Strategic Bond

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<p><strong>Your capital is at risk. Past performance is not a guide to future returns. </strong></p> <p class="MsoNormal"><strong>Lesley Dunn:</strong> An extraordinary quarter, or just another episode in the saga we are becoming accustomed to? I’m not sure, but as we try to unpick the latest developments in President Trump’s foreign policy agenda, I feel the need to heavily caveat my comments with an ‘at time of recording’ tag. You will certainly be aware oil prices have risen quickly and continue to be volatile as markets react to news on the Middle East conflict.</p> <p class="MsoNormal">But what of bond markets? In most ‘risk off’ scenarios bonds would benefit from a flight to quality. But yields have actually risen sharply because of inflation concerns. The Bank of England and other major central banks had been expected to continue cutting interest rates throughout the year, but as energy prices surged, markets have been quick to price in rate hikes, with short-dated gilt yields rising by close to a percentage point in March. Most recently, with hopes of a quick resolution to the conflict fading, fears of a growth slowdown have started to push yields back down.</p> <p class="MsoNormal">It’s been a real rollercoaster. The reaction in corporate bond markets has been more measured. Credit risk premia, as measured by spreads, have risen, as you would expect, but demand has remained strong and investors keen to buy the dip. So, for now at least, the impact has been relatively muted. The Fund performed in line with the index benchmark over the quarter – once the impact of swing pricing is accounted for – which was around minus 2 percent in absolute terms.</p> <p class="MsoNormal">We had deliberately positioned the Fund neutrally for the year ahead. Our base case was for a reasonably sanguine economic backdrop, but recognising valuations left little room for positive surprises. And, as has come to pass, a negative surprise at some point was a possibility. So, it is reassuring the Fund has performed as expected throughout this period of instability. Looking ahead, while we have debated the likely course of events in the Middle East, we accept our insights here are limited. More constructive for us is to consider the impact on our portfolio of a range of potential scenarios. The most obvious is a prolonged period of higher energy prices and supply chain disruption – for example, fertilizer costs have already risen which will impact food costs, and prices for Helium, used in semi-conductor chip manufacturing, have doubled.</p> <p class="MsoNormal">Input prices for many businesses will be affected. Higher fundings costs due to the repricing of interest rate expectations will have a disproportionate impact on certain sectors or highly leveraged balance sheets – we are thinking carefully about property companies, for example. Given the market’s propensity to rally following any good news there is every chance a positive resolution to the conflict means corporate bond markets recover quickly.</p> <p class="MsoNormal">But developing conviction in either direction at this point is challenging and, so far, we have not made any changes to the risk positioning of the portfolio. Before the crisis hit, we continued to unearth interesting ideas for the Fund, particularly favouring shorter-dated bonds which tend to be less volatile but still provide good returns. One such purchase was Ubisoft bonds. The French video game publisher is famous for acclaimed franchises such as Assassin's Creed, Prince of Persia and also Just Dance.</p> <p class="MsoNormal">The value of the business has also been validated by a recent partnership with industry heavyweight Tencent. We expect that Ubisoft will successfully refinance these short-dated bonds, which offer an attractive yield to 2027 maturity. Another purchase this quarter was GoDaddy – a domain and hosting business for SMEs. This company is actively embracing AI to strengthen its competitive position and has entrenched customer relationships with high barriers to entry, but it sold off as part of the AI-software sector rotation. This was unjust in our view – a classic case of the strong selling off with the weak, presenting opportunities for our bottom-up approach. GoDaddy is a BB rated business with a very resilient balance sheet that arguably has investment grade characteristics.</p> <p class="MsoNormal">We bought these bonds at close to 6 percent, an attractive yield for short-dated bonds in a business that we think is resilient and ultimately mispriced relative to its fundamentals. Whether these are indeed extraordinary times, or just the new normal, sticking to our investment knitting is the way to navigate them. The Strategic Bond Fund primarily seeks to add value through bond selection, and we do think further opportunities will arise.</p> <p class="MsoNormal">We also actively manage credit risk but will look to gain more conviction before repositioning the Fund from its current neutral stance. We are confident that patience is a virtue in this environment.