Positive Change: a review of 2023

February 2024 / 7 minutes

Key Points

  • Long-term performance remains strong in absolute terms and relative to the benchmark. The portfolio returned to positive performance in 2023
  • Looking at the world, we see significant environmental and social challenges – and opportunities for companies that address them
  • We are at a watershed moment. 250 years after the first industrial revolution, we are on the cusp of a second 'deep transition' toward sustainability

All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk.

It’s not what you look at that matters, it’s what you see.

– Henry David Thoreau (1817–1862), American naturalist and philosopher.

Anyone can look at inflation figures, the Fed’s most recent meeting minutes or reports of global conflict. Anyone can look at charts illustrating the rise in global temperatures or the spread of viruses. But more than simply looking, investors such as ourselves must see and try to understand the consequences of these factors.

Looking around us, we see a world facing significant environmental and social challenges. We also see individuals and businesses developing products and services with the potential to address them.

We see investment opportunities in companies that are challenging the status quo. And we believe that looking through a long-term lens helps us to see what matters most. This corresponds with our dual objectives: to contribute towards a more sustainable and inclusive world while generating attractive investment returns for you, our clients.

Technological developments have led to wonderful new possibilities, but they have also added to the complexity and fragility of the world. In a complex system, individual variables interact in ways that can lead to non-linearity and randomness, opportunities and threats. Thus, complexity can surprise us. In such a complex world, having a strong ‘north star’ philosophy to guide us is vital.

We believe capital allocators can help to address global challenges by channelling money towards businesses striving to create a more inclusive, healthy and environmentally stable world with their products and services. We believe that our two objectives are complementary and that we can help you, our clients, benefit from attractive financial returns while channelling your capital purposefully.


The Positive Change portfolio delivered positive returns for the year. As to be expected from our concentrated, high-conviction portfolio, performance against the benchmark was volatile, with Positive Change delivering both relative underperformance and outperformance over short periods. Returns over the most recent quarter were particularly strong, for example, while relative performance mid-year was weak. Overall, returns for the year were behind the benchmark.

Cumulative returns since inception* (net)

Source: Revolution, MSCI. As at 31 December 2023. USD. The Positive Change strategy is more concentrated than the MSCI ACWI Index.

Benchmark: MSCI ACWI Index. *31 January 2017. Rebased to 100.


Encouragingly, long-term investment performance remains strong, with returns comfortably ahead of the benchmark over our time horizon of five years, and since inception.

Companies that have thrived this year include MercadoLibre, the Latin American ecommerce and fintech business. This was our highest conviction holding at the end of the year. Recent earnings surpassed expectations, with revenue growth accelerating and margins expanding despite increased spending on logistics and the relaunch of the company’s MELI+ loyalty programme.

Unlike some competitors (eg Shopee), which have started to conserve capital, MercadoLibre’s continued investment has helped to strengthen its competitive advantage, resulting in market share gain and higher profits. MercadoLibre is now the main source of income for more than 1.8 million families who run businesses on its ecommerce platform. In 2023, it contributed strongly to expanding financial inclusion in Latin America, with 54 per cent of its users using its Mercado Pago fintech platform to access digital payments for the first time.

Another top contributor to performance was Duolingo, developer of the popular language learning app. The company has gone from strength to strength since it was added to the portfolio in 2021, adding over 40 million monthly active users to reach 83 million in 2023, with very low customer acquisition costs. It has successfully integrated artificial intelligence (AI) into its product line up to offer a higher-function subscription tier, as well as introducing mathematics and music courses. This demonstrates its ability to adapt and progress. As the company has grown, margins have improved and free cashflow has been positive for the past seven quarters. All this progress has been achieved while staying true to the core mission of developing the world’s best universally available education.

It would be remiss not to mention that, after over a decade of easy monetary policy and favourable conditions for businesses to secure financing, invest and grow, the last two years have brought a rapid increase in interest rates. This has had a stark negative impact on short-term financial returns. Higher interest rates mean a higher cost of financing for companies and lower valuations for long duration growth stocks, ie, companies with a share price skewed towards future cashflows. 

This tougher backdrop, combined with a reversal of pandemic spending themes, has been particularly bruising for the healthcare sector. One of the bigger detractors from performance over the last year has been Moderna, a biotech firm. The company’s phenomenal success in developing a Covid-19 vaccine accelerated its progress beyond our most optimistic scenarios when we invested at initial public offering (IPO) in 2018.

Moderna’s financial characteristics completely transformed, from making losses to generating billions of dollars of free cashflow. However, as we have transitioned from pandemic to endemic, revenues have declined by more than predicted.

© LightRocket/Getty Images

Other market participants might look at Moderna and see a business with a single revenue stream and a cash pile that’s rapidly depleting due to the billions of dollars it invests in research and development. We see something quite different. We see a company that has successfully executed under extreme pressure, adapting itself from a research organisation to a commercial business. We see a company that is broadening its clinical pipeline at a remarkable pace, with 47 development programmes (six in phase 3 and seven in phase 2); a company transforming the success rate for developing new drugs and vaccines; a company with a strong balance sheet, investing in its future with financial flexibility. This is to say, we see something that others don’t. And this excites us – we have added to your position.

Illumina was also a negative contributor to short-term (12-month) performance. Illumina is the leading provider of sequencing tools used to help us better understand, diagnose and treat diseases. Other market participants might look at Illumina as a company with questionable governance that is facing stiff competition. They might consider it to have destroyed shareholder capital through its attempted acquisition of Grail.

We also recognise these features. However, we believe clinical sequencing technology is in its very early innings and is thus a fantastic opportunity for growth. We see a company with a near-monopoly position and the capacity to invest 25 per cent of revenues (over $1bn a year) in research and development, a significantly greater amount than its smaller competitors. And, following extensive engagement, we see a company with a refreshed board and a new CEO who is determined to restore its reputation and performance. We see a company providing the infrastructure of the genomics revolution. For these reasons, we have continued to hold it in your portfolio.

