it cloud compute. These things can unlock growth rates in businesses that we think can surprise people. That is always there and maybe, I’ll point out that you do get these periods where the uncertainty, generally, feels quite high and people retrench. If I can reassure people that the real drivers of progress, that human ingenuity and the technologies, that stuff is very much alive and well.

RL: You talked recently, about extreme returns, the opportunities for extreme returns in areas such as space, genetics, quantum computing. If you had to pick one or two really good examples from those, what would you talk to the investors about?

DB: The largest position in the trust is SpaceX, which to some extent, needs no introduction. People get that they have the rocket launch business and that’s about lowering the cost to put stuff in orbit. They hope to do that again with the high-profile starship rocket. An order of magnitude decrease in costs. Perhaps the other bit that people don’t see is the vertical integration within SpaceX. The Starlink constellation. The ability to provide communications infrastructure. Data infrastructure. Long-term, the ability to maybe even do fabrication in space. Offer private constellations. There’s a huge amount going on there.

We have another business in that space area called Astranis doing geostationary satellites. Maybe if you flip to the genomics area. That’s a very prominent theme for us and the theme anchors, in many ways, around DNA. The ability to read DNA. The ability to right DNA. The ability to manipulate it. Diagnose disease with it and treat it at a therapeutic level. The largest listed position in the trust is a business called Alnylam. The have a technology that can shut down the production of any protein related to its upstream gene. They are producing fantastic data that really shows that they can tilt the odds of success around clinical development.

They’ve now got six drugs commercially available and they are opening up this hugely powerful platform and pointing that at much bigger disease types. We think that’s got the potential to become probably, the highest return on investment platform in drug development. The quantum computing area is interesting. You’re starting to see that get a bit more interest. Clearly, there’s lots of excitement around AI and huge opportunities for that. I’m not trying to take away from that, but there’s certain areas where AI struggles to go and that’s where you lack data or you’re trying to understand a problem that you don’t know the first principles of or a problem that’s hugely deep and complex.

Typically, the world which we can’t see, the atomic level, the sub-atomic level, that’s dictated by the world of quantum mechanics. Frankly, we don’t understand that. To understand that, you need a quantum computer. If you do that, you will understand with intricate detail, how drugs find targets. How bacteria fix nitrogen. How plants photosynthesise. There’s a whole realm of things that could be unlocked by that.

RL: You’re talking about PsiQuantum which is your second largest holding. Is that your main player in this quantum area?

DB: Yes. We’ve looked at several players in that area, but the thing that really appeals about PsiQuantum is they are taking existing scalable and workable technologies. In this case, silicone photonics. The type of capabilities that are used in the silicone industry and the laser industry and the communications industry. They are taking those systems and they are making them quantum. Many other players in this area, they are probably best described as physics experiments. Trying to make something quantum and only then think about making it scalable. We think increasingly, the validation that PsiQuantum is achieving from the US defence agencies, the Australian government.

They’re announcing plans to build largescale quantum centres. They’ve attracted the best of part of $1.5 billion in funding to do that. The plans to have commercially available quantum computer by 2029, if not sooner, these are far sooner timelines than many in the industry work towards and think is possible. You’ve started to see a lot more announcements in the quantum area. More recently from the likes of Google and Microsoft and people making progress on the science. I think there’s this converging on an approach of error corrected quantum computing will have some very relevant real-world use cases and we’re keen to back PsiQuantum on that path.

DL: A more philosophical question. Do you think the world is ready for this? We’ve barely got started with AI and who knows how that’s going to change the world. Are we then going to go straight into quantum computing and have another seismic change upon us?

DB: For me, it’s not about one replacing the other. To your point, I think there’s a lot of change coming. AI can deliver upon that. Quantum computing can deliver upon that. Personally, I think that the two technologies dovetail together very nicely. You can imagine a scenario whereby quantum computing could unlock first principle science that we don’t understand and you make that scalable and workable through conventional AI-based technologies. They actually are synchronised together very nicely. Together they will solve huge problems that have huge commercial relevance. The interesting thing with PsiQuantum and you could say this about others in the areas. For the people that solve that, how best do you monetise that?

We’re often intrigued by companies. It’s not just about a technological breakthrough, but that pure tech breakthrough allows you to have business model innovation. You could envisage a situation here, whereby PsiQuantum might never actually sell another computer. They might just be offering access and runtime and billing for that and, actually, taking the value share in the problems that they seek to solve for their customers.

