The various investment trusts and funds run by Baillie Gifford are dominating the performance charts this year. It’s no flash in the pan, though, as their long-term record is arguably even more impressive.
Of the 11 investment trusts run by Baillie Gifford, 10 are in profit for 2020. The laggard is UK Growth, which is down by 9%, meaning it’s still well ahead of its benchmark.
It’s a similar story with its open-ended funds. Of the 23 equity funds Baillie Gifford runs, 20 are in the black.
At the time of writing, world markets measured in sterling, are roughly flat for this year.
A bumper 10 years
Going back a decade shows a similar story, with 12 of 15 open-ended equity funds at least trebling your money, which is roughly what a global tracker would have done.
And 7 out of 9 investment trusts have at least trebled. The two trusts that didn’t were only taken over by Baillie Gifford in the last couple of years.
The two best performers, one investment trust and one open-ended are up some 750%.
And a solid century
Baillie Gifford has been around for over 100 years and set up Scottish Mortgage, its first investment vehicle, in 1909.
Monks, another of its best-known trusts, was set up in 1929 and has been managed by Baillie Gifford since the early 1930s.
Baillie Gifford is a private partnership, based in Edinburgh, with a few dozen partners and over a thousand staff.
Its assets under management have been compounding furiously in recent years. A recent FT article showed that although they dipped below £50bn at the height of the financial crisis, they had reached nearly £200bn at the end of 2019 and £262bn by June 2020.
They are still small fry in the wider world of asset management, where the top 20 look after assets of $1 trillion-plus and the largest (Vanguard and BlackRock) run several trillion.
The performance puzzle
“Past performance is no guarantee of future results” is a phrase that every investor is very familiar with.
However, the fact that so many Baillie Gifford funds are not only beating their benchmarks but are ranked at or very the near the top of their respective sector performance tables suggests they are definitely on to something.
For example, according to their June 2020 factsheets, Baillie Gifford’s American fund is ranked 1st out of 124 over five years while its Chinese fund is 2nd out of 34.
In the global sector, over the last three years, Baillie Gifford takes the 35th, 25th, 5th, 3rd, 2nd and 1st slots out of nearly 300 funds!
As a firm, Baillie Gifford puts a strong emphasis on long-term growth prospects. Many of its investments are technology-related although Baillie Gifford seems to prefer the term ‘disruptive’.
The re-emergence of China as an economic superpower is another core theme across many of its funds.
Lastly, Baillie Gifford is increasingly investing in private companies believing that many of the best opportunities are becoming listed at a much later stage in their development than they used to.
Here are Baillie Gifford’s six best-performing investment trusts of 2020:
up to 30%
up to 15%
up to 50%
up to 10%
up to 10%
Note: The return figures are as of 17 August and the net assets are as of 30 June.
Many of these trusts have been managed by Baillie Gifford since they were launched or shortly afterwards. Edinburgh Worldwide has been a Baillie Gifford trust since 2003 and Pacific Horizon since 1992.
The exception among the best-performers is Baillie Gifford European Growth. It was known as The European Investment Trust until late 2019 and had been run by Edinburgh Partners since 2010.
Follow the change to Baillie Gifford, only one holding, Ryanair, was kept in the portfolio while 40 new investments were bought.
In the five years ended September 2019, the trust’s total share price return was around 25%. Since Baillie Gifford took over in December 2019, it’s up 34%!
Despite Scottish Mortgage and US Growth attracting most of the headlines, Pacific Horizon is the best performer in 2020, albeit by a narrow margin.
As you might expect from its name, Pacific Horizon is heavily weighted towards China with 40% in Hong Kong/Chinese listed companies, 20% in Korea, and roughly 10% in both Singapore and Taiwan.
Despite Pacific Horizon’s stellar 2020, it still trails behind Baillie Gifford’s two Japanese investment trusts over the last 10 years, namely Baillie Gifford Japan and the small-cap focused Baillie Gifford Shin Nippon.
I’ve included a line for the percentage in unlisted assets but this is only really of note for Scottish Mortgage and US Growth right now.
Both these trusts have the authority to invest a lot more in unlisted companies, so this is likely to become more of a feature in future.
I’ve also noted the stated range for the number of positions. Scottish Mortgage and US Growth seem to be the most concentrated trusts, with the largest percentages in their top 10 investments. They both have a lot of unlisted holdings, but most of them are quite small right now.
Monks is by far the most diversified of these six trusts, followed by Edinburgh Worldwide.
Best-performing open-ended funds
Here’s a similar table for the best-performing open-ended funds so far in 2020:
The open-ended funds seem to have more named managers than the investment trusts. I’ve listed the deputies as well but often no distinction seems to be made on the factsheets.
