Baillie Gifford Pacific

This fund follows the standard Baillie Gifford philosophy that long-term growth investing delivers the strongest returns over the long run. The fund invests for 5 years and beyond. It is benchmark agnostic and willing to be aggressive in its positioning relative to the index. The team is based in Edinburgh.

The fund seeks outperformance from three different types of growth stocks.

Firstly, growth stocks where the duration of growth is much longer than is expected or priced into the market. This allows the team to arbitrage the difference between the reality of the long-term growth and market expectations of the growth. The second growth opportunity is where the pace of growth is just much higher than the market expects. The third is from those stocks which weren’t expected to grow at all but suddenly grew very quickly.

This fund has a slightly more liberal interpretation of growth compared to some other Baillie Gifford funds, with the managers willing to pivot the portfolio and invest in some areas, such as miners, which some other growth investors might avoid.

Ideas are generated from a very wide variety of sources including local researchers, academic research, private companies, industry experts, other BG teams and independent research. Once an idea is identified, further research focuses on industry background, competitive advantage, management’s ability and financial strength. The team assess the potential of an industry and how strong a company is within it. They then consider the company’s ability to capitalise on the opportunity. Finally they consider valuation and how much the market has already understood the potential.

The fund holds between 50-100 holdings.

The Baillie Gifford Pacific fund is among the more volatile options in the IA Asia ex Japan sector. The fund’s high-conviction, growth-oriented approach (despite its ability to pivot into less growthier sectors), combined with its aggressive positioning relative to the benchmark, means it can experience substantial swings in performance.

The team takes a pragmatic attitude to risk. They reject the traditional simple measure of volatility around a benchmark as a definition of risk. Real risk is considered to be the permanent loss of capital. This is controlled through diversification and portfolio construction. The managers are skeptical of portfolio optimisation tools and over-reliance on quantitative models which often involve the use of out-of-date and backward-looking statistics. Stock weightings are determined by a combination of conviction and how a stock compares to the other holdings.

ESG – Limited

Baillie Gifford has a dedicated ESG team of over 40 people. Because Baillie Gifford is often a long-term shareholder, it takes its ESG and engagement responsibilities very seriously. Material ESG considerations are an important part of the investment process. The team believe good corporate governance is critical and enhances shareholder value. In conjunction with the investment teams, the ESG analysts are responsible for ESG research and engagement. One of the eight members in the emerging markets investment team (not including the two managers) is a dedicated senior ESG analyst. ESG analysts make use of a large range of external third-party data providers. They believe that ESG practices need to be assessed on a ‘case-by-case’ basis. Whilst ESG is a very important consideration, they are not seeking to invest in ‘perfect’ companies.