Opportunities in the pursuit of Positive Change

As with any investment, your capital is at risk. Past performance is not a guide to future returns.

Rosie Rankin (RR): Thank you so much for joining our webinar, which will be discussing the opportunities in pursuit of positive change. I am Rosie Rankin, a positive change investment specialist, and I'm delighted to be joined by the head of the Positive Change team, Kate Fox. 

Hello, Kate. Today, Kate and I are going to discuss three main areas. Firstly, how the team are navigating the current macroeconomic backdrop. Secondly, her reflections on portfolio performance and the drivers for growth. Thirdly, the abundance of new ideas and opportunities in the pursuit of positive change. 

Our discussion will take around 20-25 minutes, which leaves around 15 minutes for your questions at the end. If you would like to submit a question, please do so using the chat function on the webinar. We'll try and get through as many of your questions as we can.

So, diving straight into the big picture. Kate, uncertainty seems to be a very apt description of the current macroeconomic and geopolitical backdrop. How are you and the Positive Change team navigating that Kate?

Kate Fox (KF): Yes, well, Rosie, there's certainly no shortage of things going on in the world, many of which are creating uncertainty. If we're not careful, we could spend this entire webinar discussing tariffs, uncertainty both within and between political systems, the horrors of war, polarisation and de-globalisation, and the incredible advances of AI. But what does it mean for us? That's what you asked me. So, let's just start at a high level then and our philosophy and our objectives of positive change. So just a reminder of what they are. 

So, there are three core beliefs. Firstly, that asset owners and asset allocators can contribute towards a better world through channeling capital towards solution providers. Second of all, that we think this creates a fantastic opportunity for savers and investors over the long term, because these businesses will have superior growth characteristics. And the data tells us that the faster growing companies deliver the greatest outperformance. And thirdly, that it takes a thoughtful and long term approach to do this. So, these three core beliefs underpin our two objectives.

But I can almost hear the audience ask: ’Does this still hold in a world where President Trump has called out to drill baby drill and where he's rolling back from climate commitments and removing subsidies? The short answer is yes, but with the realism that the US administration could provide a speed bump along the way for the energy transition. 

Why just a speed bump? Well, climate change is not going to go away. It's only going to get worse, and it needs to be resolved. It's a global phenomenon that spans far broader than the US. And the technological developments that we've experienced over the recent decades mean that market forces will support the shift to renewables and electrification over the long term. 

Also, we are global in our perspective with positive change. We're not dependent on any one administration, albeit the US is a powerful one. And we're considering more than just the climate theme. We've got our healthcare and quality of life theme, our social inclusion and education theme, and our base of the pyramid theme too. So, we've got 35 or so companies across a broad range of sectors and geographies.
 
So that's at a high level, but let's get a little bit more granular. What does this mean for what we're doing on a day-to-day basis during a period of elevated uncertainty? 

Well, we continue to keep cool heads. That's really important. We consider what, if anything, these uncertainties mean for the long-term prospects for the businesses and the portfolio. And we've really sharpened our focus on resilience. 

So, operational resilience, the pricing power, the cost control levers that a company might have. Policy resilience, how dependent are they upon subsidies, for example, and balance sheet resilience. So what is the net debt characteristics? What is the free cashflow generation? Essentially, all of these three areas boil down to how in charge of its own destiny is this business. So, in uncertain times, our philosophy prevails and we keep doing what we always have done.

RR: And against that backdrop, Kate, it's really pleasing to see that recent performance of the portfolio has been strong. So to the end of August, the portfolio is ahead of the MSCI ACWI by about 4 per cent over the last 12 months in sterling. Now, can you talk a bit more about the drivers of that performance and why we're seeing that?

KF: Yes, of course. So, it's really been stock selection that's been the primary driver to this performance. So, it's strong share price performance of companies that are performing extremely well operationally. 

So, I'll mention a few highlights over the time frame that you're categorising the question over the last 12 months. 

Firstly, Alnylam. So Alnylam is a biotech business that's pioneered a new drug class that's essentially switching off the disease-causing genes, those problematic genes. The analogy I like to draw: it's a bit like turning off the tap rather than just mopping up the floor when you've got an overflowing sink. So, Alnylam's now got six commercial drugs launched in the market. Most recently it's launched a new drug to treat a rare disease that has significantly expanded its addressable market. So it's beating expectations and it's raised its guidance and this is being rewarded in strong share price appreciation. Now, I think the share price has been driven by these recent very positive developments, but importantly, we're also excited about Alnylam’s long-term prospects as it expands from rare diseases to more common and chronic diseases.