</p> <p class="MsoNormal">&nbsp;</p> <h3 class="TABLEHEADER1212pt">Baillie Gifford Strategic Bond Fund</h3> <p><strong>Annual past performance to 31 March each year (%)</strong></p> <table border="1" style="border-collapse: collapse; width: 100%; border-width: 0px; height: 74.6428px;"> <tbody> <tr style="height: 18.6607px;"> <td style="border-width: 1px 1px 2px; border-style: solid; border-color: rgb(204, 204, 204) rgb(204, 204, 204) rgb(0, 0, 0); border-image: initial; padding: 10px; height: 18.6607px;">&nbsp;</td> <td style="border-width: 1px 1px 2px; border-style: solid; border-color: rgb(204, 204, 204) rgb(204, 204, 204) rgb(0, 0, 0); border-image: initial; padding: 10px; height: 18.6607px; text-align: right;"><strong>2022</strong></td> <td style="border-width: 1px 1px 2px; border-style: solid; border-color: rgb(204, 204, 204) rgb(204, 204, 204) rgb(0, 0, 0); border-image: initial; padding: 10px; height: 18.6607px; text-align: right;"><strong>2023</strong></td> <td style="border-width: 1px 1px 2px; border-style: solid; border-color: rgb(204, 204, 204) rgb(204, 204, 204) rgb(0, 0, 0); border-image: initial; padding: 10px; height: 18.6607px; text-align: right;"><strong>2024</strong></td> <td style="border-width: 1px 1px 2px; border-style: solid; border-color: rgb(204, 204, 204) rgb(204, 204, 204) rgb(0, 0, 0); border-image: initial; padding: 10px; height: 18.6607px; text-align: right;"><strong>2025</strong></td> <td style="border-width: 1px 1px 2px; border-style: solid; border-color: rgb(204, 204, 204) rgb(204, 204, 204) rgb(0, 0, 0); border-image: initial; padding: 10px; height: 18.6607px; text-align: right;"><strong>2026</strong></td> </tr> <tr style="height: 18.6607px;"> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6607px;">Class B-Inc</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6607px; text-align: right;">-5.2</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6607px; text-align: right;">-9.4</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6607px; text-align: right;">9.4</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6607px; text-align: right;">6.7</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6607px; text-align: right;">3.5</td> </tr> <tr style="height: 18.6607px;"> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6607px;">Index*</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6607px; text-align: right;">-4.3</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6607px; text-align: right;">-8.1</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6607px; text-align: right;">8.1</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6607px; text-align: right;">4.5</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6607px; text-align: right;">4.5</td> </tr> <tr style="height: 18.6607px;"> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6607px;">Sector Average**</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6607px; text-align: right;">-2.2</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6607px; text-align: right;">-5.7</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6607px; text-align: right;">7.2</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6607px; text-align: right;">5.0</td> <td style="border: 1px solid rgb(204, 204, 204); padding: 10px; height: 18.6607px; text-align: right;">4.8</td> </tr> </tbody> </table> <p>Source: FE, Revolution, ICE Data Indices. Total return net of charges, in sterling.<br>Share class returns calculated using 10am prices, while the Index is calculated close-to-close.<br>*70% ICE BofA Sterling Non Gilts Index / 30% ICE BofA European Currency High Yield Constrained Index (Hedged to GBP).<br>**IA £ Strategic Bond. Sector</p> <p>The manager believes that appropriate comparisons for this Fund are the Investment Association Sterling Strategic Bond sector average, given the investment policy of the Fund and the approach taken by the manager when investing and a composite index comprising 70%: ICE BofA Sterling Non-Gilt Index and 30%: ICE BofA European Currency High Yield Constrained Index (hedged to GBP) being representative of the strategic asset allocation of the Fund.</p> <p><strong>Past performance is not a guide to future returns&nbsp;</strong></p> <p><strong>Risk factors &nbsp; &nbsp;</strong><br>This recording was produced and approved in April 2026 and has not been updated subsequently. It represents views held at the time and may not reflect current thinking.</p> <p>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.</p> <p>This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, and Baillie Gifford and its staff may have dealt in the investments concerned.</p> <p>Baillie Gifford &amp; Co and Baillie Gifford &amp; Co Limited are authorised and regulated by the Financial&nbsp;Conduct Authority (FCA). Baillie Gifford &amp; Co Limited is an Authorised Corporate Director of OEICs.&nbsp;</p> <p>Investment markets can go down as well as up and market conditions can change rapidly. The value of an investment in the Fund, and any income from it, can fall as well as rise and investors may not get back the amount invested.&nbsp;</p> <p>The Fund’s concentrated portfolio relative to similar funds may result in large movements in the share price in the short term.</p> <p>The Fund’s share price can be volatile due to movements in the prices of the underlying holdings and the basis on which the Fund is priced.</p> <p>Further details of the risks associated with investing in the Fund can be found in the Key Investor Information Document or the Prospectus, copies of which are available at bailliegifford.com.</p>