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Positive Change annual investment letter

March 2023

Key Points

  • The portfolio is well-placed to withstand the challenging macroeconomic environment. We remain focused on our belief that share prices follow strong fundamentals over the long term
  • We continue to find exciting new ideas that have the potential to deliver both strong financial returns and a positive change, and over the year we invested in Autodesk and Remitly
  • Our research pipeline for 2023 contains innovative global opportunities across healthcare, the energy transition and financial inclusion that could deliver positive change

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

‘Permacrisis’ was the Collins Dictionary word of the year. As we have emerged from the pandemic, a range of forces has created an extended period of instability and insecurity, so in many respects, it feels apt. It has made for a volatile year for equity investors, especially those focused on growth equities. We are very grateful to our supportive clients during periods such as this, and it is reassuring to note that the Positive Change Strategy saw net inflows throughout the year.

At Baillie Gifford, our long-term time horizon and 115-year history give us a somewhat different perspective on the permanence of these crises. In 2020 we wrote to clients against the backdrop of an unfolding pandemic about Positive Change in Challenging Times. We wrote about the importance of optimism, focusing on company fundamentals and the ever-increasing significance of companies that can deliver positive change. That year we strongly outperformed the benchmark. Despite the reversal in short-term performance, those messages hold true. We go into 2023 with a high-conviction portfolio. The mission for our team is as clear as ever: to invest in exceptional growth companies that can address global challenges over the long term. While we are aware that some of our clients who funded more recently have had challenging since inception numbers, our five-year and since inception track record remains very strong.

Baillie Gifford & Co USD (03/01/2017 to 31/12/22), vs MSCI AC world Index. Past performance is not a guide to future returns

Positive Change is a robust portfolio of diverse companies, with a weighted average market cap of just under $75bn versus around $270bn for the benchmark. Portfolio holdings have established earnings or exceptional earnings potential; one-year earnings growth is two-thirds higher than the benchmark, with over 80 per cent of the portfolio posting positive earnings. This is despite companies reinvesting for future growth at double the rate of the benchmark. Research from our Investment Risk team, covering 30 years of global market data, illustrates the strong relationship between earnings growth and returns. Companies delivering earnings growth in the upper quartiles have a higher probability of at least doubling their share price over rolling five-year periods. Strong share prices follow strong fundamentals.

Strong fundamentals for future growth

The businesses in the portfolio are delivering products and services valued by their customers and society, and so they can pass on rising costs in an inflationary environment. Indeed, some products are often critical for their customers and help drive efficiency. For example, Ecolab accounts for five per cent of spend from customers’ cost base and provides a 25 per cent return on investment. By our assessment, portfolio holdings should be resilient against a more challenging inflationary backdrop.


The past year has been painful at times but, in stark contrast to the first half, we saw some portfolio holdings being rewarded for operational progress in the second half. We take a long-term view but are certainly not immune to violent share price swings and what these might mean for our clients. Our tried-and-tested antidote to this is a steadfast focus on the long-term opportunity, rather than quarterly share price fluctuations, and a focus on operational progress for individual companies.

Moderna, a company that played a vital role in producing vaccines for Covid-19, experienced drawdowns of more than 50 per cent earlier in the year. We believe its Messenger RNA (‘mRNA’) technology has potential far beyond the Covid-19 vaccine, as illustrated by a recent successful clinical trial demonstrating the feasibility of making personalised cancer vaccines in the future. ASML, which performs a critical role in semiconductor manufacturing, was another negative contributor. Despite macroeconomic concerns, the overall demand for its systems remains robust given the expanding use cases for semiconductors and ASML is investing in its capacity to meet the growing demand for its products. Following strong results earlier in the year for Tesla, the fourth quarter saw the company’s share price fall based on concerns that CEO Elon Musk may be distracted by his purchase of Twitter. We met with the chair of Tesla’s board in December, who noted a discrepancy between how the acquisition is reported in the media and the reality, and that Musk’s focus on Tesla remains unchanged.

