LTGG Reflections: materiality

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 Fund’s 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.

During a stroll on a warm May evening in Edinburgh, a bat suddenly whizzed overhead. Hidden high under a rooftop, it had spent the past few months in splendid hibernation. During that time, it was unperturbed by a television in the apartment below relentlessly blaring out headlines on tariffs, wars, and stock market plunges. On rare occasions, when the noise was so great that it caused the bat to briefly open its eyes, it returned to its slumber content in the knowledge that the world looked upside-down, as usual. 

If we had similarly hibernated during the first few months of 2025 to wake in May, we wouldn’t have heard about the United States’ jaw-dropping 145 per cent tariff on Chinese imports or China’s 125 per cent retaliation, which had only fleetingly dominated media headlines before being withdrawn. We also wouldn’t have noticed that, at one point during our hibernation, Amazon’s share price had dropped by 20 per cent or NVIDIA’s had plummeted by over 30 per cent, because both had largely recovered to their start-of-year prices by the time we rolled out of bed. We wouldn’t have realised that the Long Term Global Growth Fund portfolio’s performance year-to-date was negative in absolute and relative terms to end April, because by end May it had turned robustly positive on both fronts. Most of the headlines that once were at the centre of conversations would have since moved to their edges, replaced by newer arrivals. 

In summary, we probably would have woken up feeling rather optimistic. After all, portfolio fundamentals are looking in characteristically robust shape. And the upside-down world of stock markets presents us with a rich idea pipeline of exciting growth companies with outlier potential. 

Hopefully this goes without saying, but for the avoidance of any doubt, be assured that the LTGG Team has not been asleep throughout the recent period of market tumult. Instead, while the constant cacophony of news rages around us, attempting to cajole us into making snap decisions, we have been quietly studious. As ever, we have been asking ourselves the most crucial of questions: What might be material to portfolio holdings over our five-to-10-year investment horizon, versus what is simply noise?

In response to this question, and based on our analysis, we retain conviction in the deep multi-decade transitions that many companies in the LTGG portfolio are pioneering – from electrification to ecommerce to artificial intelligence and more. We also note that the tariffs introduced since the start of the year pertain to physical goods, which exclude a large swathe of the portfolio in digital services (around 40 per cent by weight). Moreover, our upside cases for much of the rest of the portfolio do not rely on cross-border US trade; examples include the likes of MercadoLibre in Latin America and Kweichow Moutai in China. Meanwhile, Amazon, which we identified as being among the more exposed to tariffs, appears resilient even in our bear-case scenario, thanks to its scale and other segments, notably the (highly profitable) AWS cloud servicing business. 

As a result of our assessment, we have eschewed kneejerk reactions and, as of end May, made no drastic changes to the portfolio since early April’s ‘Liberation Day’. In fact, the greatest portfolio decision we’ve taken is to hold on. This is deceptively simple. Our decision to hold hinges on our ongoing fundamental research, our long-term investment horizon, and – by the same token – ensuring we don’t succumb to short-termism. Such hold discipline is a crucial component of LTGG’s ability to generate long-term returns for our clients.

There are inevitably some exceptions. One relatively minor change we’ve made since early April has been to reduce our holding in Shopify from over 3 per cent to c. 2 per cent, as its range of possible outcomes appears to have expanded unfavourably due to trade tensions while its valuation has remained punchy. Nonetheless, while Shopify has delivered around a six-fold return in absolute share price terms since our initial investment six years ago in 2019, it remains in the portfolio because we believe there is still further runway from here. 

Frankly, for most holdings in the portfolio, we believe there are other issues beyond tariffs that are potentially far more material over our investment horizon. For example:

• Can ecommerce company Coupang increase its penetration of the South Korean retail market while improving margins and expanding in Taiwan and beyond? 
• Can Dexcom execute on the over-the-counter market opportunity for its health monitoring devices to unlock substantially more growth? 
• Can Tencent meaningfully increase the monetisation of its 1.3 billion regular users of its WeChat app in China through advertising, without harming the user experience? 

We believe these companies are progressing well against our investment theses and we therefore recycled proceeds from our Shopify reduction to add to these holdings.

We may of course be wrong on all these fronts. Perhaps we shouldn’t have trimmed Shopify when we did, if it transpires that the headwinds we’ve identified prove immaterial to its growth trajectory. Or perhaps our relatively minor changes to the portfolio will prove too tame if headwinds become far more material than anticipated. Time will tell. At the end of the day, materiality is a matter of judgment. We can accept failures in our judgment; that’s the nature of stock-picking. We cannot, however, accept failures in our process. This is why we continue to assess materiality through the lens of our 10-Question Stock Research Framework, which we apply to every company on a pre-buy and post-buy basis. 

