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Baillie Gifford seeks Positive Change through GBP2bn fund


The Baillie Gifford Positive Change fund was launched in January 2017 and the fund now has assets under management of GBP2.4bn. Since SRI (Socially Responsible Investment) became a thing in the late 1990s, the sustainable/ESG fund universe has boomed, with hundreds of retail offerings available in the fund classification.

The Baillie Gifford Positive Change fund aims to outperform after costs the MSCI All Country World Index (ACWI) in sterling terms by at least 2% per annum over rolling five-year periods. The fund also hopes to achieve this: “by investing in companies that contribute to a more sustainable and inclusive world.” Although benchmarked against the MSCI ACWI, the fund managers also take reference from the Investment Association Global Sector.

It’s a reasonably big team of co-fund managers, for a reasonably big fund with the roster including Kate Fox, who joined Baillie in 2002, Lee Quian (2012), Thaiha Nguyen (2014) and Ed Whitten (2018). The fund has a target universe of 25 to 50 companies, and has around 32 holdings currently, and prefers a buy-and-hold strategy, as opposed to a turnaround strategy, so the mangers want to keep portfolio churn low and the fund aims to: “Invest in exceptional companies, not just avoid the worst ones”, which is heartening, as we don’t want the people managing our wealth investing in mediocre companies on our behalf.

The fund leads its marketing with its ESG credentials. The managers invest on a global thematic basis and target growth stocks that acquiesce with one or more of its core themes: Social Inclusion and Education; Environment and Resource Needs; Healthcare and Quality of Life; and something that the fund managers term ‘Base of the Pyramid’, which means that the company is there to address the needs of the poorest people in the world.

Baillie Gifford Positive Change fund offers a positive and proactive approach

The universe is screened for both financial performance and ESG performance on one of the aforementioned themes. The synthesis of the fund is summed up in the managers stating: “We need to combat climate change and other environmental degradations. We need to continue improving living standards for the majority. And as Covid-19 has sadly shown us, we need to invest heavily in healthcare so fewer people have their lives cut short by diseases. We believe that the best way for the investment community to contribute to this effort is through a positive and proactive approach, where investing is focused on companies that are addressing those challenges, rather than simply excluding companies that are causing harm.”

So how does this play out in real time? Well (looking at the B share class accumulation units) on a discrete annualised basis, not bad.

For the year ending June 2023, the fund returned +18.7% compared to +11.9% for the MSCI ACWI, and +10.8% for the IA Global Sector, comfortably outperforming the +2% sterling target. However, the year ending June 2022 was a shocker with the fund returning -30.1%. Although the index was also in negative territory, it managed -3.1% whilst the sector came off a bit worse at -8.8%.

Sector and index beating performance

A year earlier, ending June 2021, the fund did well, returning +49.4% against an index return of +25.1% and sector average of +25.9%, again comfortably on-target, a feat it performed again in the year ending June 2020, beating the index by 45.3 percentage points and the sector average by 45.6 percentage points to return +51%. The year 2018/19 was again off-track. The fund returned +4.9% against an index return of +10.3% and a sector average of +7.5%, underperforming its +2% sterling target by 7.6 percentage points, so up three times out of five.

The numbers in 2022 certainly gave the cumulative performance a bit of a kicking. Over three years to end-June 2023, the fund returned +1.3%, well behind the index which returned +9.7% and the sector average of +6.8%, underperforming its +2% sterling target by 10.7 percentage points. The better performances in 2022/23, 2020/21, 2019/20 helped mitigate the downside seen in 2021/22 and 2018/19 over five years, and the fund weighed in at +11.5%, outperforming its +2% sterling target by 0.8 percentage points, but comfortably beating both sector and index.

The fund managers are a bit backwards in coming forwards, and don’t often publish their insights or commentary. In the last Annual Report of the ICVC (Investment Company with Variable Capital – the master Open Ended Investment Company of which the Baillie Gifford Positive Change fund is a sub-fund) published at the end of 2022, the fund managers said: “The past year has been an unsettling one. Our hearts go out to those whose lives have been upended by conflicts. While geopolitical events have dominated the headlines, the pace of climate change has also accelerated. This challenging backdrop, combined with supply chain disruptions and higher inflation and interest rates, created a tough environment for equity investors, especially those focusing on growth equities.”

The commentary continued: “In this sea of uncertainty, our philosophy remains our anchor. We are committed to investing in companies that can deliver attractive investment returns while contributing towards solving some of the world’s biggest challenges such as climate change, persistent poverty and health inequality.”


Fox does have a bit of a YouTube following, in a recent interview on the platform she explained her view on long-termism, saying: “Having a long-term approach to investing isn’t speculating what share prices might do over the next few months or even over the next year. It’s considering what changes might be occurring over the next decade, and the role that companies are playing in enabling and driving that change. It’s focussing on what those changes will mean for the company’s ability to grow its earnings over a meaningful period of time. Not over the next quarter…”

She’s right. Both financial and social change are hard to measure quarter-to-quarter, year-to-date, and take time to bed in. This is equally applicable to shares and funds, especially in the ESG sector where fund managers and sustainable companies are pushing against the weight of history and change is incremental, and as long as the direction of travel is positive, and the purpose defined progress is being made. The Baillie Gifford Positive Change fund is one to bed-down and hold for the longer term.

Baillie Gifford Positive Change fund top five holdings:

Company Country Sector % Holding
MercardoLibre  NASDAQ:MELI USA/Argentina Consumer Discretionary 8.4
ASML [NASDAQ:ASML] Netherlands  Technology 6.9
Shopify [TSX:SHOP] Canada E-commerce 5.4
TSMC [NYSE:TSM] Taiwan Technology 5.3
Deere & Co [NYSE:DE.] USA Agriculture machinery 4.8

Source: Baillie Gifford, 30 June 2023

Given its holdings, the fund looks like a standard global growth fund, and at first look it’s hard to see the exceptional ESG credentials of its portfolio shining through in the above list. The fund is available on several platforms, has a 0.5% annual management fee and a 0.53% ongoing charge with no performance fee.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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