What is clear is that Baillie Gifford has a lot of “bench strength” across its retail offerings. James Anderson and Tom Slater are the best-known names right now, but we may hear more and more from the other names in future.
The open-ended funds are a little younger than the investment trusts. However, their 2020 and 3-year returns actually look a bit better, which I found a little surprising. They do seem to have slightly more concentrated portfolios which might be one reason for this.
Scottish Mortgage (the trust) and Long Term Global Growth (the fund) seem very closely related in terms of holdings, position sizes, and managers, although Scottish Mortgage has the additional kicker of unlisted investments.
US Growth and American make another pair, as does Edinburgh Worldwide and Global Discovery.
Again, in both cases, the main difference seems to be the presence of unlisted companies in the investment trust.
Positive Change and Global Stewardship don’t seem to have direct investment trust equivalents right now.
Positive Change looks for 25-50 global high-quality growth companies that specialise in:
- social inclusion and education;
- environment and resource needs;
- healthcare and quality of life; or
- base of the pyramid (addressing the needs of the world’s poorest populations).
Global Stewardship takes more of an exclusion approach, avoiding businesses that derive more than 10% of their annual revenues from:
- fossil fuel extraction;
- adult entertainment; and
Both these funds are fairly small right now but seem to be attracting plenty of cash inflows due to their strong performance since they launched a few years ago.
In sterling terms, the Chinese market is up around 18% this year, so it’s not surprising to see the Baillie Gifford China fund is also doing well.
And we heard recently that the management of the £230m Witan Pacific investment trust is going to be taken over by Baillie Gifford with its focus narrowed to China:
It is proposed that, subject to shareholder approval, the Company’s investment objective is changed to produce long term capital growth by investing predominantly in shares of, or depositary receipts representing the shares of, Chinese companies.
Under Baillie Gifford’s management, the portfolio will consist of a diversified portfolio of 40 to 80 securities and up to 20 per cent. of the total assets of the Company may be invested in unlisted securities.
As at 30 June 2020, Baillie Gifford had over £44.6 billion invested in both Chinese listed and unlisted companies via its global, regional and unlisted strategies.
Sophie Earnshaw and Roderick Snell will manage the portfolio on a day-to-day basis.
Sophie Earnshaw is an investment manager in Baillie Gifford’s emerging markets equity team and has been co-manager of the Baillie Gifford China Fund since 2014 and is also a decision-maker on the China A Share Fund.
Roderick Snell is also an investment manager in Baillie Gifford’s emerging markets equity team and has managed the Baillie Gifford Pacific Fund since 2010 and been deputy manager of Pacific Horizon Investment Trust since September 2013.
So we can see that around 17% of Baillie Gifford’s total assets under management are now in Chinese investments.
In terms of equity holdings, the percentage may be even higher as the latest total of £262bn includes a number of fixed-income and multi-asset funds.
The combination of ‘China’ and ‘unlisted’ might make many investors run a mile but I think it will be interesting to see the direction this trust takes and how its holdings compare to the other Baillie Gifford trusts and funds that invest in this region.
Another noticeable difference between the investment trusts and open-ended funds is that the latter all seem to have explicit performance targets.
All six of the funds I’ve looked at here aim to outperform their benchmark by between 1.5% and 2.5% per annum over five-year rolling periods.
The American fund, this year’s top performer, has the lowest target of 1.5%+. Long Term Global Growth is the punchiest at 2.5%+. The rest are all 2%+.
Over the five years to April 2020, the American fund returned an annualised 25.4%, which compared
to the S&P return of 13.5% and the target return of 15.0%. That means it’s comfortably ahead right now but sustaining outperformance like this is never easy.
For example, out of 4,000 open-ended funds and investment trusts, only 20 have managed to average 20% a year or more over the last decade. The very best have done 24% a year.
