Article

The active edge: the case for growth in uncertain times

March 2026 / 40 minutes

Key points

Uncertainty about the future has made investors wary, compressing valuations of growth stocks across a wide range of industries
However, we expect these companies’ future earnings potential to be better appreciated when stability returns
Being out of step with the market feels uncomfortable, but that is how we deliver the greatest value to clients over the long term

View transcript

Leo Kelion (LK): Here’s something that should puzzle you. As snow and ice melt, their temperatures hover around zero. If you relied solely on thermometer readings, you might think nothing was happening. In fact, they absorb vast quantities of energy as solid turns to liquid, only after which do they warm up. In the early 1760s, a Scottish scientist, Joseph Black, figured out why. He named the phenomenon latent heat. It led to James Watt’s steam engine, and with it, the Industrial Revolution. Well, today we’re going to explain why we believe there’s a parallel to our style of active investing. That all our efforts to understand companies deeply, building relationships over years, and holding through periods of doubt, matter, and that outperformance should follow, even if you can’t yet see it in the numbers. Welcome to Short Briefings on Long Term Thinking. I’m Leo Kelion, and I’m joined by Baillie Gifford partner Stuart Dunbar, whose duties include shaping our investment philosophy and communicating it to our clients. Before we begin, a quick reminder: your capital is at risk, and your income is not guaranteed. Stuart, welcome back to the show. Stuart Dunbar (SD): Thanks, it’s a pleasure to be here again, Leo. LK: I say welcome back because you’re actually the first guest to come back on to Short Briefings since I took over hosting duties. Just over a year ago, we were talking about long-term drivers of growth, including AI, robotics and the energy transition. This time, I want to turn the spotlight on our own process, specifically our role as active investors in a market increasingly dominated by passive funds. Let’s start with some context. Can you just explain what we mean by active and passive, and what one offers over the other? SD: What is active? The way I think about this is it’s not to be confused with activity. It’s actually about looking different from an index. It’s about forming our own independent ideas. It’s about getting information from different places and implementing what we like to call uncommon understanding for the benefit of clients. Now, that does contrast, others will do active in different ways. There are quantitative approaches where people look for patterns in share prices, or they correlate characteristics in companies, the accounts and that sort of stuff. We think that’s very hard to do, so we’re much more in the fundamental active space, which really means getting out into the world, spending time with companies, understanding management, trying to identify points of change so that we can zoom in on those companies that we think from here have got great long-term opportunities. LK: And just so everyone in the audience follows, what exactly then is passive, and why in some situations might it be appropriate? SD: Yeah, so passive is, I don’t mean this in a derogatory fashion, it’s unthinkingly following an index. Mostly, not always, but mostly based on sort of market capitalisation weights. It’s taking the wisdom of the crowd and jumping on the bandwagon, if you like. Now, costs are very important when it comes to what you pay your manager, and passive is certainly a very good way of keeping costs down. If you don’t have confidence that you can find a manager who can identify great stocks, then passive gives you exposure to the whole market. LK: And then, Stuart, can you just explain how Baillie Gifford distinguishes itself against other active asset managers? SD: Sure. The somewhat simple answer to that might be: we know what we own. Now, seems obvious, but it’s really not. Let me answer it this way. I listened to a very interesting podcast out there called The Compound and Friends, slightly odd name, and they had a guest on recently, a guy called Peter Lynch, who is hugely well known, titan of the investment industry, ran Fidelity’s Magellan Fund for many years very successfully, and I’ve stolen that from him. He said, “Know what you own, that’s the secret.” Now what he means by that, what we mean by that, is to invest successfully and to resist acting short-term when share prices inevitably go south on you. The way that you can hang in there is to know the company. So you know what its competitive advantage is, you know the management, you know where they’re trying to take the company. You know what the pricing power is, you really get into the detail. And then when, as will inevitably happen, the market decides to put some price on a company which is lower than you think it should be, you can remain reasonably relaxed. You can look through the short term, and you can say, it’s OK, this is a good investment, and I’m going to stay here. Now, many, many investment companies struggle with that. This is where you have to have alignment of incentives right through the chain. So I’d start by saying we’re incredibly fortunate in our firm to have no outside shareholders. Outside shareholders, all else equal, would tend to want us to react in the shorter term than we ourselves think is the right thing to do. And then internally, we incentivise our fund managers on long-term periods so that they’re aligned with our clients. And then the companies that we invest in, we interact with them, we engage with them to try and make sure that their incentives and plans are also aligned with that great long-termism. So I think that fundamentally is how we try to be different from everyone else who’s out there, and there’s evidence, there’s lots of companies that have done tremendously well over many years but have had short, sharp drawdowns for periods of time, and I think that’s when we add the most value. When it’s making your eyes water and it’s hurting, the ability to see it through is actually really, really valuable. LK: And I know part of that confidence comes from all the face-to-face meetings our investment managers have with senior leadership, company visits to see their operations in action. We often hear about that on this podcast. But as we’re saying, more money’s moving from active to passive, so when you look at the industry at large, presumably there’s less of that company engagement going on. Does that matter? SD: Yes, I think that really matters. There’s a couple of angles to that. If you go back to, I don’t know, in