Baillie Gifford has shut down its two active gilt funds after it discovered the portfolios were not providing value to investors.
The giant fund house’s assessment of value report, published today (July 31), showed its Active Gilt Investment and Active Long Gilt Investment funds had underperformed their respective indices and targets over the past three years, prompting Baillie Gifford to close the portfolios in March this year.
Baillie Gifford said: “Following a strategic review of fixed income investment capabilities during 2019, Baillie Gifford reached the decision to close the range of government bond funds at the end of March 2020.”
Despite finding it had delivered value, after outperforming its benchmarks for a less-than-average cost, Baillie Gifford also closed its Active Index-Linked Gilt Investment fund.
The 38-page report showed Baillie Gifford had found a further five of its 37-strong fund range required either further action or extended monitoring in order to ensure they provided value.
Performance in its British Smaller Companies fund was deemed “disappointing”, but the fund house made changes to the investment process which meant that by March 2020 returns in relation to the index had improved “significantly”.
Baillie Gifford also pledged to monitor the progress of its Emerging Markets Bond fund, its Investment Grade Bond fund and its two Aggregate Bond funds, claiming they had been adversely affected by the market turbulence in Q1 of this year.
It said: “Until this point performance was acceptable and we have concluded that overall the fund(s) have provided value but we will continue to monitor progress in case further action is required.”
Baillie Gifford was satisfied with the value its 30 remaining funds had provided. It said: “Longer-term investment performance for most of the funds remains very strong.
“Indeed, performance for many of our equity funds has been exceptional when compared to their ambitious outperformance targets and their peers”.”
Baillie Gifford also claimed it aimed to keep costs low and transparent relative to peer groups and that its quality of service was of a high standard.
James Budden, director marketing and distribution at Baillie Gifford, said: “We believe we set a rigorous standard in assessing our funds and are pleased the report finds the clear majority of our funds provide value for clients.
“The report highlights an impressive consistency of outperformance across a range of sectors and time periods which in turn says much for the skill and dedication of the investment teams across the firm.”
As part of the Financial Conduct Authority’s asset management review, fund houses are now required to carry out an annual assessment of whether the firm provides value for their clients.
The value rules — which have been in effect since the start of 2020 — require asset managers to look at their performance, costs, economies of scale, comparable market rates, services and share classes.
The mandated reports have already triggered Artemis, M&G and Aviva Investors to make changes to their fund ranges and charges.