Scottish investment firm Baillie Gifford has won acclaim and attracted almost $ 500 billion in assets with its growth stock picking acumen. And even if investors hate those kinds of stocks now, the firm doesn’t intend to change its approach.
Baillie Gifford wants to invest in companies that are going to transform their industries or change the world, according to Robert Wilson, who runs the firm’s Long Term Global Growth Fund. Issues like rising inflation, rising interest rates, and even global conflict don’t change how it feels about those companies and industries.
So he’s not reinterpreting his approach to make sure he includes more energy companies and cyclical stocks-even though that would probably help his short-term performance.
“The specific inefficiency that LTGG exploits, as it were, is that over long periods of time, some companies are capable of delivering extreme returns that are very difficult to imagine or price correctly at the outset,” Wilson recently told Insider.
That’s not what investors are buying right now; the fund is down 42% this year, according to Morningstar. But even with that loss it’s beaten 99% of its peers over the last five years by returning 13.5% annually. And Wilson says it’s beaten its benchmark in 97% of five-year rolling periods since its inception.
While periods like this are painful for investors, Wilson says severe drawdowns are also characteristic of stocks that outperform the market long term like Amazon and Tesla. Investors periodically lose faith in those stocks and sell out, but staying optimistic and sticking with them works better than changing styles, he says.
“We hold our stocks for roughly 10 years, which is how long we think you need to hold them in order to generate the kind of transformational growth [Baillie Gifford wants]”he said.” The stocks that do deliver the most over these five to 10 year periods of time in terms of contribution and value creation are in some ways the most controversial names. “
By necessity that means sticking with that approach in hard times, like this downturn or the
in 2007-2009. So the biggest positions in his fund are still names like Amazon, Tesla, Nvidia, and ASML.
Back then, he says, “The decision that we undertook at the time there was to not trade too much. And that has proved to be absolutely the right decision.”
Still, Wilson acknowledges that companies that rely on easy borrowing are going to have a harder time now, and those that can pass costs on to clients and consumers will have an edge.
He told Insider that during the 2022 downturn, he’s allocated more capital to three companies that were already in the portfolio – and hasn’t engaged in other bargain hunting or made other changes.
“During the second quarter, we have been kind of recycling some of our capital internally into names that we feel may be oversold,” he said.
Those names are South Korean online retailer Coupang, gaming platform Roblox, and digital financial services company Affirm. Baillie Gifford’s stock slides say that Coupang offers very fast delivery and reliably low prices, and that while its stock has been a loser, the company could quintuple its sales and its value as margins improve and costs come down.
Its investor materials call Roblox a unique blend of game company and social network that has a lot of paths to making more money, especially as its young users get older and wealthier. And the firm says that Affirm is winning more merchants and offers far more transparency for customers than older credit card companies, which could help it grab a far greater market share than it has today.