the 1970s, when investing was less quantified, simpler, the good old days, everyone naturally thought that, as an investor, our job is to allocate clients’ capital to companies and then work with those companies to oversee and to encourage that that capital is being well used. I think over a period of many years, as stock markets have become an end in themselves rather than a way to invest in companies, that collaboration and working together to try and take advantage of opportunity is actually starting to fall by the wayside. And so we do see some evidence that companies that don’t have engaged shareholders in the way that they used to are less ambitious, they don’t make long-term investments, they spend less on R&D, they do odd things like backdate options. So yes, I think that lack of engagement, and just to be clear, engagement, you know, everyone can vote, that’s how the system works, but engagement goes way beyond simply voting. It’s about truly understanding and building relationships with management, and when you do that, there is evidence that companies that have these quality shareholders in large-size on their shareholder registers, they tend to perform better in the long term. LK: But what matters above all else is the results that we deliver to our clients, and we recognise that passive funds have beaten some of our strategies in recent years. And we’re not alone. The investment platform AJ Bell did a study that showed that less than a third of active funds outperformed their passive equivalents in 2025. So how do you account for that record? SD: Yeah, I think we’ve got to be very careful to not just sit and make a constant stream of excuses for active management not outperforming passive alternatives. It is our job to find great companies and invest in them, and ultimately their values go up by more than the market, and we outperform. So let’s not depart from that. I would say, however, there are some approaches to active management that I don’t particularly believe in. My job here is not to defend the 60 per cent, or whatever, of funds that didn’t outperform. My job is to talk about how we think we can perform well from here. Now, some strategies have done pretty well in recent years, others have struggled. The ones that have struggled, I think, have been uniquely buffeted by a series of events which has been quite extraordinary. So we had Covid, and then coming out of Covid, high interest rates and supply chain disruption, and then when things were maybe returning to normal, we had Russia invading Ukraine. Then, of course, we’ve had increased policy unpredictability and tariffs. Lately we’ve had artificial intelligence coming along, and people are very concerned about how’s that going to play out, where’s the value going to end up in that. And finally, as we record this, there’s a war going on in the Middle East. It is not surprising, with that degree of uncertainty, that investors have a lot of trepidation. And the way that that manifests itself for us is we are investing in companies where much of the value is three, four, five, six, seven years away. We’re investing in growing companies, that’s how we think we can really make money for clients. Right at the moment, because investors are nervous and we’re comfortable with uncertainty, investors aren’t comfortable with uncertainty, and that leads them to place very low valuations on those earnings that are a few years ahead of us. For us, we just have to remain confident in the growth prospects of those companies, do the hard work, make sure that we’re not missing anything, making sure the world hasn’t changed in a way that should cause us to rethink our investment cases. But as long as we’ve done that, now is the time when we’re adding the most value. It’s very easy to be a fund manager when you’re outperforming. That’s not when you’re adding value. You’re adding value when you’re out of tune with the market, and you’re looking a bit silly. You’ve got to be confident that you’re still right, but if you are, that’s when you really dig your heels in, and that’s when you add the most value. LK: I’d like to get your view on another factor. There’s an argument that the concentration in a handful of tech stocks has also distorted performance benchmarks. The Magnificent 7 now accounts for more than 30 per cent of the value of the S&P 500, which is well over double what it was a decade ago. Now Baillie Gifford’s invested in all seven of those companies to a greater or lesser degree, this is the likes of Amazon and NVIDIA and Microsoft and so forth, but none of our strategies have that amount of concentration in them in one place. So do you think that that’s a factor too? SD: I think it is. I mean, I would repeat that it’s far too easy to make excuses – “the market’s concentrated” so we can’t outperform. That’s just not theoretically correct, is it? There are many other companies, it’s not only about the Mag 7. But yes, it makes things a little bit difficult because it’s not just a market concentration. Market concentration is actually not a new thing. If you go back to the 1900s, half of the market was railroads. It’s much more about these companies are quite highly correlated, they’re on very high values, so therefore their market cap is high, so therefore they’re a large part of the index. I would argue that it would be fairly imprudent most of the time for fund managers, viewed through client expectations, to expect us to have not just that amount of money in a small number of companies, but companies which themselves all trade very similarly to each other. So yes, it’s a challenge, but no, I don’t think we should hide behind that as a reason for underperformance. The big question now is how persistent do we think that’s likely to be? The last few years have in some ways turned the world on its head. Normally, companies, once they get big, they grow more slowly. Some of these companies are actually growing faster, and that’s because they’re spending so heavily on R&D and these days, the development of AI models. So the question actually becomes: what return do we think they’re going to get on all of that spending? And there, I think you’ve got to really look into the nuance, and there’s a high degree of uncertainty around how this whole AI thing’s going to pan out. LK: So with all the uncertainty that is out there, how then do we get our edge? SD: So I think it’s looking beyond the obvious, and we’re very consciously trying to do that at the moment. You know, we do like some of these big companies that are very well known, but just betting on that seems to me a quite unsophisticated way of thinking about AI and change. AI is a pervasive technology that is going to