1. THE DIAMOND AND THE OASIS

    INTRODUCING THE RADAR

    Brian Lum, International Smaller Companies
  2. Investors should carefully consider the objectives, risks, charges and expenses of the fund before investing. This information and other information about the Fund can be found in the prospectus and summary prospectus. For a prospectus or summary prospectus please visit our website at https://usmutualfund.bailliegifford.com. Please carefully read the Fundís prospectus and related documents before investing. Securities are offered through Baillie Gifford Funds Services LLC, an affiliate of Baillie Gifford Overseas Limited and a member of FINRA. 

  3. No two diamonds are the same. The unique qualities of each are reflections of individual billion-year journeys through the Earth’s mantle, as well as the effort and skills of the craftsmen responsible for unlocking the gemstones’ inner beauty.

    In the industry, diamonds are assessed by the ‘4C’s – Cut, Carat, Clarity and Colour. While the grading system has its detractors, the framework clearly identifies the key attributes that define ‘quality’, and it also serves as an effective way to communicate these properties to others.

    As investors looking to uncover hidden gems (sorry…) in the vast and diverse smaller companies universe, we find a framework in a similar vein helpful for 1. articulating our own investment philosophy and distilling this down to a number of critical factors and 2. using the system to assess ideas in a systematic and rigorous manner, while recognising the idiosyncrasies of each opportunity that comes our way.

  4. UNDER THE RADAR

    INTERNATIONAL SMALLER COMPANIES

    In this short series Baillie Gifford’s International Smaller Companies team explores how their radar framework helps them to uncover the most exciting small businesses from around the world.

  5. We believe these are six of the key areas for us to consider as investors. We look forward to sharing how we approach each of these radar points in future pieces, as well as exploring the interplay between these factors at a conceptual level. We will start by looking at ‘Opportunity’, using Fjällräven, DaikyoNishikawa, Zooplus and First Derivatives as case studies.

    We may also further develop this as a tool to help us understand the broader profile of the portfolio, as well as to use this as a graphical aid to help us track the evolution of individual cases. This is where the comparison to diamonds breaks down definitively – we do take long-term views but investment cases are certainly not forever.

    It is perhaps worthwhile to highlight what else this is NOT. Numbers and charts often give a misleading impression of certainty, precision and objectivity – this is one of the tricks of the trade that we come across on a daily basis in company presentations. With this in mind, we should emphasise that despite the scoring, our investment process is fundamentally biased towards qualitative analysis; and that we are by no means suggesting equivalence of importance among these six factors (that depends), or indeed direct comparability between ratings from different members of the team. 

    We are also not insisting that our ideas ‘tick all the boxes’. That is neither a practical or a desirable approach. Much of what we do is about making judgements on what really matters in an investment case. By that, we mean embracing the inherent uncertainty in stock markets that makes it possible for the best-performing holdings (particularly smaller companies) to achieve exceptional returns. If anything, at least my own observation is that investments with one or two outstanding attributes are often more rewarding to own than those that are merely ‘quite good’ at everything. After all, even some of the most valuable diamonds in the world are indeed far from perfect; they are special by being exceptional in some aspects and in spite of their flaws.

    Like diamonds, great investment opportunities come in different shapes and sizes. We think that keeping an open mind to appreciate the individuality of each case is rather important, and we hope that the radar is a useful, albeit imperfect, tool to help us capture the essence of each company that we invest in.

  6. Risk Factors

    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. 

    Any stock examples, or 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. 

    As with all mutual funds, the value of an investment in the fund could decline, so you could lose money. International investing involves special risks, which include changes in currency rates, foreign taxation and differences in auditing standards and securities regulations, political uncertainty and greater volatility. These risks are even greater when investing in emerging markets. Security prices in emerging markets can be significantly more volatile than in the more developed nations of the world, reflecting the greater uncertainties of investing in less established markets and economies. 

    Currency risk includes the risk that the foreign currencies in which a fund’s investments are traded, in which a fund receives income, or in which a fund has taken a position, will decline in value relative to the U.S. dollar. Hedging against a decline in the value of currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. In addition, hedging a foreign currency can have a negative effect on performance if the U.S. dollar declines in value relative to that currency, or if the currency hedging is otherwise ineffective.

    The most significant risks of an investment in the Baillie Gifford International Smaller Companies Fund are Investment Style Risk, Growth Stock Risk, Long-Term Investment Strategy Risk, Geographic Focus Risk, Small-and Medium-Capitalization Securities Risk, Asia Risk, China Risk, Conflicts of Interest Risk, Currency and Currency Hedging Risk, Emerging Markets Risk, Equity Securities Risk, Focused Investment Risk, Information Technology Risk, IPO Risk, Japan Risk, Liquidity Risk, Market Disruption and Geopolitical Risk, Market Risk, New and Smaller-Sized Funds Risk, Non-U.S. Investment Risk, Service Provider Risk, Settlement Risk. For more information about these and other risks of an investment in the fund, see ‘Principal Investment Risks’ and ‘Additional Investment Strategies’ in the prospectus. The Baillie Gifford International Smaller Companies Fund seeks capital appreciation. There can be no assurance, however, that the fund will achieve its investment objective. 

    The fund is distributed by Baillie Gifford Funds Services LLC. Baillie Gifford Funds Services LLC is registered as a broker-dealer with the SEC, a member of FINRA and is an affiliate of Baillie Gifford Overseas Limited. 

     

    Top Ten Holdings as at 31 December 2019

      Holdings Fund %
    1. Li Ning 4.52
    2. Douzone Bizon Co 3.37
    3. Hypoport 3.25
    4. Avanza Bank 2.57
    5. Infomart 2.52
    6. ASPEED Technology 2.47
    7. Outsourcing 2.47
    8. Bengo4.com 2.45
    9. AirTac International Group 2.41
    10. KATITAS 2.40

     

    It should not be assumed that recommendations/transactions made in the future will be profitable or will equal performance of the securities mentioned. A full list of holdings is available on request. The composition of the fund’s holdings is subject to change. Percentages are based on securities at market value.

     

    45832 USM WE 0144

  7. Brian Lum

    Investment Manager
    Brian chairs the Portfolio Construction Group for the International Smaller Companies Strategy, a strategy dedicated to investing in the most exceptional smaller companies internationally. Brian graduated MSci and BA (Hons) in Physics from the University of Cambridge in 2006 and joined Baillie Gifford in the same year. He is a CFA charterholder.