Baillie Gifford Managed – fund performance review

As part of our research and analysis, we analyse fund manager performance after charges, to find managers who are truly adding value for investors. We monitor this on an ongoing basis and how it compares with our expectations. This includes analysis of a manager’s ability to add value through stock selection and their style of investing. We like those who stick to their investment process and are disciplined in applying it through different market conditions. As part of this analysis, we’ve conducted a review of the Baillie Gifford Managed fund following a period of underperformance.

Fund expectations

The Baillie Gifford Managed fund aims to grow investors’ money over the long term. The managers think shares will be the main driver of returns over the long run, so they invest in businesses they feel possess exceptional growth potential. The fund invests more in shares than most other funds in the IA Mixed Investment 40-85% Shares sector, which we think makes it a more adventurous option than many of its peers. It also means the fund could perform differently to other funds in the same sector. We expect the fund to perform well compared to peers when stock markets rise, but lag when markets fall. We’ve seen evidence of the latter more recently.

The rest of the fund is invested in bonds and cash with the aim to dampen some of the volatility that comes from only investing in shares and adds diversification. The amount invested in shares and bonds can change over time though, depending on the team's economic outlook.

Performance analysis

The fund performed well in 2020 and delivered investors a return of 33.87% (source: Lipper IM to 31/12/2020). Some of the fund’s holdings benefitted from the onset of the coronavirus pandemic as it accelerated the demand for certain services, including those within the healthcare and technology sector. Part of this performance was also buoyed by the tailwinds provided by its growth style of investing being in favour.

Over this period, the fund outperformed the IA Mixed Investment 40-85% Shares by 28.65%. This was an exceptional year of performance and as past performance is not a guide to the future shouldn’t be expected each year.

The positive news about the effectiveness of vaccines against coronavirus in November 2020 signalled a turning point for markets. Sectors of the market that had suffered in 2020 started to perform better, benefitting value-focused funds and posing a headwind to growth-focused funds.

High growth stocks, often those with cashflows expected furthest in the future, have since suffered some of the largest share price falls. Worries about rising inflation and interest rates have seen investors be less willing to pay up for companies with high growth potential. The fund’s growth style of investing has been out of favour and some of the companies that did well in the early stages of the pandemic have recently detracted from performance.

This period of painful performance has led us to carry out further analysis on the fund.

Our view

As part of our review of the fund, HL’s research and investment risk teams have met with the fund managers and investment risk team at Baillie Gifford. Fund managers at Baillie Gifford are afforded significant autonomy over how they invest, but equally it’s important to ensure that there’s an appropriate level of risk oversight and challenge to decision making.

It’s been a difficult period of performance for the fund and, in periods where their style is out of favour, we like managers to stick to their investment process and focus on the longer term. That said, we expect the fund to underperform peers when growth investing is out of favour, and to be a more volatile option in this sector.

Over the last five years the fund has delivered a return of 43.13%*, compared with the IA Mixed Investment 40-85% Shares peer group average return of 27.32%. Though, the value of investments can go up and down, so you could get back less than invested. This has been apparent over the last 12 months as the fund fell 18.28%. We think investors should ensure their broader investment portfolio is well-diversified and invest with a long-term focus.

Considering our analysis and engagements with Baillie Gifford, we are comfortable the fund’s managers, and wider team of investors, are sticking to their investment process. We believe they continue to receive sufficient support, integrate environment, social and governance (ESG) analysis well, and can draw upon the required resources to focus on the job at hand.

This fund has a holding in Hargreaves Lansdown PLC.

Past performance is not a guide to the future. Source: *Lipper IM to 30/04/2022.

Find out more about Baillie Gifford Managed including charges

Baillie Gifford Managed Key Investor Information