Meanwhile, we continue to research a plethora of new ideas, some of which appear all the more attractive where share prices have become dislocated from company fundamentals. Questions that could really move the dial in our upside scenarios for such ideas include, for instance: 

• Can the space company Rocket Lab expand its rocket line-up to unlock new growth opportunities without overstretching its finances? 
• Could the adoption of AI agents materially enhance the prospects for enterprise software company ServiceNow? 
• For Zealand Pharma (a Danish company specialised in the design of a peptide-based treatment for weight loss), what strategic moves would it need to make on its route to commercialisation in the shadow of very large incumbents?

Back to the bat. If the noisy news didn’t wake it from its hibernation, then what did? Temperature change is thought to be the leading determinant of hibernation periods. It so happens that the year 2024 was the warmest year ever recorded in human history. This leads us to another potentially material issue for many companies in the portfolio over the coming decade and beyond: climate change.

Climate change matters for the likes of Moutai, whose production of premium liquor hinges entirely on one river basin in China. It matters for NVIDIA, which has acknowledged that physical climate risk is a material concern for its supply chain. It also matters to Rivian and CATL, whose business models are predicated on the societal shift to a low-carbon future. The list goes on. 

We therefore seek to better understand LTGG companies’ resilience and adaptability to climate change. We are also undertaking a review of LTGG’s 2021 climate ambitions and commitments ahead of their five-year anniversary. 

Looking to the future, there will be more twists and turns in politics and macroeconomics. Headlines will revel in the inevitable stock market tumult. For us, however, we will continue to ask ourselves what, if anything, may materially enhance or erode our long-term upside cases for the companies in the LTGG portfolio. The rest is irrelevant.

The Baillie Gifford Long Term Global Growth Fund
(Share Class K) as of March 31, 2025

Annualised total return as of March 31, 2025 (%)

Source: Bank of New York Mellon and relevant underlying index provider(s). Net of fees, US dollars. 

The performance data quoted represents past performance and is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For the most recent month-end performance please visit our website at www.bailliegifford.com/funds/baillie-gifford-long-term-global-growth-fund/ 

Returns are based on the K share class from 28 April 2017. Prior to that date returns are calculated based on the oldest share class of the Fund adjusted to reflect the K share class fees where these fees are higher.

The Baillie Gifford fund’s performance shown assumes the reinvestment of dividend and capital gain distributions and is net of management fees and expenses. Returns for periods less than one year are not annualised. From time to time, certain fees and/or expenses have been voluntarily or contractually waived or reimbursed, which has resulted in higher returns. Without these waivers or reimbursements, the returns would have been lower. Voluntary waivers or reimbursements may be applied or discontinued at any time without notice. Only the Board of Trustees may modify or terminate contractual fee waivers or expense reimbursements. Fees and expenses apply to a continued investment in the funds. All fees are described in each fund’s current prospectus. 

Expense Ratios: All mutual funds have expense ratios which represent what shareholders pay for operating expenses and management fees. Expense ratios are expressed as an annualized percentage of a fund’s average net assets paid out in expenses. Expense ratio information is as of the fund’s current prospectus, as revised and supplemented from time to time.

The MSCI All Country World Index is a free float-adjusted market capitalization weighted index that is designed to measure equity market performance in the global developed and emerging markets, excluding the United States. This unmanaged index does not reflect fees and expenses and is not available for direct investment.  

Legal Notices 

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.

RISK FACTORS

This content 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.

As with all mutual funds, the value of an investment in the fund could decline, so you could lose money.

The most significant risks of an investment in the Baillie Gifford Long Term Global Growth Fund are: Investment Style Risk, Growth Stock Risk, Long-Term Investment Strategy Risk, Non-Diversification Risk and Non-U.S. Investment Risk. The Fund is managed on a bottom up basis and stock selection is likely to be the main driver of investment returns. Returns are unlikely to track the movements of the benchmark. The prices of growth stocks can be based largely on expectations of future earnings and can decline significantly in reaction to negative news. The Fund is managed on a long-term outlook, meaning that the Fund managers look for investments that they think will make returns over a number of years, rather than over shorter time periods. The Fund may have a smaller number of holdings with larger positions in each relative to other mutual funds. Non-U.S. securities are subject to additional risks, including less liquidity, increased volatility, less transparency, withholding or other taxes and increased vulnerability to adverse changes in local and global economic conditions. There can be less regulation and possible fluctuation in value due to adverse political conditions. Other Fund risks include: Asia Risk, China Risk, Conflicts of Interest Risk, Currency Risk, Developed Markets Risk, Emerging Markets Risk, Equity Securities Risk, Environmental, Social and Governance Risk, Focused Investment Risk, Government and Regulatory Risk, Information Technology Risk, Initial Public Offering Risk, Large-Capitalization Securities Risk, Liquidity Risk, Market Disruption and Geopolitical Risk, Market Risk, Service Provider Risk, Settlement Risk, Small-and Medium-Capitalization Securities Risk, and Valuation 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 Long Term Global Growth Fund seeks to provide long-term 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.

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.

Top Ten Holdings

As at March 31, 2025