Firing lineDec 19 2022

Baillie Gifford: 'We have done a lot of soul searching'

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Baillie Gifford: 'We have done a lot of soul searching'
James Budden, director of market and distribution at Baillie Gifford
BySally Hickey

Baillie Gifford has done "a lot of soul searching" in the past year, as it looked to see if its portfolios were resilient amid soaring inflation, its head of distribution has said.

The asset manager, known for its growth-style investing, has ridden a rollercoaster in recent years, enjoying a boom in the performance of its trusts and funds in 2020 and 2021 as central banks rushed to stimulate economies amid lockdowns.

At one point, in mid-November 2021, the share price of the company’s flagship trust, Scottish Mortgage, was sitting 155 per cent higher than in January the year before.

We believe that the vast majority of companies Baillie Gifford holds are in good shapeJames Budden, Baillie Gifford

However, as inflation began to creep up and central banks started raising interest rates, markets cycled away from growth companies.

As a result, Scottish Mortgage’s share price crashed 37 per cent since the start of the year.

“We’ve seen the most extraordinary volatility over the last three years, first in a positive direction and then in a negative direction,” the company’s director of marketing and distribution, James Budden told FTAdviser.

The firm has done a lot of soul searching over the past year, he said.

“We have been looking at [our] portfolios, trying to understand whether they are resilient within an inflationary environment.

“What’s the balance sheet like, can they increase their margins, do they have a proposition which is going to cut through?”

All the company can try and do, Budden said, is to find great growth companies, invest in them and hold onto them for five to 10 years

“And genuinely we believe that the vast majority of companies [Baillie Gifford holds] are in good shape.”

Growth falters

Reflecting on the last 12 months, Budden said that markets had thrown the growth companies out “with the bathwater”, and although the firm thinks it has some very good investments which are doing well, their share prices currently do not reflect that.

“Because of this inflationary environment there is this idea that future earnings are discounted,” he said, adding that the company’s fund managers have no idea when this will change.

Some people had invested in our funds on the basis of performance during an abnormal performance periodJames Budden, Baillie Gifford

Posing a question that has previously given rise to the phrase ‘Tina’ (there is no alternative), he asked what else there is for investors currently.

“The idea that somehow you are either invested in growth or you’re invested in value is pretty bogus - there was a slight rally around so-called value stocks in the beginning of the year,” he said.