194. What do Birkenstock, eBay, recycling and litigation all have in common?
Lucy Isles, co-manager of Baillie Gifford High Yield Bond fund, discusses her investments in the...
Baillie Gifford High Yield Bond
This fund offers investors access to a portfolio of predominantly UK, US and European high yield bonds. As with all other Baillie Gifford funds, the managers focus on stock picking, so the portfolio is likely to be concentrated and turnover low, as the managers back their ideas with conviction and give them time to come to fruition.
Our opinion
The managers believe that the most consistent way to deliver outperformance in this segment of the fixed income market is to pick the right stocks using a straightforward investment process. This is Baillie Gifford really playing to their strengths, as they have shown great stock-picking ability across the business and the Baillie Gifford High Yield Bond fund has delivered excellent relative performance for a number of years.
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
The Baillie Gifford High Yield Bond fund is managed by Robert Baltzer and Lucy Isles. CFA charterholder Robert joined Baillie Gifford in 2001 as an analyst, the same year he graduated with a degree in Mathematics from Durham University, and has managed this fund since July 2010. Lucy joined Baillie Gifford in 2012, having graduated with a Masters in International Relations and Modern History from the University of St Andrews. She began co-managing the fund in January 2018.
We are looking for resilient businesses that can survive the full business cycle and have the ability to improve their financial health.
Robert BaltzerFund manager
Investment process
Baillie Gifford High Yield Bond’s strategy is stock-specific, meaning the managers will look for the right holdings rather than focus on the wider market. Ideas will come from a variety of sources, but will have the key feature of resilience whether from the company’s competitive position, financial structure or its management team. These ideas will then be analysed for potential risks which can result in the loss of money, the profile of the company’s debt and their current valuation. The managers will set milestones for their holdings in order to look for opportunities to buy or sell, depending on whether they meet expectations.
ESG
ESG - Integrated
Rob and Lucy integrate ESG analysis into the process as they believe investment returns are closely aligned with good governance and sustainable practices over the long-term. Specific research is built into the analysis of the individual holding. The process aims to identify the resilience of company, and this includes how ESG factors influence this. Their belief is that firms that operate sustainably will maintain their competitive position, and those with good governance processes will continue to be well run and have an appropriate capital structure. This research is based on a combination of their own inhouse work, as well as third party data. This not only identifies the key factors, but also helps to assess whether a company is exposed to any major risks, and whether the management team has the quality and ability to address these issues. Anything highlighted in this process is put to them during the engagement with key corporate management before investment.
Risk
Baillie Gifford High Yield Bond invests in the riskier end of the fixed income spectrum. The managers' high-conviction approach, which translates into large position sizes, can make the fund more volatile than some of its peers. The managers don't tend to use derivatives to manage credit or interest rate risk as they feel this approach doesn't add value over time. As such, the fund’s returns are driven from taking risks on the price they pay for their holdings and the likelihood of a company paying back its debt.
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The information, data, analyses, and opinions contained herein (1) include the proprietary information of FundCalibre, (2) may not be copied or redistributed without prior permission, (3) do not constitute investment advice offered by FundCalibre, (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a fund, and (5) are not warranted to be correct, complete, or accurate. FundCalibre shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses, or opinions or their use. The Elite Fund rating is subjective in nature and reflects FundCalibre’s current expectations of future events/behaviour as they relate to a particular fund. Because such events/behaviour may turn out to be different than expected, FundCalibre does not guarantee that a fund will perform in line with its FundCalibre benchmark. Likewise, the Elite Fund rating should not be seen as any sort of guarantee or assessment of the creditworthiness of a fund nor of its underlying securities and should not be used as the sole basis for making any investment decision. FundCalibre disclaims any responsibility for trading decisions, damages or other losses resulting from any use of the Elite Fund rating. All performance data, as well as fund size, OCF, AMC, annual income (historic), share price discount or premium, is sourced directly from FE Analytics, and will change periodically.