RL: Let’s talk about the US because strange things are happening there. On top of all these changes that you described earlier in our interview, there’s policy U-turns coming out almost every week on top of this. Does this make life more difficult for you?

DB: It certainly makes watching the news more interesting. As I said at the start, maybe trying to make a long-term call around some of this political noise and posturing is difficult and you can see that the stock market struggles with that. It’s really trying to discern what is basically trying to score political points versus what is actually likely to be embedded? You’ve almost seen an element that some of the narrative has been dialled back recently. [marker 20:00] I think stock markets have taken positive signals for that. There may be a longer-term issue around what is the change in shape of the US business environment? Until stock markets get real comfort with that, we’ll have an element of doubt and angst.

RL: Of course, the counterpart to the US perhaps withdrawing from the world stage, a lot of people see increasing domination by China in all these technologies. How much of that thought plays into your portfolio construction?

DB: We run a global fund. We are always on the lookout for interesting businesses. The US is good at innovation. It’s good at entrepreneurialism, but it clearly does not have a monopoly on that. When we’re been out there recently trying to find interesting ideas, we’ve found a very interesting business in Korea doing very detailed inspection of semiconductor chips as they are being made. Increasingly, as chips become more complex in terms of the parameters and size constraints they have to work to and the three-dimensional architecture, you need very intricate inspection tools. There’s a business called Park Systems. The more you look, the more you find and increasingly, we think the ability to find things outside of the US is very much alive, as it always has been.

RL: Would you agree with the notion that we are entering the Chinese century as it were?

DB: Possibly. The thing that’s confused me most about the recent period is seemingly the willingness of the current US regime to almost give up on being the de factor superpower and almost putting that back to the rest of the world. That is something that personally, I think I and other investors did not expect so much.

RL: Go back to the title of our webinar. Something else you said recently is you’ve spoken of this being a golden age for ingenuity and engineering. Where does that conviction come from?

DB: From what we see. The companies we engage with. The founders that run them. The product market fit and how the products of these companies engage with their customer base. Again, it’s easy to get wrapped in the negativity and the uncertainty at times like this. I think if you almost step back, a lot of this can create huge opportunity and that’s really twofold. You can get very interesting mispricing of long-term growth and as long-term investors that always intrigues us. Second would be that the real tenets that we invest in, that entrepreneurialism, the innovation that accrues from that. The toolkit to do that is unrivalled and we are seeing companies out there innovating with that.

Constraints breed creativity. We see that all the time. The fact that the world becomes a little bit more difficult to navigate, you tend to find that innovators and entrepreneurs do not shy away and shirk that. That probably energises them.

RL: It is so stimulating to talk about these amazing technologies. Space travel. Quantum computing. Projecting them out into profitability to enable your investment decisions seems incredibly difficult. How do you go about doing that?

DB: You’re trying to scope out the problem that these companies are looking to solve. You are then making an assessment as to the solutions those companies have and the ability of their management to execute around that. The key thing to really get your head around is scoping out a path to scale. That involves navigating lots of difficult waypoints, but it also factors in the optionality that may come to very interesting businesses as they scale. We touched on SpaceX earlier on, but it’s almost the posterchild for how you can scale a really interesting technology into a huge underserved market and accrue every interesting optionality as you go. We think we can keep finding companies like that. That isn’t difficult in this environment.

RL: It's not difficult, but then you’ve got to choose between A, B, C and D.

DB: To my earlier point around having better discipline of the very early stage, when frankly, some of these investments can be binary. Helping companies navigate that phase and really backing them when they are on a path to scale, on a path to execute. When the risks, frankly, change they become more a pure commercialisation risk than anything that’s a more binary technology. Will we have a product? Will we not?

RL: Let’s go on to some questions that have come in from the viewers. One inevitably is about, “You’ve seen off the barbarians at the gate, Saba. What happens now in terms of capital structure for the trust and maybe capital return?”

DB: Towards the backend of last year, the board talked about doing capital returns. They are busy working with that. There’s very little I can update on in terms of that. The high-level discussion was around 130 million to be returned in 2025. That is the plan that we’re working to.

RL: Interesting question come in about SpaceX and Elon Musk. “Elon Musk appears to have at least four jobs at the moment. SpaceX, there’s X. There’s running bits of the US government allegedly and being involved in the crypto business as well. Is he giving you enough of his time to run this space exploration business?”