In contrast, some companies have experienced a more challenging operational environment. While we are enthused by the longer-term opportunity for 10x Genomics, the single-cell analysis business, to help inform our understanding of biology on a more granular level, the company has recently been a casualty of Covid-related supply chain woes. Similarly, Peloton, the connected fitness company, experienced a turbulent year. Each set of results for Peloton feels critical, though we are encouraged that it is making good progress in slowing its cash burn. We met with management, including the new CEO, throughout the year to understand how he intends to turn the ship around and remain holders for now as we carefully monitor milestone progress. We are pleased to see that the company’s actions are increasing the accessibility of digital and connected fitness, in line with our Positive Change Hypothesis.

Stocks contributing positively to performance include Alnylam, Bank Rakyat and Deere. Alnylam is a biotechnology company developing a new class of highly innovative drugs. It now has five drugs approved and a healthy pipeline. Bank Rakyat, Indonesia’s largest bank by total assets, has a competitive advantage in microfinance that stems from its vast network of rural branches, which is vitally important in such a geographically fragmented archipelago (there are between 8,800 and 17,500 islands, depending on your definition). Financial services, which can have a transformational effect on social outcomes, are underpenetrated in Indonesia, where roughly half of the adult population remains unbanked. This offers a long runway for Bank Rakyat’s growth and impact. Deere, the precision agriculture company, had a successful year with advances in its See-and-Spray technology and an early launch of its autonomous tractor. These were key milestones in a year when the global population passed eight billion, highlighting the need to increase agricultural output without exacerbating environmental degradation.

What have we been doing?

The Positive Change team is now 10 strong, and we were delighted that Thaiha Nguyen was named as a decision maker in 2022, joining Kate Fox and Lee Qian as an investment manager alongside senior impact analysts Michelle O’Keeffe and Edward Whitten. They are supported by two further impact analysts and three investment analysts.

While near-term market volatility does not concern us, we are not blind to the underlying causes of significant share price moves this year. We were thrilled to visit company management in person to see operational progress and assess morale first-hand, as travel restrictions eased from the west coast of America to Japan and from the Nordics to Brazil. Lee was able to spend the early months of the year on secondment in our New York office and, given the trip’s success, he will now be based there for a period of at least two years. There will be no change to Lee’s role or responsibilities.

Thaiha visited Melicidade, or Meli City, MercadoLibre’s Brazilian HQ in São Paulo

At home, we conducted portfolio analysis on exposures to inflation, interest rates and geopolitical risks, and continued to perform in-depth, fundamental research on individual companies. We reviewed several holdings whose share prices had fallen significantly throughout the year. We distinguished between companies facing operational challenges and those performing well operationally but whose share price declines, in our view, were primarily attributable to changes in market sentiment.

We used this as a prompt to move on from companies where we had lost conviction, and redeployed capital towards companies where the divergence between share price and operating performance created an attractive opportunity for additions. As a result, we sold our holdings in Alibaba, Berkeley Lights and Beyond Meat. We sold Alibaba owing to concerns about its ability to meet our impact objective and sold Berkeley Lights and Beyond Meat on investment grounds. For Alibaba, the combination of regulatory intervention and internal issues dampened our belief that the company could drive positive change in Chinese society. With Beyond Meat, while we still believe in the long-term prospects of the plant-based meat market and admire the ambition of Ethan Brown, Beyond Meat’s founder and CEO, some operational missteps reduced our assessment of its probability of success.

New Buy



Complete Sale


10x Genomics


Abiomed (take over)







Berkeley Lights



Beyond Meat














In the final quarter, we bought Autodesk and Remitly, while Abiomed was acquired by Johnson & Johnson. Autodesk’s software is essential for upgrading infrastructure, which will be necessary for mitigating and adapting to climate change. Remitly, a new holding for the Base of the Pyramid theme, provides remittance and financial services to immigrants, helping to alleviate poverty, reduce deprivation and improve household resilience to shocks. Additionally, we added to several existing holdings as our conviction increased, including MercadoLibre which continues to strengthen its competitive position in Latin American ecommerce and financial services, and Shopify, whose valuation is now lower than pre-pandemic levels yet revenues and gross merchandise value are both three times higher.