From biotech to commerce, Shopify has also been a highlight. So this is the technology platform that's helping merchants grow their businesses. And it's continuing to beat our expectations, growing revenues by just over 30 per cent in the most recent quarter, which combined with operational leverage, thanks to good cost containment due to management's actions, meant that earnings grew considerably faster than that. 

And it's been a similar story for SEA Limited, which is Southeast Asia's super app business that's spanning fintech, e-commerce and gaming. And it's helping provide access to financial services as well as helping small businesses grow. So not dissimilar thesis to the likes of Shopify when it comes to the impact it's driving. Again, it's continuing to beat our expectations, growing revenues at nearly 40 per cent. 

Now, the strong share price returns really have reflected fundamentals, which is great. That's what we want to see. And that's offset the weaker share price performance from the likes of ASML and Bank Rakyat over that 12-month period. 

So ASML, the operational progress remains to be good, but we are operating in an uncertain backdrop with tariffs and trade tensions, which is making it difficult to predict the short-term growth of the business. 

Bank Rakyat has had some macro and operational challenges which the business is addressing. 

I know that people are interested in performance, and trust me, I am too. And it's really pleasing to see this turnaround over the last 12 months. But it is backward looking. So what excites me is that this is a portfolio that's poised for growth in the future. So it's expected to grow earnings at nearly 18 per cent per annum over the next three years, which is compared to just under 11 per cent per annum for the index. So this is a portfolio which is built on resilient companies that are investing in the future and that's poised for growth.

RR: It's really pleasing to hear about those kind of strong fundamentals of the portfolio, Kate, the good operational progress of companies, the positive recent performance. But of course, it comes after a period of much weaker performance, particularly in those post-pandemic years for the strategy. And I know that that's prompted real reflection within the team and some important enhancements to how you work. So could you share a bit more around that, please?

KF: Yes, I'd be delighted to, Rosie. And I'm glad that you asked the question because it's really important that we reflect and adapt where there is room for improvement. Equally though, it's important that we don't over correct. So, we've identified three key areas where there was room for refinement. The refinements have come in the form of improved tools and fine-tuning process. So, the first area is valuation discipline. We've improved the toolkit and our risk processes here. And you can see evidence of that coming through in us trimming and moving on from some positions on valuation grounds. We might have an opportunity to get into some of the specifics through your questions or the questions of the audience. 

The second area that we've been reflecting on is that we feel we could be tighter on the monitoring and moving on from companies where the thesis has weakened. So, we've made some adaptations there. 

And then thirdly, we want to make sure that we remain opportunity seeking. So we've added analytical resource. We've increased direction of the research agenda to help avoid the risk of missed opportunities. 

And we remain reward-seeking by introducing what we call incubator holdings. So, these are holdings in companies that are at a very early stage with significant upside, so much greater than that 2x return hurdle that we have. To explain, we're looking for companies that have got the potential to double over a five-year time horizon. and significant growth opportunities thereafter. So, a higher return threshold than that, but a higher degree of uncertainty. So those incubator holdings go in small position sizes with specific unlocking milestones. A great example would be Joby Aviation, which makes electric flying taxis. 

So, also really important, as I mentioned, that we don't overcorrect. And what gives me comfort there that we're not overcorrecting is looking at the portfolio characteristics. So, this is still a growth portfolio and growing significantly faster than the index.

RR: And Kate, I think what is most interesting is how those lessons learnt have manifested themselves in terms of portfolio activity. Now, hopefully everybody can see the slide that I've just shared, but it really summarises that over the past 12 months, the team have bought 12 new companies for the portfolio and sold six companies as well as making some reductions. And I think it would be really interesting to explore some of this portfolio activity. Perhaps we can cover the complete sales first. 

Can you talk briefly about the rationale here? And I think in particular, people may be interested in hearing about the complete sales of Tesla and Moderna.

KF: Yes, of course. So, Tesla and Moderna have some similarities in that they've both been pioneers. So Tesla has pioneered the electrification of the auto industry. And Moderna has been a pioneer in developing mRNA technologies and treatments. Both are companies that we got involved in at an early stage, recognising their growth potential. However, the investment journey and the outcomes for both have been quite different. 

