Another week, another underperforming Baillie Gifford fund.
This time it was the UK Growth Trust, which had warned investors its performance was stuttering last year.
In the 12 months to April 30, the trust reported a loss of 16 per cent, compared with its benchmark returning 8.7 per cent.
Meanwhile, Baillie Gifford’s flagship trust, Scottish Mortgage, has seen its share price crash 45 per cent in the year to date, including a 15 per cent fall on one day alone earlier this month.
It is no secret that the Edinburgh-based fund manager has had a tricky year so far.
Baillie Gifford’s raison d’etre is to pick winning companies, at a stage before they are winning, to nurture them and invest in them, and to reap the rewards when they come, sometimes years later.
That is hitting a bit of a snag.
Part of the reason for the Baillie Gifford fund falls, as well as those of Lindsell Train, is the rotation away from the growth companies that have done so well in the past 10 years.
Low interest rates, negligible inflation and quantitative easing have caused a plethora of cheap money to pour into emerging companies, some of which were bound to do well.
The problem is, we had 10 years (plus) of an economic environment favouring growth investing.
Inflation is now off the charts, interest rates are being hiked at a speed not seen in decades, and investors are starting to tighten their belts.
A lot of managers’ time these days seems to be spent explaining why their vehicles are not performing well.The cheap money washing around and being invested into the types of company Baillie Gifford is interested in are going to find themselves fighting for a share of a much-reduced amount of capital.
What’s to stop us seeing 10 years of growth companies haemorrhaging money?
And of course, the trust may well continue to pick winners, and over a five to 10-year period continue to outperform its benchmark.
But a lot of managers’ time these days seems to be spent explaining why their vehicles are not performing well against benchmarks.
At a Scottish Mortgage investor forum this week the trust’s managers were asked, in kinder phrasing, to explain themselves.
Tom Slater, the co-manager of the trust, hit out at so-called inflation experts.
“There are plenty of people who have spent the last two years commenting on Covid who have now become experts on the Ukraine and Russian conflict,” he said.
“Suddenly everyone is an expert on inflation,” he added, with more than a hint of frustration.
To him, this is dangerous, and he his fellow managers do not think they know better than anyone else, he said, and they trust that the companies they invest in know how to deal with it.
It is an important point.
The other issue Baillie Gifford seems to be having is the hangover of those hazy boom days.
As Scottish Mortgage’s star rose during the pandemic, a number of retail investors decided they wanted a piece.
But did they realise the place a growth fund or trust should take in a balanced portfolio?
I asked an investment manager at Scottish Mortgage what he thought about this recently.
All Baillie Gifford can do is stick to its guns and continue to communicate its strategy.He told me it is an interesting problem, and is hard for fund managers to have a full picture of who is investing in their funds, and why.
All Baillie Gifford can do is stick to its guns and continue to communicate its strategy.
Perhaps, given the rising tide of animosity towards growth managers recently, they should be commended for not losing their heads.
Indeed, Nick Train has been uncharacteristically open about the impact his portfolios’ poor performance has had on him.
Earlier this year he said he finds it hard not to respond “emotionally” to short-term price moves, and since then he has apologised to shareholders for the poor performance of a trust he manages.
He even made a joke about taking his frustrations out on the family cat.
It can’t be easy to sit in front of a room full of angry investors, even more so when what you’re doing is your job, which has been communicated to investors time and time again.
Let’s hope they were listening.
sally.hickey@ft.com