impact everything in the next, I was going to say next five years, but maybe it’s the next one year, it’s moving that quickly. So what we need to do is try and find companies that are in different places in the food chain. Where’s the value going to accrue? So we have got a range of companies that are benefiting from different ways. I can give you a couple of examples, if that’s useful for listeners. There’s a company called Astera Labs. They have got some very clever technological kit that links GPUs together in a way that facilitates faster flow of data. Quite a connoisseur’s point there. But that’s actually where a lot of the bottlenecks happen in datacentres. It’s not compute power, it’s data flow. LK: And these GPUs, they’re the chips kind of specialising in AI. SD: Yes. Not always GPUs for AI, but in this case, yes. So there are companies like that, that sit in the middle of this giant ecosystem, that go relatively unnoticed perhaps, don’t represent a large part of the cost, but are pretty indispensable. So there’s one example. Or maybe a more obvious example, there’s a company called IREN that actually builds the datacentres. They’ve got huge contracts with Microsoft, for example. Microsoft don’t build datacentres, Microsoft employs people to build datacentres, IREN is one of the companies that does that. There seems to be a high degree of visibility that datacentre build-out is going to continue at a pace of knots. We know that because we’ve seen the various agreements that are in place. IREN is going to be right in the middle of that, and then when you build a datacentre, you’ve got to worry about cooling. So there’s what we call HVAC companies, you know, heating, ventilation and air-conditioning. There are all sorts of companies that play into this build-out but which don’t directly depend on the competition amongst the AI models or the competition for the chip manufacturing. LK: But then what do you see as being the unlock for the markets to appreciate the value in these companies that we think have got great growth prospects? Going back to that opening metaphor I gave at the start, if we’re putting in all this effort and the ice is melting, what is it that kind of marks the end of that process and the beginning of the outperformance that our clients want? SD: Gosh, I wish I had a simple answer to that, Leo. The ice is still frozen. I think we’d have to see, and that’s such a challenge. This goes back to the patience point. I think we just need a period of relative stability. It’s just been one thing after another. Just when you think that maybe that’s coming along, we have another sort of big geopolitical development, most recently in Iran, and it’s just very hard for investors to get comfortable with the notion that what companies are doing three or four or five years from now is predictable and therefore has value. In very simple terms, we just need a period of stability and predictability, which we’ve really not had for four or five years now, and who knows when that changes. I mean, clearly the sort of political environment is creating a bit of challenge around the economic environment. I don’t think anyone would describe us as in a particularly stable world at the moment. How long does that last? I don’t know, but that’s what we need for investment horizons to return to being longer again. LK: But if I can play devil’s advocate, what if a period of stability is still some way off? You mentioned the war in the Middle East. We don’t know how that’s going to turn out. We’re expecting artificial intelligence to herald huge amounts of disruption, not to mention climate change. So what if, looking ahead, there’s still more instability to come? SD: Yeah, well what if we’re wrong, I suppose, is the question, and we always have to entertain the idea that we might be. Let me say at the outset, I don’t believe this to be the case. I think what actually happens in practice is that good, adaptable companies find ways to thrive, almost regardless of the geopolitical and economic backdrop. I’m not saying it doesn’t make it harder, it may be growth then becomes more cyclical perhaps, but in the long run progress happens. But having said that, it would be remiss of us not to consider: is growth going to continue happening in a less stable world, and if it is going to continue happening, is it going to come from the same places that it has historically? So what that means is not giving up on the things we believe in. I mean, it’s funny, we’re sometimes perceived as tech investors. I really think we’re not tech investors, I think we’re growth investors, and if we’re moving into a different environment in which growth isn’t limited to software companies, for example, then we have to make sure that we’re spreading the net wide enough, and of course we’re already doing that. LK: I just want to push you on this point. I understand why we’re sticking to our purpose, but from the point of view of listeners to this show, why should they be investing in our funds now at this precise moment? SD: For the very reason that growth is so undervalued relative to its own history. If you look at – let’s just take last year as an example, it’s slightly complicated because of the huge growth of the Mag 7 AI companies in the US. So in the US, growth actually performed pretty well in 2025, but really only driven by a very small number of companies. So if you didn’t invest in those, growth didn’t particularly do well. And then ex-US, so in international markets, particularly in last year, what we call factors in the industry, growth factors and quality factors, were the worst they’ve been for years and years and years. Something like 10 to 15 per cent underperformance attributable to each of the growth and quality factors in the last year. If that sounds a bit technical, all I mean by that is that these good quality companies in which we can be confident about their future growth are as unpopular as they’ve been for 10 to 20 years, depending on how you count it. So even if you’re uninspired by my stories of where we’re looking for growth, it does not make sense that really good companies with long-term growth prospects, who are much better and more stable and predictable than the market, trade at a 10 per cent premium to the market. The premium has been as high as 70 per cent in the last five years. I don’t know what the right answer is, but we’re not in the right place at the moment. LK: So I just want to make this concrete. Can you give me examples of companies where you think the market is just getting it wrong about some of our portfolio companies? SD: Well let’s think about Nu Holdings, N-U if anyone’s trying to Google it. It’s a Brazilian-based