So, let's start with Moderna. This is an example of a holding that we've made a complete sale of because the thesis hasn't worked out. We invested at IPO, which was back in 2018, at which point the company was making de minimis revenues, I think it was $60 million in revenues, and it was loss-making and burning through just under half a billion of cash per year. But it had a really exciting technology with a platform potential, that's what we admired in it. 

Then COVID happened, that de-risked the technology and the financials of the business so it went from generating very little in revenues to close to 20 billion in revenues and throwing out a lot of free cash flow back in 2021 and 2022.

COVID then moved from pandemic to endemic. And since then, growth has moderated significantly, more so than we would have expected. Competition has increased and, despite some fantastic scientific progress in the business that's really expanded its pipeline and portfolio, the commercial launches have been disappointing. So the top line has really scaled back, whilst investment in its pipeline has continued. It means that this is a company that's burning through its cash pile at pace. 

There were three milestones that we were monitoring and business wasn't tracking well against them. And at the same time, the backdrop changed with the new administration coming into the US, which really called into question vaccines. There's less enthusiasm to invest in mRNA technologies and research more broadly. And this is a time when the balance sheet is quite fragile. So to use the phrase I used earlier on, the business is less in control of its own destiny. So we decided with a heavy heart that it was time to move on. 

Let's pivot to Tesla, one which we spent many hours talking about over the years that we've owned it in the strategy. This sale was for quite different reasons. It was due to valuation. So having reduced the position on valuation grounds over the course of 2024, we made a complete sale in January this year. Now, we invested in it at inception, so that was January 2017. I think the shares were on about $15. It's a great example of the asymmetry that's inherent in equity markets, having increased by about 25 times since then, as the company has successfully helped the auto industry electrify, and it's really scaled as a business. But thinking about the upside from here, we're increasingly reliant on the less developed parts of the business to meet our return hurdle. And those are energy storage and autonomy, which could be very exciting. But to meet our hurdle, you have to assume a high probability of success, which at this point, we just don't have the conviction to do so. So we decided to make a complete sale. But we will keep watching Tesla's progress with keen interest, particularly because the areas in which it's involved are really aligned with our impact themes.

RR: And of course, those sales have been used to fund our new ideas. And it's been a period of really rich idea generation, Kate. The names on the screen there: it's exciting to see so many coming into the portfolio, especially across such a range of impact themes, sectors, geographies, maturities of business. Now, we don't have time today to go into each individual name, but perhaps you could highlight a few that you're really excited about.

KF: Okay, great. Well, I think that this slide actually really illustrates some of the reflections I was highlighting through valuation discipline, moving on from things that have not worked out, but making sure we remain opportunity seeking. So it's tremendous to see these new ideas come into the portfolio. It's a bit like asking me which one's my favorite child, this question. But I'm going to tune into three. 

First of all, let's look at Savers Value Village. So I attended a forum on sustainable fashion a few years ago, having realized with some horror, the environmental impact of this industry. And at that forum, one of the most impactful areas highlighted to address the challenge of the industry was to keep things in the system for longer. So since then, we've considered a few companies that are involved in secondhand clothing, but failed to find one that we had sufficient conviction in, in the investment credentials. So after several years of searching, I'm delighted that we've identified Savers Valley Village. So this is the largest second-hand retailer in North America, but it's still got a huge runway for growth. It's got 2 per cent share of a fragmented and growing market as more people look to buy second-hand, and it's only got 350 stores. So growth is going to come from same-store sales as well as a rollout story. The edge here is the processing power. So this isn't your typical retailer. It's more like a light manufacturer. It's got all these SKUs that are coming in, all these units that are coming in of differentiated products that it's got to then sort and label and price and sell. And going back to the beginning part of this, the impact thesis is great because this is keeping things in the system for longer and encouraging and enabling reuse. 