With the knowledge that our process is robust, we continue to consider the importance of embracing the risk inherent in equity investing. The investment risk analysis mentioned above highlighted that 20 per cent of listed companies doubled their market cap over rolling five-year periods. We know companies that deliver the most short-term volatility can also deliver the strongest long-term returns, with operational progress the key to indicating which companies are most likely to rebound from significant drawdowns. We accept and tolerate this volatility while staying focused on growth opportunities and operational progress. As long-term stewards of capital, our inclination is to back management teams and embrace uncertainty. However, our patience is not unlimited and we will move on when operational milestones are not met.

There are certainly lessons we can learn. For example, a great product does not equal a great business. Execution counts. Periods of stress often provide rich sources of learning. As investors, we always strive to evolve and hone our craft. We hope that reflecting on the lessons we have learned over the past year will help us to build on our strengths in the years ahead.

Looking Forward

We have limited insight into the short-term market environment for 2023. Instead, we prefer to learn about the opportunities for the next decade and beyond using various information sources. For instance, to enhance our thinking about how companies can drive much-needed change, we have been working closely with the Deep Transitions research project, founded by Dutch academic Professor Johan Schot, exploring a series of changes that will fundamentally transform society. We explore this further in a podcast that will be available in early 2023.

Innovative companies are challenging the status quo and powering strong deflationary forces. Our research continues to unearth new ideas across several areas, including:

A new era of Healthcare
You could say that while the 20th century belonged to physics, the 21st will belong to biology. steep decline in the cost of gene sequencing signals that we are entering a transformational era where our ability to diagnose, treat and prevent diseases will experience a paradigm shift. The substantial tailwinds enable a new generation of pioneering companies that we are watching closely.

The Energy Transition
This significant structural change in the energy system brings many tangible investment opportunities. The team’s research pipeline includes sustainable steel makers, novel approaches to manufacturing longer-range EV batteries and methods to make those batteries fully recyclable. One company CEO noted that electric car emissions could be more than halved if the batteries are continually recycled. These solutions tend to be more capital-intensive than the market winners from the past decade. While the impact opportunity is often clear, we continue to hone our thinking on the long-term investment return potential of these businesses.

Financial Inclusion
The ability of individuals and businesses to access appropriate, affordable and timely financial products is crucial for reducing poverty and boosting shared prosperity. Current banking systems are outdated and disproportionately costly for low-income customers, but change is coming. There is a huge requirement and opportunity to address the needs of the 1.4 billion unbanked adults, where improvements in mobile technology can reduce many of the barriers to opening an account. Positive Conversations, our annual ESG and engagement report, will be available during the first quarter and contains an enlightening case study on the current state of financial inclusion in Brazil.


In periods such as the past year, as investors we must take a step back and consider the implications and relevance of near-term challenges for the companies we own. Our dual objectives ensure that we find and own growing companies whose products provide solutions to global challenges. Our philosophy is our north star; it has guided us over the past year as violent share price movements punish the companies we own on your behalf, regardless of how they perform on an operational level. Fundamentally, we think companies that can deliver positive change remain critical to addressing environmental and societal needs, which are only becoming more acute. We believe a robust set of companies able to meet these challenges will be the winners of the years to come, and we are grateful for our clients’ support as we pursue our dual objectives.

Annual past performance to 31 December each year (%) US dollars
  2018 2019 2020 2021 2022
Positive Change Composite Net      -0.2 30.1 86.0 9.7 -30.4
MSCI ACWI -8.9 27.3 16.8 19.0 -18.0
Annualised returned to 31 December (%) US dollars
  1 year  3 years 5 years Since
Positive Change Composite Net  -30.4 12.4 13.0 18.6
MSCI ACWI   -18.0 4.5 5.8 8.3

Source: Baillie Gifford & Co
Changes in the investment strategies, contributions or withdrawals may materially alter the performance and result of the portfolio.
*Inception date 31 January 2017

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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 2023 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

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