Baillie Gifford Positive Change – fund update

Exposure to technology and healthcare stocks has helped this more adventurous fund hold up comparatively well in recent market turmoil.

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  1. Rob Morgan

Baillie Gifford Positive Change Fund combines the high-conviction, growth orientated style of Baillie Gifford with a selection process that focuses on identifying companies contributing towards a more sustainable and inclusive world. The managers search for exceptional businesses capable of significant growth, run a concentrated portfolio of around 30 global stocks (which increases risk as well as return potential) and tend to keep investments for the long term rather than regularly trading.

With these ingredients, the fund should be considered an adventurous option. Certainly, there is considerable reliance on the stock-picking abilities of the managers, and performance should be expected to deviate substantially from that of global markets and its peer group average at times. That means periods of significant outperformance and underperformance are likely, and investors that should be prepared to commit for the longer-term as returns will likely exhibit greater volatility than the average fund.

The fund’s differentiation has been a positive factor during recent market turmoil. It has a distinct bias to stocks in the technology and healthcare sectors, and some companies in these areas have proved to be resilient amid the broad market sell off. For instance, chip makers ASML and Taiwan Semiconductor have continued to see relatively robust demand, while certain healthcare businesses such as M3, which offers internet-based services for doctors and pharmaceutical companies, have performed well.

In addition, one company in the portfolio, Moderna, is potentially emerging as a key player in the fight against Covid-19. The managers have owned the company that develops therapeutics and vaccines since it listed in December 2018 and have been encouraged by progress on its ‘Liquid Nanoparticle’ delivery mechanism and various clinical trials. More recently, Moderna has come up with the first vaccine for the novel coronavirus to go into clinical trial. Such a process would previously have taken months, if not longer, but Moderna has harnessed the power of technology in order to deliver a vast improvement in response time. Whilst any vaccine would likely take well over a year to go into production, if it indeed passes through trials, it is an interesting example of the manager’s thesis around Moderna in action: its ground-breaking approach should be applicable to a tackling a wide range of diseases and genetic conditions faster and better than before.

Table: First quarter 2020 and discrete annual performance of the Baillie Gifford Positive Change Fund, peer group sector and benchmark

Past performance is not a reliable indicator of future returns. Figures are shown on a % total return basis, bid to bid price with net income reinvested; Source: FE Analytics, data for Q1 2020: 31/12/2019 to 31/03/2020.

 

Elsewhere in the portfolio, the managers have completely sold out of Chinese internet giant Tencent. Through leveraging the power of technology and smartphones, the managers believe Tencent is enabling connections and access to important services, providing an important utility to a large and growing population. Having owned Tencent in the fund strategy for three years, they have gained more experience in how they think about the positive impact of the company. Tencent’s gaming business, which remains a large part of revenues and profits, is an area that they have long debated in terms of the balance of its contribution to society. Over time the managers’ concerns have also grown over the company’s involvement in state surveillance and censorship. They have taken the decision to sell and to redeploy the capital into companies where they have greater conviction in the positive contribution provided.

Another change of note is a new position in Mercardo Libre, Latin America’s largest e-commerce platform which is also emerging as the leader in the region’s fintech industry. It also enables small businesses and individuals to transact and access financial services more easily than before, fulfilling the approach of the fund to focus on businesses that are addressing societal challenges. The managers believe companies contributing to a positive change to society and the environment will ultimately be rewarded with superior long-term share price performance.

Looking ahead, Covid-19 is clearly one of the greatest societal challenges the world faces. While the managers acknowledge the serious nature of the virus, they are viewing the impact in the context of their usual five-year time horizon. They do not look to trade on short term economic, political or societal events. They don’t feel they are any better placed than other investors to comment on the circumstances around the spread of the virus or the predict the immediate future path of markets, but they continue to monitor the situation and to consider any factors which will fundamentally change either the long term investment case or the impact case for any of the holdings in the portfolio. 

Past performance is not a reliable guide to future returns. This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice.

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