Being DifferentMike Gush, Investment Manager
All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk.
Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.John Maynard Keynes
Herding. Groupthink. The bandwagon effect. Zero-risk bias. These are just a few behavioural failures regularly witnessed in the investment industry that should send a shudder down the spine of any provider of capital seeking meaningful returns over the long term. Global Stewardship has been designed to be different. The whole genesis of the strategy is to capture the best that our regional teams offer, with no filtering, backing experts to bring forward their best ideas from the grassroots and crafting them into a global portfolio that makes sense. We champion those companies that most global investors ignore – our Local Heroes – and blend them seamlessly with the household growth businesses that we are famed for discovering – our Global Champions. And, we take our role as capital providers seriously, adding a stewardship focus that underlines our commitment to responsible investing.
Our Local Heroes are businesses that aren’t household names. They rarely appear in mainstream global equity portfolios. Local Heroes tend to be smaller in scale, either operating within a single country or at an early stage in their development. Or they might just be those businesses that, for whatever reason, fail to capture the attention of investors who start from the top and work their way down when they are looking at potential investments.
The Global Stewardship managers are embedded within Baillie Gifford’s successful regional teams to ensure they capture these tremendously exciting investments that others miss. And we know others miss them. Research by portfolio analytics specialists Copley Research shows that of the top 10 holdings in Global Stewardship relative to the peer group, nine are held by fewer than 10 per cent of competitor global funds and three are held by fewer than 3 per cent, as indicated in the graph below. Unfiltered stock picking is what we do; finding the companies that others simply can’t. And our ability to find overlooked exciting investments isn’t limited to Local Heroes, it also extends to Global Champions.
Baillie Gifford is known for investing in some of the world’s best and brightest growth companies. Amazon, Tencent, Alibaba, Tesla, Facebook… all are great businesses with established franchises likely to stand the test of time, exceptional financial characteristics and entrepreneurial management teams that think differently to the norm. It appears that the duration of the growth opportunity is under-appreciated by investors and the power of compounding ensures that valuations are downright attractive. Even when one’s opportunity set is the entire globe, these businesses are still rightly among the most exciting investment opportunities to be found, and hence feature heavily in Global Stewardship.
However, even in the realm of the Global Champions, we tend to invest in businesses that others don’t. Again, using Copley’s analysis we find that Netflix only appears in 8 per cent of competitor portfolios. Ditto SoftBank, in only 9 per cent. Yet Netflix is already a global franchise and comes installed on any smart TV you care to mention, usually with its own dedicated button on the remote control. Meanwhile, SoftBank is a potent combination of assets spanning Japanese and US telecoms, Chinese e-commerce, a global semiconductor design house and an investment portfolio that boasts stakes in exciting startup businesses (many of which are unicorns – privately held start-up companies with valuations of $1 billion or more) across a range of geographies and industries.
Netflix partnered with SoftBank for its Japanese launch in 2015.
© 2015 Getty Images.
With Global Stewardship, we have designed and developed a process that builds upon the very best that Baillie Gifford has to offer. The result is a differentiated portfolio, giving global investors something they don’t get elsewhere. As an example, our large overweight in consumer discretionary stocks places us in the 95th percentile of our peer group; likewise, our large underweight in consumer staple names places us in just the sixth percentile. We have nothing invested in the top 15 most widely held stocks in the Europe, Middle East and Africa (EMEA) region.* This willingness to be different is a trait that few can match.
Core to our ability to do this is our ownership structure; a long-standing, independent, private partnership owned and managed by the 44 partners who work in the business day to day. This independence allows us to genuinely do what is in the best interests of our clients: investing in our people, going the extra mile to chase down differentiated research inputs or being able to focus on the long term.
This leads to the ability to truly manage money in a way that is increasingly rare in our industry. Our philosophy can be summarised as resolutely focusing on the fundamental business progress of companies which have the opportunity to be outstanding, and working with them to help achieve that goal through long-term growth. The independence and stability afforded by our partnership structure enables us to focus on time periods that matter; stick to our strong belief in growth even when this may be out of favour; and to express our views by buying the best companies, with scant regard for what a benchmark index happens to look like. To us, this is the difference between the common definition of active management (ie simply differing from a benchmark), and what we call actual investing – meaning to focus entirely on the underlying uses of capital and potential for fundamental wealth creation. Business cycles span long periods and investment decisions today can take years, if not decades, to play out. Aligning our ownership periods with this is as crucial as our role as capital allocators. Without this ability we would be doing little more than playing a dangerous game of chance with our clients’ capital.
Finally, as the name Global Stewardship suggests, we take the role of being an investor in a company to heart. Stewardship is the word we use to capture what can broadly be termed as ‘doing the right thing, for the right reasons’. Quite simply, it is about running a business for the long term. It covers everything from encouraging the right corporate culture, to helping management teams focus on the long term, and on through the more granular matters of environmental, social and governance (ESG) factors. At Baillie Gifford, we view ourselves as owners of businesses, and with that comes great responsibility. In Global Stewardship, we have a structured approach to addressing stewardship matters, including the way in which we engage with portfolio holdings to help them become better companies and, ultimately, deliver great returns for our clients.
*Source: Copley Fund Research.
We take the role of being an investor in a company to heart.
We are different. Rejoice.Global Stewardship offers a differentiated global equity portfolio, consisting of both Local Heroes and Global Champions, at the same time incorporating a pragmatic and thoughtful approach to responsible investing. When we see a great investment opportunity we have the courage to back our conviction, regardless of whether we are alone in our view. Our institutional structure allows us to focus on what matters for our clients and is our single largest competitive advantage. We are different from the herd, and that difference is to be celebrated.
The views expressed in this article are those of Mike Gush and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect personal 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 January 2019 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.
Any stock examples and images used in this article are not intended to represent recommendations to buy or sell, neither is it implied that they will prove profitable in the future. It is not known whether they will feature in any future portfolio produced by us. Any individual examples will represent only a small part of the overall portfolio and are inserted purely to help illustrate our investment style.
This article 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.
Baillie Gifford holds the following stocks: Alibaba, Amazon, Facebook, Netflix, SoftBank, Tencent, Tesla.
Source: MSCI. 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.
All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.
The images used in this article are for illustrative purposes only.
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Mike Gush Investment ManagerMike graduated from Durham University in 2003 with a Masters in Engineering. He joined Baillie Gifford in the same year and worked in the UK and Japanese Equities teams before moving to the Emerging Markets Equity team in 2005. Becoming an investment manager in 2006, Mike is an integral member of the team and has researched all emerging markets during his career. Mike is a CFA charterholder and has significant fund management experience, being a named manager for Baillie Gifford’s Emerging Markets and Greater China Funds as well as being responsible for the Emerging Markets Small Cap strategy. He has previous experience managing Pacific Horizon Investment Trust as well as the Baillie Gifford Pacific Fund. Mike is one of the six founder members of our Global Stewardship strategy, which has recently attained its three year track record.
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