DB: There’s a very deep team behind SpaceX. Elon is clearly the figurehead of that. I think the evidence in terms of the involvement in the companies, he’s the greatest entrepreneur of our generation. He has a bandwidth which is huge. He has been, for the last few months, doing elements of this government related project. As an investor in any business, but particularly a business of his, you are looking for an alignment of timeframe and commercial goals. I think for me, acknowledging the time constraints that they’ve been, that bit you haven’t had to sacrifice. There is a clear alignment with what he wants to achieve out of SpaceX and what we would like to achieve out of that business. Had that been compromised, then yes, that becomes an issue, but that feels like that hasn’t been compromised.

RL: Thank you for talking us through the companies you’ve been buying and hold in the portfolio, can you give an example of a company you’ve sold recently and explain what triggered your decision to exit a company like that?”

DB: There would be several. We exited a business called Sutro, which is a small biotech. That was really one where the portfolio construction group that we newly installed, took a view that we frankly could do better in other healthcare businesses that we own. Generally, the name turnover has been ten to 15 names go in and out of EWIT a year. That’s probably been slightly higher the past year. As we’re really back to the businesses that we want to own and moved on from ones that we don’t.

RL: In the context that we’ve talked a lot about the private companies in your portfolio, “What small-cap quoted companies are out there? The next generation of companies that you might like the look of?”

DB: One very close to my heart is a UK listed business called Oxford Nanopore. I think that’s probably up there with amongst the most misunderstood businesses that we own and I could unearth. I think they have an exquisitely sensitive technology that its core can sense molecules. Now, they’ve commercially pointed that initially at DNA sequencing, but the platform is far, far, far broader than that and the ability to use this both in the research lab and academia, but increasingly, I think in very interesting areas of acute medical need, personally I think that will hugely surprise people.

RL: Another question come in about how investors have to comport themselves when investing in a fund like yours. “Because of this early stage in private company investment this creates high beta. Do you think your investors have to be more patient to experience better returns than perhaps in other trusts?”

DB: Yes, would be the short answer. We are unashamed growth investors and that comes with huge opportunity and it comes with challenges that you will have to see out periods where the volatility and the signals that you can get from stock markets are difficult to deal with. Even in our most successful investments we have had periods where we are of sync with stock markets. As an investor, you have to go through periods of that if you want to unearth these very asymmetric long-term returns. I would say there are elements that we’ve learnt from the last few years and hand on heart, the volatility that we experienced was higher than we would have liked. Many of the changes that I talked about earlier on were trying to take a more pragmatic view around how much volatility can we realistically ask shareholders to tolerate in a fund like this.

Yes, they’re interested in the opportunity, but if the volatility totally kills people in the intervening time, that’s less viable. Yes, we’re cognisant of it, but I think people have to understand, we are active in part of the market where volatility is a key aspect of it. At times, that can be the opportunity as much as it is the challenge.

RL: It’s a feature not a focus they would say in the tech world. Someone’s asking about higher interest rates, lower liquidity as we might be seeing now. Certainly, we’re a long way from the zero interest rates of just a few years ago. “Is this good or bad for the types of companies that you invest in?”

DB: I would say the interest rate environment is comparatively normalised. Maybe the abnormal point was zero percent interest rates. As an investor, I genuinely have no desire to go back to that world of free money. That creates weird distortions and almost, perverse incentives for the innovators. For the entrepreneurs. For the people that back them and the people that invest in them. It’s not a healthy environment when access to funding is so slack, frankly. To have markets that, to my mind feel more normalised is healthy.

RL: It's giving a form of discipline to your investment.

DB: It gives a form of discipline to the whole financial chain, from business creation through venture capital, through growth equity, through businesses listing.

RL: Couple questions come in about the people that you admire, I suppose, in different ways. One is, “We’ve just seen Warren Buffett hang up his keyboard as it were and plan to retire from Berkshire Hathaway. A very different investor from you, but who are the investors, historically, who you’ve admired?”

DB: I admire lots of people and they can be the people that run the companies. They can be investors. Long admired James Anderson, when he was working at Baillie Gifford and then followed him closely as he’s gone on to other things. I think there’s lots of hallmarks around the drive to keep trying to get good at something. You can apply that in investing. I probably see it more often in the companies that we invest in and that tenacity and almost that frustration that things can be done some way better. That’s a common hallmark across many of the companies that we invest in.

RL: A segue from that and it inevitably leads back to Elon Musk. “Is Elon Musk a one-off or are there other people like him out there?”

