This fund is run by a team of four co-managers who focus on the small number of US companies that create exceptional returns. On average they will own these companies for at least five years and will do so with conviction - the largest ten holdings usually account for more than half of the total portfolio. The companies they invest in will tap into the trends of the future, such as the continued rise of online retail, the evolution of transportation and innovative healthcare.
Our opinion
Baillie Gifford has a strong belief in the ‘growth’ philosophy, which this fund demonstrates fully. The experienced management team has a variety of different backgrounds meaning each manager will look at companies from a different angle. They also look for absolute winners - just wanting to find the best companies and backing them with conviction. Success is all about getting more right than wrong. This has generated excellent returns for investors in the past.
Company description
Founded in 1908 and employee-owned, Baillie Gifford is based in Edinburgh but has offices in London and New York. Awarded the Elite Provider for Equities Rating each year from 2015 to 2021, it specialises globally in equities, fixed income and multi-asset portfolios. The firm is owned by 44 of its senior executives and operates as a partnership.
Fund manager
As with many of its funds, Baillie Gifford takes a collegiate approach to running this portfolio, with a four-strong management team.
Tom Slater is head of the US equities team. He joined Baillie Gifford in 2000 and became a partner in 2012. He also took on the lead management role for the Scottish Mortgage Investment Trust in 2015. He has also worked in the Asian and UK Equity teams and achieved a BSc in Computer Science with Mathematics from the University of Edinburgh in 2000.
Gary Robinson joined Baillie Gifford in 2003 after graduating with a degree in Biochemistry from the University of Oxford. He spent time working on the Japanese, UK and European equity teams, before moving to the US equities team in 2008. Gary is a partner at the firm.
Kirsty Gibson joined Baillie Gifford in the US equities team in 2012. She then rotated around several small and large-cap global equities departments before returning. She graduated with an MA (Hons) in Economics in 2011 and an MSc in Carbon Management in 2012, both from the University of Edinburgh.
The most recent recruit to the team, Dave Bujnowski, joined Baillie Gifford in 2018. Prior to this, he co-founded Coburn Ventures in 2005, a consulting and investment company where he was partner, research analyst and portfolio manager. Dave graduated from Boston College in 1993, where he majored in Finance and Philosophy.
Gary RobinsonFund manager
Investment process
The US is often the home of the world’s fastest growing companies, and this fund aims to build a concentrated portfolio of these firms, and hold them for the long term. To do this, the four-strong management team is looking for exceptional businesses that have a product or service which has the edge over the competition and the right corporate culture to allow it to succeed.
The process is meticulous but specialised. The managers only expect to have around eight new ideas annually. They will try to find these by looking at alternative sources of data such as industry journalists, visits to specialist conferences, academia and even from unlisted stocks. Baillie Gifford has built a reputation of backing companies early and with conviction in this space, so has access to a range of market specialists to discuss upcoming ideas before they become mainstream.
To highlight these opportunities, the managers use a nine-question framework to assess a stock idea, including the purpose of the product/service, whether it has an edge or competitive advantage, whether it is in the right market to expand and at what speed, whether these businesses have the scope to become 2.5x the size they are currently over the next five years and whether the long-term ambition of the management supports all of the above. This will indicate whether to take the stock further or move onto another idea.
If a stock does answer all of these questions, the manager or analyst will bring the company to a team meeting. There is ongoing discussion amongst the team, as well as more formal meetings where ideas are discussed and debated. Primarily, they will want to establish the credibility of the business model and feel confident there is significant scope for the share price to rise. When they find these ideas, they are backed with conviction.
If a holding achieves the desired 2.5x gain, the team will reassess to see if it can do this again. If they don’t feel it can, it is sold. Similarly, if the company fails to achieve this target the managers will want to know if there is a fundamental change in the investment case and whether the prospects are not what they first thought. If this is the case, a holding will be sold.
Positioning is purely a function of where the managers find ideas. They look for companies that are going to disrupt existing industries and create new ones, meaning the fund will have a strong bias towards technology-enabled companies.
ESG
ESG - Limited
Baillie Gifford takes an holistic approach to ESG. Rather than setting strict rules and restrictions on investments choices, the managers consider the material impact such factors will have on the long-term sustainability of a company’s business when assessing its investment potential. This means that considerations are made on a case-by-case basis and are factored into the overall investment case for the business, but there is no single process that is applied to every holding. The strategy does involve a nine-question research framework which looks for specific material ESG issues, to ensure a long-term investment is not undermined by an inherent flaw, though this is looking for stock-specific issues rather than broad rules-based investing. The wider investment philosophy focuses a lot on governance, however, and managers always meet company management before investing, and have ongoing engagement with the companies they own.
Risk
This is a pure stock-picking fund, so the main risk is down to how each individual company in the fund performs – whether the managers have backed the right firms or not. As the fund invests in the US, there will also be currency risk.
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