fintech bank, essentially, which has grown out of nowhere in the last eight to 10 years. It has 100 million customers, plus growing very rapidly. It’s no longer just in Brazil, it’s all over Latin America and starting to find its way into other markets. It’s taking advantage of huge inefficiency in particularly Latin American, banking industry, in which banking services are hugely important and not very accessible to many, many people. There’s a huge profit pool for Nubank to go after. It’s very successfully doing that. It’s well managed. There’s a high degree of predictability about its growth. Its margins are way better than traditional banks because it doesn’t have a sort of clunky old physical banking infrastructure network. That business is currently on a discount to the <a name="OLE_LINK7"></a>average global equity multiple. LK: And what does that mean? SD: That’s just the number of years’ worth of future profits you’re willing to pay for a company, and in the case of Nubank, that’s pretty low at the moment. That’s probably attributable to it having the EM badge. LK: EM, Emerging Markets. SD: Sorry, yes, Emerging Markets. In this case, I think that’s a complete misunderstanding. I think it’s on something like 17 times earnings, or something, which is less than the market multiple at the moment. That just doesn’t make sense. So there’s a great example. How can this company be worth a sub-market multiple when its prospects are long term and its margins are potentially terrific? It just doesn’t work. So there’s one example. Here’s another one: Medpace, a little-known company that runs drug trials, mainly for biotech. Biotech has been through what some call a winter in recent years. That’s again just been a function of concerns, I think, over deploying capital wisely and maybe the regulatory backdrop. That’s coming back strongly now. Something that’s very clear to me is that in the next 10 years we’re going to see huge breakthroughs in biotech and AI-based drug discovery. A biotech start-up doesn’t have the capability to run a large-scale testing programme for a drug. Medpace is going to be on the right side of that. I think they’re going to grow very significantly in the next few years, and it may even accelerate as acceptance of AI drug discovery becomes mainstream. And that company’s on pretty much a global multiple as well, and again it’s hard to imagine circumstances in which that company is not worth more than the average company. There’s a lot of examples, and in fact one of the things that’s important here in our portfolios, this has always been the case, some companies are always undervalued because there are concerns around them, and the nature of investment is that people will differently emphasise those concerns. How important is it? I think what’s really been difficult for growth investors such as us in recent years is how widespread that uncertainty has been, such that growth companies in general, who normally, they might not be correlated, they’ll offset each other, at the moment, are pretty much all being treated in the same way, outside of the Mag 7, which is distracting everybody to the point where there’s lots of other companies that are just being overlooked. LK: So to summarise, we believe that the companies that we invest in have paths to growth, but the market doesn’t fully realise that because it’s so risk-averse at the moment. You have to communicate that message to some of our biggest clients in meetings, and I imagine it can be quite tricky at times to be making the case for further patience. So, can you give us an idea what those meetings are like, and the type of feedback that you get? SD: I think you look them in the whites of their eyes and say that we’re doing the best job we can here, and the things that we can control, we are controlling, and the things that we can improve by working on them, then we’re doing that. We’re doing the work. The things that we can’t control, here’s how we understand that, and here’s what we think might cause that to change. When you cut through all the guff, what clients actually want to know is: you are fully focused on doing the best you can for them. And some of them just fully understand that there are quite long cycles of styles and, you know, when the market’s uncertain, growth doesn’t work, we have ups and downs, and they accept that and their horizons are long enough that we can look through this. And I mean one of the big problems we see is people react to short-term underperformance. This is back to the point, we can only add value if our clients are aligned on horizons. If clients are going to give in during periods of underperformance, then there’s a lot of evidence that says that typically backfires on the clients. But then there’s another segment of clients, and I think we have to be realistic about this, that are more concerned with shorter-term performance, by which I mean maybe three to five years. They’re concerned about performance versus benchmark. They work in what we would call a strategic asset allocation framework, and for us to fit within that framework, there needs to be a degree of predictability about what it is that we’re delivering to them. And it’s fair to say that in recent years, for those types of clients who are a bit more benchmark-aware, we have delivered a pretty wild ride in terms of outperformance and then underperformance. So we are thinking very hard. So the conversations with those clients are very interesting. They don’t want us to do what to what a lot of the rest of the industry does and hide somewhere near the benchmark. We’re not going to do that. That’s not what we’re about. We’re just trying to find great companies. But we have done some things internally, in discussion with clients. We’ve created a second investment risk team, which is a bit more analytical around things like portfolio construction. I think we have a greater understanding now of a mix of portfolios in terms of maturity of companies. This is certainly not a revolution, but I think it’s fair and right to acknowledge that when you’ve delivered performance to clients which, for some clients, has been more volatile than they expected, then we should take a look at portfolio construction and try and make sure that what we’re delivering is consistent with what they want. LK: So you’re telling them that we’ve taken steps to reduce the amount of volatility, but I assume they also ask you questions about, are we changing the type of companies that we’re investing in. What would you say to that? SD: No, because we’ve always looked wherever we need to look for growth. What might be changing, in fact, I think what is changing, is that the sources of growth