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Baillie Gifford Strategic Bond
Baillie Gifford Strategic Bond gives investors access to a concentrated portfolio (typically 60-80 stocks) of primarily UK fixed income securities, from both the investment grade and high yield segments of the market. Unlike other peers in the strategic bond sector, the managers aim to add value almost exclusively through their stock-picking prowess and do not aggressively manage the interest rate exposure.
Our opinion
With this fund the managers stick to what they do best, which is picking stocks. While this may seem simplistic, the in-depth research they carry out to find ideas is anything but. Trying to second guess central bankers and forecast interest rates has been the undoing of many fixed income managers, so we like this philosophically pure strategy that has been successfully implemented by a high-quality investment team.
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
Baillie Gifford Strategic Bond is managed by Torcail Stewart and Lesley Dunn. Torcail joined Baillie Gifford in 2008 and was made co-manager in 2010, while Lesley joined the strategic bond management team as co-manager in January 2018, having previously worked with Scottish Widows Investment Partnership for 15 years in the investment grade team and subsequently moving to the high yield team. The co-managers are supported by six other investment professionals.
We back our best ideas, invest with conviction and stay focused. There is little room for passengers in this portfolio.
Torcail StewartFund manager
Investment process
The managers believe that inefficiencies exist at the stock level and that, through detailed research, these can be exploited to deliver consistent outperformance. Consequently, a significant portion of Baillie Gifford Strategic Bond fund will be clustered around the investment grade/high yield border, as this is where the managers believe the most inefficiencies can be found. They will take concentrated positions in single bond issues and hold them for the long term. Ultimately there are two drivers for performance: bond selection and income generation.
ESG
ESG - Integrated
Torcail and Lesley integrate ESG analysis into their bottom-up, fundamental driven process. ESG factors are one of the three components that go into their assessment of a firm’s resilience. This resilience will be reflected in the performance of a bond and therefore accurate assessment of these ESG factors will lead to stronger performance for the fund. They specifically focus on good corporate governance, which leads to better decision making by management teams, as well as appropriate capital structures, and sustainability which will lead to durable competitive positions for investee firms and confidence in their ability to repay their loans.
Research is conducted as a combination of their own in-house work, as well as some third party data. The analysis is incorporated into their in-depth individual stock analysis, particularly focusing on the risks the stock is exposed to. This is also assessed on a fund-wide basis, ensuring that the portfolio has no material exposure to certain ESG risks.
Risk
The high conviction approach means Baillie Gifford Strategic Bond can be more volatile than some of its peers; however, the strategy also benefits from the diversification that investing on a global scale across a broad range of sectors can provide. The managers also consider how all the trades are related to each other, potentially scaling back certain positions to avoid concentrations of risk.
Read more about this fund
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.