So we'll pivot from secondhand retail to news. So I've highlighted New York Times because it really surprised me, which really illustrates the importance of having an open mindset in your idea generation process. It surprised me on both its growth credentials and its impact potential. So New York Times has really pioneered the digitalization of the news industry, and it's got a few levers for growth. So it's got 130 million or so readers today. Around about 10 per cent or so are subscribers. So they've got scope to increase the subscriber base. They've also got scope to sell more products to those subscribers. So beyond news and onto games, puzzles, recipes, sporting news. And it also has operating leverage because the incremental subscriber comes at very low cost. So this should lead to margin expansion too. Now, the impact case might be less obvious, but I think it's really exciting and differentiated to the impact of the other companies that we own in the portfolio. The impact case here is based upon its high quality and investigative journalism, which is providing high quality reporting, which is something that's becoming scarcer in today's world, despite news sources becoming increasingly more prolific: I continue to be astounded by my children coming down at the moment at night seeing news that they've sourced from TikTok,[and] trying to get them back on track. So it's journalistic approach and style is really helping hold individuals and institutions to account whilst driving the flow of relevant, pertinent and accurate information. 

Okay, so from newspapers to our healthcare theme, I'm going to talk about Procept. So, this is an idea that was brought to us by one of our analysts who has a healthcare background. It provides surgical robots and consumables that treat enlarged prostates in a more effective way than the current products and critically with fewer side effects. And the side effects are pretty horrid with the interventions associated with this condition. This is a condition that's really tied into the aging population as well. So 50 per cent of men over 50 suffer from this condition and 80 per cent of the over 80s. These robots are good for patients because the treatment is better and there are fewer side effects. It's also good for the hospitals because the procedures require less time in the operating room, which helps reduce costs and helps get more patients through. So it's good within the system: good for the whole system. And what's really appealing about Procept, much like some of the other companies wet have in the portfolio, is it's got a dynamic addressable market, which provides an exciting runway for growth as it expands into additional patient populations. So those are three examples of the twelve or so that are highlighted on that slide. But I hope that gives you a sense of the variety by theme, by business, and actually by pace of growth as well.

RR: Yes, it's certainly a really diverse range of companies. And I think it's really striking, Kate, that it's really clear that what they have in common is they all have that potential to deliver superior investment returns, but also a really compelling impact. And of course, the impact that a company has through its products and services is really core to our overall hypothesis for any company we invest in. So, I just wanted to mention quickly that we have recently published our annual impact report, which summarises the impact of every single company we hold in the portfolio. And for anybody on the call who wants to find out more, you can find the full report on our website alongside a short digital summary and an even shorter 90-second film. So, whether you have a lot of time or just a little time hopefully there is an accessible impact report format for you. 

So, we have covered, Kate: the global backdrop past performance and the current portfolio. But, before we switch to questions that have come in (and please do continue submitting your questions via the chat function) let's switch perspective now and look to the future. The title of this webinar is looking for the opportunities in pursuit of positive change. And I know there's a kind of abundance of new ideas and opportunities on your radar. So, could you give us an overview of some of those, please?

KF: Yes, sure. So the research pipeline is exciting and it includes developing our thinking on existing names as well as finding new names as well. 

So, if you think about the existing names, I was excited to hear from Dexcom last week when meeting them about the progress that they are making in expanding into new patient cohorts. So Dexcom makes continuous glucose monitoring devices that displace finger stick tests for diabetes. But they're developing new products and apps which really help address the health and wellness market. So that really could increase the scale of the opportunity significantly, as well as the impact that they could deliver as it moves from treatment to prevention. 

We've also been thinking about what stable coins might mean for remittances and other fintech businesses. 

And when it comes to new ideas, we've been thinking about robo taxis in China, energy efficient semiconductors, low cost fitness studios in Latin America: I'm excited to be meeting a business involved in that area tomorrow. 

Financial inclusion also continues to be a rich hunting ground and that expands beyond just developing countries as well, to the scope for financial inclusion in developed countries. So we've been looking at a couple of names in the US there as well.  I mean, unfortunately, the sad reality is that we face significant and worrying challenges as a society today. But we're also living in a world of fabulous technological advancement. So there are opportunities to address these challenges. We think that our search for positive change should lead to growth businesses, which will lead to good share price returns over the long run: it should lead to improved outcomes for people planet and savers. So it's great that we do have that rich pipeline and I expect it to remain rich over the months and years to come.

RR: Fantastic. I've really enjoyed our discussion, Kate, but realise that in the time we have together, it would be good to turn to some of the questions that have been coming in. So thank you to everybody who's sent in questions. We'll try and get through as many as we can over the next kind of 10, 15 minutes or so. 

So Kate, first of all, and I guess this question was almost inevitable, given that it's in most headlines at the moment:, It feels like AI is everywhere in the news just now, what are your thoughts on AI? What does it mean for the portfolio. Risk? Opportunity?