DB: Personally, if you look at the evidence and the record, he’s unique. My earlier comment around the greatest entrepreneur of our generation, I genuinely mean that. I think his hallmarks are radical disruption and innovation in areas where people think it’s just not possible. He has proven the ability to do that in electric vehicles, in commercialisation of space and he has this habit of doing it in huge deep end-markets where revenues can be tens, if not hundreds of billions. I think it’s rare to find people that can do that once, let alone multiple times. There’re clear attributes within those companies that he’s been involved in, that we can see in other companies run by other entrepreneurs, other business people.

You can find lots of mission driven companies. We own another very interesting one called Axon, which is probably amongst the most mission driven founder led companies that we own. You probably know them from the decide called the taser. The yellow alternative to the gun that’s often carried by police forces. Their whole mission from the start has been around making the gun obsolete. They’ve then expanded into police body worn cameras. The really interesting bit with Axon is the bit that you don’t see. It’s all the archiving, the digital content, and the ability to add AI and intelligence into that. Very recently they’ve come up with a whole host of AI-led programmes that help police in a very practical way.

The ability to get AI-led incident reports, do real-time language translation. Query points of law with a local language model. These are huge applications of AI. You can find that in many other areas. Not everything has to go through [unclear 36:05].

RL: On a scale of one to ten, how confident are you of a positive growth in the fund over the next five years?!

DB: If we think about the growth of the companies in regards to the revenue and the earnings that they will produce, ten. In the realms of trying to predict share prices, it massively is influenced by the time horizon that you talk to. I don’t know if you actually gave me a time horizon in the question.

RL: Five years.

DB: I’d be comfortable with that towards the upper end, yes.

RL: We’ll come back in five years and find out. Thank you so much for taking part today. It’s a been a pleasure to have this very vigorous discussion. It is all we’ve got time for, I’m afraid. Thank you, Douglas for your time and insights and thank you all who’ve been watching this and for your questions. We do have more sessions like this coming up so, please keep an eye out if you enjoyed today. Thank you and goodbye.

Annual Past Performance to 31 December Each Year (Net %)

Performance source: Morningstar, S&P, total return in sterling. NAV is calculated with borrowings deducted at fair value for 1, 3 and 5 years and par value for 10 years. *Changed from MSCI AC World to S&P Global Small Cap on 01/02/2014. Data chain-linked from this date to form a single index.

Past performance is not a guide to future returns.

The index data referenced herein is the property of one or more third party index provider(s) and is used under license. Such index providers accept no liability in connection with this document. For full details, see www.bailliegifford.com/legal. 

This communication does not constitute, and is not subject to the protections afforded to, independent research. Baillie Gifford and its staff may have dealt in the investments concerned. The views expressed are not statements of fact and should not be considered as advice or a recommendation to buy, sell or hold a particular investment.

The investment trusts managed by Baillie Gifford & Co Limited are listed UK companies and are not authorised or regulated by the Financial Conduct Authority. The value of their shares, and any income from them, can fall as well as rise and investors may not get back the amount invested.

Baillie Gifford & Co and Baillie Gifford & Co Limited is authorised and regulated by the Financial Conduct Authority (FCA). 

The specific risks associated with the trust include:

The Trust invests in overseas securities. Changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up.

Unlisted investments such as private companies, in which the Trust has a significant investment, can increase risk. These assets may be more difficult to sell, so changes in their prices may be greater.

The Trust can borrow money to make further investments (sometimes known as "gearing" or "leverage"). The risk is that when this money is repaid by the Trust, the value of the investments may not be enough to cover the borrowing and interest costs, and the Trust will make a loss. If the Trust's investments fall in value, any invested borrowings will increase the amount of this loss.

The Trust can buy back its own shares. The risks from borrowing, referred to above, are increased when a trust buys back its own shares.

Market values for securities which have become difficult to trade may not be readily available and there can be no assurance that any value assigned to such securities will accurately reflect the price the Trust might receive upon their sale.

The Trust can make use of derivatives which may impact on its performance.

Share prices may either be below (at a discount) or above (at a premium) the net asset value (NAV). The Company may issue new shares when the price is at a premium which may reduce the share price. Shares bought at a premium may have a greater risk of loss than those bought at a discount.

Investment in smaller, immature companies is generally considered higher risk as changes in their share prices may be greater and the shares may be harder to sell. Smaller, immature companies may do less well in periods of unfavourable economic conditions.

The aim of the Trust is to achieve capital growth. You should not expect a significant, or steady, annual income from the Trust.

Further details of the risks associated with investing in the Trust, including a Key Information Document and how charges are applied, can be found in the Trust specific pages at www.bailliegifford.com, or by calling Baillie Gifford on 0800 917 2112.