You have to keep learning if you want to become a great investor. When the world changes, you must change.

– Charlie Munger (1924–2023), American businessman, philanthropist and former vice chairman of Berkshire Hathaway.


Our philosophy remains unchanged, but that doesn’t mean we don’t adapt in our bid to become better investors. We have a growth mindset in two ways: we seek growth companies and we have a hunger to keep learning. Indeed, the last two years have provided reason to reflect on how we might adapt. 

One of our key learnings has been that, even if a company has a great growth runway and ambitious management team, execution counts. A handful of companies fall into the bucket of 'great opportunity, great vision, poor execution’. These include recent sales, such as interactive fitness company Peloton and virtual medical company Teladoc.

Learning from these less successful investments, we have decided to sell our position in renewable energy company Ørsted. Our original investment thesis was based on offshore wind becoming an important energy source for many countries, and our belief that Ørsted’s scale and expertise would enable it to capitalise on this opportunity. Unfortunately, recent events have reduced our conviction. The company incurred significant losses in 2022 due to poor hedging policies and recognised a reduction in the value of its US business. While the growth opportunity remains, we have lost confidence in the management’s ability to allocate capital effectively and generate long-term value for shareholders. 

Another Charlie Munger quote is relevant here: “Don’t bail away in a sinking boat if you can swim to one that is seaworthy.” We redirected the proceeds of this sale to companies we deem more seaworthy, including design software firm Autodesk and Indonesia’s Bank Rakyat.

Joby Aviation is another recent buy which displays encouraging early signs. Joby is a US-based company developing electric vertical take-off and landing (eVTOL) aircraft intended to operate as a taxi service in metropolitan areas. The company has developed a production prototype and is currently progressing through the Federal Aviation Administration certification process.

The adoption of battery-powered eVTOLs could lead to substantial environmental benefits through lower emissions and reduced demand for personal vehicles. There may be social benefits in the form of improved mobility and reduced traffic congestion. While success is far from guaranteed, we believe that Joby is one of the leaders in its field, and the investment upside could be very large if it is to achieve its vision. We therefore decided to take a small holding.


Seeing the opportunity

Our thesis is that companies whose products and services are helping to resolve global challenges will thrive in the long run – be it electric cars, cancer vaccines or accessible financial products. At Baillie Gifford, our long-held belief is that growth in sales and earnings will drive long-term financial returns.

Source: Baillie Gifford & Co, FactSet, MSCI. US dollar. As at 31 December 2023. Based on a representative Positive Change portfolio. Excludes companies with negative earnings.

For example, over the past five years, the portfolio has delivered earnings growth of 11.5 per cent per annum in USD, compared to 6.7 per cent for the index. That is pleasing, but what is exciting is the strength of operational performance that we anticipate across the portfolio in the coming years. Consensus estimates place three-year earnings growth at 12.0 per cent, almost double that of the index.

Reinvesting for the future*

Net debt to equity**

Source: Baillie Gifford & Co, FactSet, MSCI. US dollar. As at 31 December 2023. Based on a representative Positive Change portfolio. *Excludes financials. **CAPEX – Depreciation + R&D/Buybacks & Dividends.

Companies in the portfolio are focused on growing and are reinvesting for future growth. They are spending more than double the proportion of sales revenue on research and development than the average company in the index, and they are doing so without taking on excessive debt. Importantly, valuations remain attractive. Companies in your portfolio are trading on a price/earnings premium of around 1.5 times the market. Opportunity abounds.


A watershed moment

We have been working with the University of Sussex and Utrecht University on Deep Transitions, simply put are a series of changes that herald a new phase of industrialisation, modernity or consumption. The thesis behind this work is that we are on the cusp of a second Deep Transition. The first started over 250 years ago with the Industrial Revolution. The second is about addressing the negative effects of the first – climate change and rising inequality.

This resonates with us as growth investors seeking to drive positive change. It could be said that we are at a watershed moment, faced with the choice of continuing along our current path or plucking up the ambition, optimism and determination needed to steer us onto a more sustainable trajectory.

This watershed moment should be rich with investment opportunities. We are excited to continue our search for companies that address our portfolio’s 'environment and resources’ theme. These include equipment manufacturers helping to electrify the mining industry, which will play a vital role in the energy transition. We are excited to explore how AI could be deployed to address our 'healthcare and quality of life’ theme, and how platform businesses are creating opportunities for inclusive economic growth in developing countries. To do this, we will need to make sure we see what matters most, rather than try to predict short-term sentiment at a glance.

Thank you for seeing what we see in our philosophy, and believing we see things that others don’t. Thank you for sharing our excitement.

Annual past performance to 31 December each year (net%)
  2019 2020 2021 2022 2023
Positive Change Composite 30.1 86.0 9.7 -30.4 15.3
MSCI ACWI Index 27.3 16.8 19.0 -18.0 22.8
Annualised returns to 31 December 2023 (net%)
  1 year 5 years 10 years Since inception
Positive Change Composite*  15.3 16.3 N/A 18.1
MSCI ACWI Index 22.8 12.3 N/A 10.3


*Inception date: 31 January 2017.
Source: Baillie Gifford & Co and MSCI. USD. Returns have been calculated by reducing the gross return by the highest annual management fee for the composite.

Past performance is not a guide to future returns.


The objective stated above is aspirational and is not guaranteed. A single objective may not be suitable across all vehicles and jurisdictions. We may not meet our investment objectives if, for example, our investment style is out of favour, or we misjudge the long-term potential of our holdings.

Legal notice: MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

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