are broadening out now, so we are probably looking at some more esoteric sources of growth, if you like. You know, we’ve been through this long, extended period of capital-light software network businesses that have been fantastically successful, but there are other parts of the economy that have been neglected along the way. So let me give you another example. We’ve just quite recently invested in a company called WillScot, which is as unglamorous as it gets. They provide living accommodation, or recreational accommodation, building sites, porta-cabins if you like, and also secure storage. So there’s an unglamorous business, but actually this is a US business, if you think about the context of a complete underinvestment in infrastructure for decades in the US, which is now becoming clear and obvious. So there’s much more investment now going into construction. Construction is often mistakenly misconstrued as office-building. It’s actually not. It’s bridges and all sorts of stuff. So WillScot has hoovered up all its competitors. It’s bought the second, third, fourth and fifth biggest suppliers in the US. It’s now by far the leading provider of these temporary accommodations, or whatever you want to call it, in the US. They’ve got pricing power, they can deliver better service. The strategy that bought that likes to say their minimum target is, can this double in five years? And we think there’s a very high probability it can do that. And so this is in a completely different place than people might think that we would normally look for growth. It’s very important to say this is about broadening or making sure that we’re broad in how we think about companies. We’ve not sort of given up on some of the sexier stuff, if you want to call it that. You know, we are invested in the AI companies, we’re very interested in what possibility that’s creating, but there are other places you can look for growth too. LK: So Stuart, one of the other ways that we distinguish ourselves against passive funds is that we invest in private companies. Since 2012, we’ve put over $10bn of our clients’ money into 167 private companies, some of which have since listed. But how are we distinct from others in this space? I’m thinking of venture capital and the private equity buyout funds. SD: Yeah, a bit of history might be helpful here. We didn’t survey the private markets and think there’s a good place to build a business – actually it was completely the other way round. If you go back to the beginning of investing in private companies for us, it was the observation that the types of companies that we like to invest in for clients, which are not venture capital, they’re later-stage than that, they are what’s now called private equity growth, but back then were just growth companies. They would come to market, we would invest in them, our clients would benefit from that growth. What started to happen around 12, maybe 15 years ago now, is those companies stopped coming to public markets for a whole host of reasons: regulatory burdens, poor-quality shareholders, they just don’t want to be beholden to short-termists, various good reasons for that. So we had to build the capability to invest in those companies while they were still private because otherwise we just wouldn’t have been doing the job for our clients. The real story for us here is this is the same investment job we’ve always been doing. These companies would have been public, now they’re not. We still invest in them even though they’re private companies. Now we have, I think, benefited enormously, honestly, inadvertently, but from our long history of being engaged, thoughtful shareholders. The fact that we get on the road, we go and see management, the fact that we are quality shareholders, sits us in enormously good stead in this private growth equity space. So bearing in mind we know how these companies operate, we know how they think, they’re already mature companies, they don’t need us to come and tell them how to run their businesses. We’re an attractive shareholder for them because of our reputation for long-term patience. That has given us tremendous access. And remember, in private companies, the company picks its shareholders, not the other way around. And they very often look for shareholders that they think will show patience and come with them on this journey as they grow, and even potentially can help them when they do eventually list, although there’s an open question now about how many companies even are listing, not many. But if and when they do, we can actually help them through that process because we’re very long-standing, patient public company investors. So that, I think, has created a very interesting proposition for us. Clients think in compartments. So now what we’ve had to say is, even though we think this is an artificial distinction, these are just growth companies. For the majority of clients, they have private companies, and they have public companies, and they don’t really like to mix them, so we have therefore started offering private funds in a more traditional sense. But it all comes back to: we have to do whatever we need to do to give our clients exposure to the really strongly growing companies, whatever form they come in. LK: And as you say, these are some of the biggest companies out there. Household names, like SpaceX and Anthropic and ByteDance. But I’m just thinking, from the point of view of clients who may be invested in some of our funds that are dedicated solely to stocks on the public markets, are you seeing any evidence that the work that we’re doing with privates is making us a better investor in public companies too? SD: Yes, I’ll give you two sort of slightly different answers to that. So one is there are structures in which we can combine the public and private markets, so investment trusts lend themselves to that quite nicely. That, I guess, is not really the thrust of the question. The question is, does it help us in public markets? It does in two different ways, I think. So one is, when companies become public, we frequently know them already. IPOs are very interesting. You’re buying an IPO, usually there’s a broker in the background clearly presenting the company in the best possible light. You have maybe three weeks to decide whether you want to invest in it. They do a roadshow. It’s pretty hard to make an informed decision on that basis. So, very often, by virtue of knowing private companies, even if it’s not the same private companies, it will be the competitors to those private companies. So we’re far better informed when companies come to market as to whether or not they’re actually decent investments. And then we also benefit simply from