What these trusts and funds hold
So what underlying investments have been driving these returns in 2020? Here are the top 10 holdings as of June 2020 in a weirdly formatted table:
Top trust holdings as of June 2020
|Tesla Inc 12.7||Amazon.com 4.1||MarketAxess 5.1||Shopify 8.8||Prosus N.V. 6.0||SEA Limited 9.9|
|Amazon.com 9.4||Naspers 3.2||Ocado 4.9||Tesla Inc 8.4||Spotify 5.0||JD.com 4.7|
|Tencent 6.1||Alphabet 2.5||Alnylam Pharma 4.4||Amazon.com 8.0||Zalando 4.9||Alibaba 4.6|
|Illumina 6.0||Moody’s 2.3||Tesla Inc 4.4||Wayfair 4.9||IMCD 4.4||Kingdee Int Soft 3.6|
|Alibaba 5.2||Microsoft 2.2||Chegg 3.5||Netflix 3.9||Bechtle 4.3||Samsung SDI 3.4|
|ASML 3.7||Alibaba 2.1||Teladoc 3.0||Trade Desk 3.8||NIBE 4.0||Li Ning 2.9|
|Meituan Dianping 3.2||Schiehallion 2.0||Zillow 3.0||MarketAxess 3.1||adidas 3.9||Accton Tech 2.8|
|Delivery Hero 3.0||Mastercard 1.9||LendingTree 2.7||Alphabet 2.9||Atlas Copco 3.8||L&C BIO 2.2|
|Spotify 2.7||Shopify 1.9||Staar Surgical 2.0||Illumina 2.8||L’Oreal 3.3||Zai Lab 2.2|
|Netflix 2.7||Prudential 1.9||Zai Lab 1.9||Mastercard 2.5||ASML 3.3||Tencent 2.1|
|Total – 54.6||Total – 24.1||Total – 34.9||Total – 48.9||Total – 42.9||Total – 38.2|
Top fund holdings as of June 2020
|Shopify 10.0||Tesla Inc 9.0||Tesla Inc 9.5||Shopify 5.6||Alnylam Pharma 4.7||Tencent 9.7|
|Tesla Inc 8.0||Amazon.com 8.1||Dexcom 6.6||Amazon.com 5.2||Ocado 4.5||Alibaba 9.4|
|Amazon.com 7.9||Tencent 6.5||M3 5.6||Tesla Inc 4.6||MarketAxess 4.1||Ping An|
|Wayfair 6.0||Illumina 5.7||ASML 5.5||MarketAxess 4.5||Tesla Inc 4.0||JD.com 4.7|
|Netflix 4.9||Alibaba 5.2||Illumina 5.5||SoftBank 3.8||Chegg 4.0||Meituan Dianping 4.3|
|The Trade Desk 4.6||Meituan Dianping 4.2||TSMC 4.5||Chegg 3.2||Teladoc 3.7||Kweichow Moutai 3.5|
|MarketAxess 4.1||Pinduoduo 3.9||MercadoLibre 4.2||Netflix 3.0||Zillow 3.0||China Merchants|
|Alphabet 3.4||Facebook 3.9||Umicore 4.0||Tencent 2.2||Staar Surgical 3.0||NetEase 2.4|
|Illumina 3.4||Netflix 3.6||NIBE 3.8||Wayfair 2.1||LendingTree 2.3||Guangzhou|
|Mastercard 3.0||Kering 3.4||Kingspan Group 3.7||Workday 2.1||Genmab 2.3||Zai Lab 2.1|
|Total – 55.1||Total – 53.4||Total – 52.9||Total – 36.3||Total – 35.7||Total – 46.6|
Lots of names turn up multiple times. There are plenty of well-known US and Chinese firms but a lot many investors won’t be that familiar with as well.
Tesla and Amazon are Baillie Gifford’s best-known holdings but they are certainly not the sole drivers of this year’s returns.
For example, looking at the American fund’s top 5, Netflix is the worst performer, up a mere 45% in 2020. Amazon has risen 70% but leaving Bezos in the dust are Shopify (+150%), Wayfair (+200%), and Tesla (+250%).
In too deep?
Among these dozen funds, here are the most widely-held positions among their top ten lists:
Tesla appears the most times with 8 out of 12 appearances. I’m pretty sure it’s only just outside Monks’ top 10 and it’s US-listing means it’s not eligible for the other 3 trusts and funds.
Baillie Gifford’s 6.3% total stake in Tesla makes it the electric car maker’s second-largest shareholder after Elon Musk’s 18% and narrowly ahead of both Vanguard and BlackRock, who are roughly 15-20 times larger than Baillie Gifford.
But Baillie Gifford also has significant stakes in Illumina (gene sequencing), MarketAxess (trading platforms for credit markets), and Shopify (e-commerce platforms).
Illumina looks the ‘riskiest’ major holding on this measure although I believe Baillie Gifford has held a similar size stake since 2011.
And Baillie Gifford’s holding in Tesla has actually declined over the last few years as I think it was around 9% in 2016.
Some people might argue Baillie Gifford has got lucky in 2020 but these gains have been in the making for a long time.
Many of its positions have been held for several years and Baillie Gifford is now reaping the reward for sticking to its long-held convictions.
Listening to their managers in various podcasts and interviews (mostly Anderson and Slater) is always instructive.
You come away with the impression they don’t get carried away with their performance and they’re relentlessly focused on the long term.
After such a strong performance, we could see a pause for breath. But if 2020 has taught us anything, it’s that the stock market never loses the power to surprise us!
Please note that I may own some of the investments mentioned above -- you can see my current holdings on my portfolio page. Nothing on this website should be regarded as a buy or sell recommendation as I'm just a random person writing a blog in his spare time and I am not authorised to give financial advice. Always do your own research and seek financial advice if necessary!
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