Baillie Gifford Cautious Managed
This fund aims to achieve capital growth over rolling five-year periods with a strategic asset allocation of 50% in equities and 50% in bonds and cash. The fund leans into the huge resources at Baillie Gifford, using its regional equity teams and bond managers to build the underlying portfolio.
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Our Opinion
This fund is an extension of the popular Baillie Gifford Managed fund – but with less volatility. The fund uses a silo-based approach to get access to the various regional teams and bond managers across Baillie Gifford to build a very diversified portfolio of around 400 names (200 equity positions and 200 bond positions). The focus is very much on stock selection from the underlying management teams. The product is also attractively priced with an ongoing charge of just 0.31% for the first three years since launch.
Fund Managers
Iain McCombie, Co Manager
Iain McCombie is the head of the Baillie Gifford UK equity team and co-manager of the UK Core Strategy. He is also the joint manager on the flagship Managed strategy, which he has been involved in since 2000. Iain joined Baillie Gifford in 1994 and became a partner of the firm in 2005. He has previously spent time on the US equities team. Iain graduated MA in accountancy from the University of Aberdeen and subsequently qualified as a chartered accountant.
Steven Hay, Co Manager
Steven Hay joined Baillie Gifford in 2004 and is head of the Income research team. He has been involved in running the fixed income portion of the Baillie Gifford Managed Strategy since 2012. He previously worked at Scottish Widows and spent seven years doing research for the Bank of England's Monetary Policy Committee and managing the UK's foreign exchange reserves. Steven graduated BAcc (Hons) in economics and accountancy from the University of Glasgow in 1992 and MSc in economics from the University of Warwick in 1993.
Risk
Risk is managed on several levels, including sector (+10% - no minimum); regions (+/-10%); strategic allocation and stocks (+/-3% of the representative indices – excluding direct funds). The bond portfolio also has flexibility at the duration level (+/- 3 years relative to the index).
The mandate allows for a considerable allocation towards bonds and cash, which will lower its risk profile. As it is a multi-asset fund, there are many underlying holdings to help diversify risk. The bond holdings will typically be about one-third of the volatility of equities.
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 its senior executives and operates as a partnership.
Investment process
The catalyst for the launch of this product came in 2021/22 when the team felt the volatility seen in markets - and within the Baillie Gifford Managed fund – warranted the launch of a similar vehicle with a lower-risk profile.
The Cautious Managed vehicle has a strategic asset allocation of 50% in equities and 50% in bonds and cash. It should be noted that there is flexibility to go +/-10% on each asset class (60% max/40% minimum). Asset allocation is determined within a policy committee – which includes both Iain and Stephen alongside emerging markets’ manager Andrew Stobart and global bond manager Sally Greig.
Beyond this, the Cautious Managed fund uses the same silo-based approach as the Managed fund. This sees Iain and Stephen use the four existing regional equity teams (US, UK, Europe and Asia/Emerging Markets) at Baillie Gifford. The team will ask each regional team to give them a portfolio of stocks for each segment based on the allocation to this region – the team will do all the position sizing and portfolio construction for this.
The bond segment is split 50/50 between government and corporate bonds, most of which will be in developed markets. Two-thirds of the corporate allocation will be in high yield, the rest in investment grade. The bond portfolio does have decent flexibility – for example up to 90% can be held in government bonds (80% in corporate).
The final portfolio has about 400 names split between bonds and equities, although this can vary. Each holding is also held in the Managed fund.
Risk
Risk is managed on several levels, including sector (+10% - no minimum); regions (+/-10%); strategic allocation and stocks (+/-3% of the representative indices – excluding direct funds). The bond portfolio also has flexibility at the duration level (+/- 3 years relative to the index).
The mandate allows for a considerable allocation towards bonds and cash, which will lower its risk profile. As it is a multi-asset fund, there are many underlying holdings to help diversify risk. The bond holdings will typically be about one-third of the volatility of equities.
ESG
Baillie Gifford does integrate ESG considerations in research and stewardship, but it is not an exclusionary ESG fund and has no hard screens. However, they will meet with firm to improve areas like ESG reporting, disclosure efforts and carbon efficiency.
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