learning from some of the very successful private companies, which is where a lot of the more entrepreneurial growth comes from. They talk to us about what they’re trying to do in their companies, what markets they’re accessing. Some of the companies that we’ve invested in, like Spotify, which we invested in when it was private, became public. We learned so much from them about how do you roll out your business, how do you apply AI to make your products better, so I think we really benefit from that access as well. LK: Stuart, before I wrap things up, I would like to get your view of how Baillie Gifford fits into the current financial ecosystem. We’re seeing quite a lot of consolidation, we’re seeing asset managers merge, we’re seeing others expand through acquisitions, bolting on advisory firms and the like. The partnership at Baillie Gifford, though, seems determined to keep it an independent, standalone concern. You’re one of those partners, so can you just explain the case for that, and can it last? SD: Yes. So I hope it can last, and we’re doing everything to make sure it does. We have this conversation, we’re not sitting in some sort of ivory tower. The partners have had conversations from time to time about what is the sustainability of our own business. Do we need to change? There is a sort of conventional wisdom out there that says you now have to be either a boutique or a behemoth, and we’ve seen a huge amount of consolidation in the industry, even most recently, we’ve seen a number of quite big firms being acquired. I question that received wisdom. So when we have this conversation internally, we always come back to: is this in the clients’ interests? And I think what’s in the clients’ interest is for us to try to be very good at the thing that has made us successful up to now. And that is the fundamental-based, resource-intensive, deep, long-term, mainly equity growth investing. My partners and I are very loath to do anything which, even though on paper it looks, well, let’s diversify the business and then there’ll be less volatility and there’s big untapped markets in alternative asset classes. We could do all of that, but I think it would be a distraction to us just doing a great job of what it is that we do. And ultimately, you can have conversations all day long about scale and corporate structuring and fee pressures and all sorts of stuff. I don’t want for a minute to suggest that we’re sailing on blithely. The active investment industry is harder than it used to be, and actually, maybe that’s a good thing because maybe for a long time, competition wasn’t fierce enough. It’s fierce now. I think the way that we deal with that challenge is just to focus on being really good, and if we’re really good at what we do, have the faith that clients are going to come and want to continue to work with us. Of course, we’re doing little things at the margin. So, back to what we spoke about: are we in our product range? Are we addressing all different client needs? So we evolve, of course we evolve, and right now we’re having a huge discussion about how do we integrate AI in our own investment processes. So I don’t want us to sound like we’re sleepy, but our answer is: let’s just strive to be absolutely the best at what we do. LK: Stuart, can I ask you just to draw on everything that we’ve discussed up to this point and leave our audience with a final thought about why they should feel confident that our style of active investing can regain the upper hand? SD: This level of market trepidation can’t go on forever, and so we should see a revaluation of the types of companies that we like, so that in some ways would be the simplest answer. I mean, I’ll give you a very personal answer to that. I’ve been investing more money in our funds lately. You know, maybe I’m right, maybe I’m not, but I can’t give you a bigger vote of confidence than that. And there’s also evidence that investors, both institutional and personal investors, more often than not buy and sell funds or investment strategies at the wrong time. The pressure gets too great, and they sell outperforming managers. On the other side, the fear of missing out gets too great, and they buy outperforming managers. And you could spend all day reading academic research that tells you that, on average, that’s creating worse outcomes than should be happening. So my urge to anyone who’s listening to this is: this is when you’re adding most value by staying invested. If you’re out of tune with the market, don’t give in. Wait till the market comes to its senses. LK: Stuart, as you know, I always like to end the podcast by asking my guests what book they’re reading or recently finished to get an insight into their wider influences. If I can remind you, in the last two appearances, you mentioned Number Go Up, which was all about the crypto industry, and, memorably, The Golfer’s Journal. So what’s the latest publication to make it onto your reading list? SD: Of course, happy to. Still reading The Golfer’s Journal, but let’s not do that again. I think I’ve developed a bit of an obsession with understanding the difference between skill and luck, and actually how luck and skill play out over time. So, what some would call path dependency. So I’m reading a book by a very well-known industry writer, a guy called Michael Mauboussin, called The Success Equation. It’s not new. I think it was published in 2012, and it just talks about probabilities and outcomes and luck and how one decision can lead to another. That’s the path dependency bit. So very briefly, I think it’s a useful way to think about your own life as well as think about investing. How did you get to where you are now? It’s mainly through an unpredictable sequence of decisions you’ve taken. I think it’s really helpful. It kind of takes you into a world of multiverse. What might have happened if I’d made different decisions? So anyway, I’m finding that fascinating. LK: That’s great. What if I’d asked you other questions? Who knows? Stuart, it’s been great chatting to you on this podcast. I hope we can get you back on again soon. SD: Thanks very much. Great to be here. LK: And I hope you enjoyed this conversation too. If you want to hear more from Stuart on this subject, you can find his article, Actual investing revisited, at bailliegifford.com/actual. Or listen to his last podcast on five inevitable growth drivers, which you’ll find in your podcast feed dated January 2025. Subscribe to Short Briefings via YouTube, Spotify or any podcast app to be the first to know when the next edition’s out, and we’d love it if you left us a review. But for now, that’s it, thanks for listening, and I look forward to briefing you again soon.