KF: Yes, well it wouldn't be complete without us talking about AI. So, things are certainly moving at pace, to state the obvious. I think AI could be hugely exciting for society. It could help with advanced drug development. It could help address the climate crisis. It could help provide access to information and educational tools to those who don't currently have access. But these positives can be offset with some negatives. So we're asking ourselves, what does this mean for jobs? How will AI be responsibly deployed?

So there are some big questions that we're asking ourselves around it. But this is one of the biggest technological shifts of our time, and one with the potential to drive better outcomes. So we do want to have exposure to this theme, and we do. In the portfolio, we've got exposure in different ways. 

So the sort of infrastructure and hardware, through names like ASML, which makes lithography equipment that is used to make the semiconductors that TSMC is making that will go to power AI. And Microsoft as well will be involved in the infrastructure. 

The application of AI: almost every company in the portfolio is using AI, whether it's Duolingo to help enhance its language learning or Dexcom that's coming up with clever apps that means you just need to take a picture now of a plate of food and it will tell you what the content of that is without you having to log everything. So it's being applied across the portfolio. 

There's also another element for us within the Positive Change strategy, because it is resource intensive from an energy consumption and water consumption perspective. So we're thinking about companies that can help you know, improve the sustainability of the deployment of AI. So here I point to the likes of Schneider and Ecolab. 

So Ecolab is a specialty chemicals business which sells lots of products that help different industries operate more safely and more efficiently and effectively. And the data centers are a really interesting growth area for the business because they're helping with the water management that's required in these data centers, significant amounts of water. 

So, to round that up, it's important, it's exciting, there's uncertainty, we've got exposure across three different areas.

RR: I suppose it's just such a fast evolving area as well, isn't it? 

KF: Yeah, it's fast moving and it's not black and white. So we're talking about responsible AI. So how do we address that big question? You know, that's where we engaging with academics can help us. We've engaged with Professor Valler at the Edinburgh Futures Institute to help develop our thinking, what responsible AI looks like. One of our impact analysts was at a UN conference in Geneva, which was, I think the title was ‘AI for Good’. So that was a huge jamboree of different participants in society coming together to discuss the potential applications of AI. So there's still a lot to learn. It's fascinating.

RR: It’s fascinating. Turning to the next question, someone has noticed correctly that the portfolio is overweight emerging markets. I think our allocation there is around 30 per cent to emerging markets, which will be about a 20 per cent overweight, I think. Asking, is that deliberate? How are you viewing the risks and opportunities across that very broad range of countries?

Annual past performance to 30 June each year (net%)

*MSCI ACWI

** MSCI ACWI Index (in sterling) plus at least 2% per annum over rolling five-year periods

Source: FE, Revolution, MSCI. Positive Change Fund Class B-Acc. Total return in sterling. Share class returns calculated using 10am prices, while the Index is calculated close-to-close.

Legal Notice: 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.

The manager believes this is an appropriate target given the investment policy of the Fund and the approach taken by the manager when investing. In addition, the manager believes an appropriate performance comparison for this Fund is the Investment Association Global Sector.

There is no guarantee that this objective will be achieved over any time period and actual investment returns may differ from this objective, particularly over shorter time periods.

Past performance is not a guide to future returns.

Important information and 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 September 2025 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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The specific risks associated with the Fund include: 

• Custody of assets, particularly in emerging markets, involves a risk of loss if a custodian becomes insolvent or breaches duties of care. 
• There is no universally accepted definition of impact. Furthermore, there is a risk that individual investments fail to make a positive contribution to society and/ or the environment, and that overall the Fund fails to meet its objective.
• The Fund invests in emerging markets where difficulties in trading could arise, resulting in a negative impact on the value of your investment. 
• The Fund's concentrated portfolio relative to similar funds may result in large movements in the share price in the short term
• The Fund has exposure to foreign currencies and changes in the rates of exchange will cause the value of any investment, and income from it, to fall as well as rise and you may not get back the amount invested. 
• 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. 
• The Fund invests in companies whose products or behaviour make a positive impact on society and/or the environment. This means the Fund will not invest in certain sectors and companies and the universe of investments available to the Fund will be more limited than other funds that do not apply such criteria. The Fund therefore may have different returns than a fund which has no such restrictions. 

Further details of the risks associated with investing in the Fund can be found in the NURS-Key Investor Information Document or the Prospectus, copies of which are available at bailliegifford.com.