NO-Trip notesBy Douglas Brodie. Autumn 2020
Prevented from criss-crossing the globe in search of exciting young companies, Douglas Brodie, manager of Edinburgh Worldwide Investment Trust, reflects on life under lockdown
Please remember that the value of a stock market investment and any income from it can fall as well as rise and investors may not get back the amount invested.
This article originally featured in Baillie Gifford’s Autumn 2020 issue of Trust magazine.
As it turned out, we cancelled just in time. Had the full scale of the health crisis hit us just a couple of weeks later I would have been stranded in Seattle or San Francisco. I’d be staring at a diary full of cancelled meetings with interesting West Coast companies and struggling with the complex logistics of somehow getting myself home.
Will things change permanently? Yes, probably, though how radically we don’t yet know
Edinburgh’s Princes Street during lockdown.
Luckily I was able to pull the whole trip a couple of weeks before lockdown. My disappointment was mixed with realism – there was no other option. The same applied to the China trip planned for later this year, which had to be shelved. Although Edinburgh Worldwide Investment Trust (EWIT) investment managers like to get close to rising entrepreneurial companies wherever they are, clearly we were going to have to do things differently.
Since everything changed, EWIT’s seven-strong investment team, which includes myself and deputy managers Svetlana Viteva and Luke Ward, have had time to get used to doing business in a no-trip world. Adrenaline carried us through the first few weeks, and we somehow coped with the lull that followed. Despite that Groundhog Day feeling, morale has held up well. We’ve all got to understand and appreciate our colleagues in new ways, and our daily Zoom drop-in sessions help replicate the ad hoc exchange of information and advice that happens in the office. They also allow us to swap sourdough bread-baking tips and interesting new cycling routes in and around Edinburgh.
Investment research is all about weaving together serendipitous discoveries to form a bigger picture. Insights gained from travel play an important role in this. Could we replicate this when all our ‘travelling’ was by Zoom conference calls? We’ve found that there are nuances you get from real meetings that are hard to replicate by video conference and we have to deal with that. But you can still see and interact with the right people, and you can still largely read the messages they are trying to convey. You can also do more of these meetings if you aren’t having to travel between them.
Will things change permanently? Yes, probably, though how radically we don’t yet know. The flexibility of working we’ve encouraged seems here to stay. The ecosystem of finance and investment has built up over decades and things were done in a particular way because that’s how they’d always been done. Because no one wanted to rock the boat, the industry was slow to embrace technology that could reduce travel. But the coronavirus shock has changed all that. At the very least, the regular company ‘check-ups’ that used to involve travel can probably continue over Zoom.
That suits us. I won’t be the first to say that business travel is overrated, whatever people’s perceptions of the glamour of business class flights and nice hotels. Being on the road can be a soulless and fairly lonely experience, something EWIT has tried to mitigate by buddying up on long trips to far-flung markets.
But interacting with companies face-to-face is and always will be a big part of what we do. Travel is necessary for us to achieve certain things. When you visit a company on its own doorstep, its people behave differently from when they’re out of their comfort zone in ‘roadshow mode’. The level of engagement is different. The top people tend to be more open about the longer-term positioning of the business and usually you can meet others from the level below. You can tour the facilities and engage with employees across the firm. You get a better feel for a business.
Just as important to us are the trade shows or scientific conferences around the world we try to include on our research trips. It’s there you can mingle with people in an industry and pick up useful intelligence. So far, we haven’t come up with answers on how to replicate that in a locked-down world.
The unusual thing about investment is that you tend to stumble across your best ideas. You don’t embark on any exploratory business trip knowing for sure there’s going to be an interesting company at the end of it. You follow a hunch and set off on a path and take interesting tangents along the way. The snippets of knowledge you pick up help you to form that broader picture. We’re all going to have to think hard about how we do that in the world that will emerge from the crisis. I don’t just mean investment firms. Many businesses will rethink how much travelling they need to do to distribute and sell their products or to get their message out there. Much of that will be done digitally.
It was a poignant reminder of the irrelevance of the current crisis to companies building the industries of the future
For Baillie Gifford, and for many of our EWIT portfolio companies, the coronavirus has been a test of character: what the company stands for, what its priorities are, what it seeks to achieve and how it treats its stakeholders. It’s important for us to convey helpful and reassuring messages to the companies we invest in that EWIT is a long-term supportive shareholder, and we’ve tried to do that. We don’t underestimate how many investor meetings companies will have had to dial into in the last few months where the focus will have been incredibly short term. We’ve tried to be supportive of firms that have had to face challenges, and have encouraged them to do the right thing by their employees and to act in the long-term interests of their business. The last thing they need is shareholders ‘Zooming’ in to give them a hard time about the intricacies of their business.
Amid all this adjustment and upheaval, one shared moment for the whole team stands out for me: the launch on 30 May of our portfolio company SpaceX’s rocket mission to the International Space Station. It was a poignant reminder of the irrelevance of the current crisis to companies building the industries of the future. It made me think: “Here’s one of our portfolio companies sending people miles up into space, and here’s me feeling a bit anxious nipping down to the shops.” A reminder, in other words, that while Covid-19 can hold us back from some things, the exploration goes on.
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Investments with exposure to overseas securities can be affected by changing stock market conditions and currency exchange rates. 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 trust's risk could be increased by its investment in unlisted investments. These assets may be more difficult to buy or sell, so changes in their prices may be greater.
The views expressed in this article should not be considered as advice or a recommendation to buy, sell or hold a particular investment. The article contains information and opinion on investments that does not constitute independent investment research, and is therefore not subject to the protections afforded to independent research.
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Douglas Brodie joined Baillie Gifford in 2001 and is manager of Edinburgh Worldwide Investment Trust. Douglas has a DPhil in Molecular Immunology from the University of Oxford.
Illustration by darlingforsyth.
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