View show notes

Listen to the podcast on Spotify and Apple Podcasts

As with any investment, your capital is at risk.

In uncertain times, there’s a tendency for the markets to become shortsighted. Participants place less weight on future profits, regardless of the quality of the underlying businesses. And as trepidation grows, it’s as if most assume the mist will never clear.

This leads to a mismatch. Compressed valuations enhance the opportunity for conviction-driven growth investors to deliver long-term returns to clients. But to do so requires patience, just when it’s most in short supply.

Since Covid, supply chain disruptions, Russia’s invasion of Ukraine, trade tariffs, and advances in AI have all clouded the picture. Now, war in the Middle East is further obscuring the view.

“It’s just been one thing after another, and it’s making it very hard for other investors to get comfortable with the notion that what companies are doing three, four or five years from now is predictable and therefore has value,” says Baillie Gifford partner Stuart Dunbar in the latest episode of the Short Briefings on Long Term Thinking podcast.

“Even so, we remain confident in our companies’ growth prospects. We do the hard work, ensure that we’re not missing anything, and make sure the world hasn’t changed in a way that should cause us to rethink our investment cases. And so long as we do that and dig in our heels, now is actually when we add the most value.”

He explains we gain this confidence by “knowing what we own”. It sounds simple, but Dunbar argues that it’s only by putting in the effort and resources to understand the businesses we back and those who run them that we can resist short-term pressures to sell when their shares become mispriced. Moreover, by regularly meeting senior executives, we can encourage them to stick to their own long-term goals even when pressures mount on them to do otherwise.

“It used to be that everyone naturally expected an asset manager to allocate clients’ capital to companies and then work with those companies to oversee and encourage good use of that capital,” Dunbar comments.

“That collaboration has started to fall by the wayside. But there’s evidence that companies with quality, large owners on their shareholder registers tend to perform better in the long term.”

Risk aversion is skewing valuations

Dunbar recognises, however, that, following a period of strong performance, some of Baillie Gifford’s strategies have been beaten by passive equivalents in more recent years. These are funds that aim to match a stated index’s returns, rather than seeking to outperform through an investment manager’s research and judgement.

“What’s really been difficult for growth investors such as us in recent years is that the markets are treating growth companies pretty much the same way – the Magnificent Seven excepted – when normally their valuations wouldn’t be so correlated. So there’s a need to look harder to find those that are being overlooked.”

“Companies with long-term growth prospects, which are much better and more stable and predictable than the market, are only trading at a 10 per cent premium, sometimes less. Yet that premium has been as high as 70 per cent in the last five years. I don’t know what the right level is, but we’re not in the right place at the moment.”

As an example, he cites Nu Holdings, the company behind the Latin American fintech Nubank. The company has more than 112 million customers in Brazil alone – 61 per cent of the country’s adult population – and is rapidly growing in Colombia and Mexico. Moreover, it recently received conditional approval to expand into the US.

“There’s a high degree of predictability about its growth,” Dunbar says. “Its margins are way better than traditional banks – it doesn’t have to maintain a clunky, old physical banking infrastructure network.”

Yet at the time of recording, he notes the business’s forward price-to-earnings ratio – which compares its current share price to its projected earnings – was below the global average. “How can this company be worth a sub-market multiple when its prospects are long-term, and its margins are potentially terrific? That just doesn’t make sense.”

Looking for growth in more places

However, holding firm doesn’t mean standing still. Dunbar highlights that Baillie Gifford has created a second investment risk team to advise on the mix of companies in portfolios. That should help managers calibrate volatility to client expectations.

Additionally, he says, we are “looking beyond the obvious” when it comes to the companies we cover. That includes looking beyond software when it comes to AI. For example, we added IREN to several portfolios last August. The Sydney, Australia-based company develops and operates renewable-powered datacentres. In November, it struck a $9.7bn deal to provide its services to Microsoft over the next five years.

Dunbar adds that we are also exploring businesses that might not have come on to our radar previously.

WillScot has supplied more than 345,000 modular units to a total of about 85,000 customers © WillScot

“The sources of growth are broadening out, so we are looking at more esoteric examples,” he explains. “For instance, one of our strategies recently invested in WillScot, an American provider of temporary building site accommodation.”

Its investment thesis is that the company will benefit from increased spending on US infrastructure, including road and bridge projects, after years of neglect. WillScot has acquired about 40 other companies since going public in 2017, growing its market share and strengthening its pricing power.

“We’ve always gone wherever we need to look for growth – but this is a different place than people might think we’d explore,” Dunbar says.

So what needs to change for the market to recognise the true worth of such companies? “In very simple terms, we just need a period of stability and predictability,” Dunbar answers.

That might sound like a big ask in the current environment. But he urges long-term-minded clients to remain patient and resist any urge to dip in and out, given the timeline involved is unknowable.

“This level of market trepidation can’t go on forever,” he adds. “But this is when you add the most value by staying invested. If you’re out of tune with the market, don’t give in.”

Stuart Dunbar, Partner

Stuart is a director in the Clients Department. He joined Baillie Gifford in 2003 and became a partner in the firm in 2014. Stuart is Chair of the UK Business Group as well as coordinating global marketing and product development activity and sitting on various management groups including the firm’s Strategic Leadership Group and ESG Steering Group. He graduated BA in Finance and Business Law from the University of Strathclyde in 1993.

Words by Leo Kelion

Risk factors

The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication was produced and approved in March 2026 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

Potential for profit and loss

All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk. Past performance is not a guide to future returns.

This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.

All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.

The images used in this communication are for illustrative purposes only.

Important Information

Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs.

Baillie Gifford Overseas Limited provides investment management and advisory services to non-UK Professional/Institutional clients only. Baillie Gifford Overseas Limited is wholly owned by Baillie Gifford & Co. Baillie Gifford & Co and Baillie Gifford Overseas Limited are authorised and regulated by the FCA in the UK.

Persons resident or domiciled outside the UK should consult with their professional advisers as to whether they require any governmental or other consents in order to enable them to invest, and with their tax advisers for advice relevant to their own particular circumstances.

Financial Intermediaries

This communication is suitable for use of financial intermediaries. Financial intermediaries are solely responsible for any further distribution and Baillie Gifford takes no responsibility for the reliance on this document by any other person who did not receive this document directly from Baillie Gifford.

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Key points

Risk aversion is skewing valuations

Looking for growth in more places

Risk factors

Potential for profit and loss

Important Information

Financial Intermediaries

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