- Edinburgh-based firm Baillie Gifford took early bets in some of last year’s biggest winners.
- Tesla, Moderna and Alibaba have made the firm profits of around $27.6 billion – Bloomberg data.
- The Baillie Gifford team told Insider their 3 tips to making a success of active investing.
- Visit the Business section of Insider for more stories.
Growth investing dominated the equities markets long before the COVID crisis, with investors piling into the tech stocks of the future. One firm on the right side that story has been Edinburgh-based Baillie Gifford.
The company, which manages a total of around $2 trillion in assets under management, was an early investor in the likes of electric carmaker Tesla, biotech company Moderna and Chinese e-commerce site Alibaba – all of which have seen their shares soar, particularly throughout the coronavirus pandemic.
The value of Baillie Gifford’s stakes in those firms alone has grown by around $27.6 billion, according to Bloomberg data.
But what sets Baillie Gifford apart from many of the other growth stock winners is its approach. The firm is an active, or as they call it – actual – investor. Active investors are more hands-on, buying and selling individual stocks, while passive investors tend to limit the amount of buying and selling they do and instead track an index.
“With actual investing, you’re able to look forward. So we’re looking: what could a company over the next five to 10 years?” Rosie Rankin told Insider, a specialist on the positive change fund and a director at Baillie Gifford.
Tesla’s meteoric rise was a success story that bought Baillie Gifford into the public eye last year. Famously, Tom Slater and James Anderson, co-managers of Scottish Mortgage Investment Trust, took on a stake in the company in 2013 when its shares were trading at around $6. In January, the stock hit record highs, trading at over $900 and was one of the key drivers of the fund’s outperformance last year, when it beat 98% of its peers.
This ability to look forward enables these sort of gains, especially when it comes to investments that are geared towards environmental, social and governance (ESG) goals, Rankin said.
“If you’re investing passively in ESG, you’re generally based investing on the basis of screened data,” she said, meaning if you are using ESG data tools, there are based on previous disclosures based on what has already happened.
Baillie Gifford’s Postive Change fund, which has around $6 billion in assets under management, holds stakes in the companies it believes will benefit from consumers’ growing preoccupation with sustainability, healthcare, social justice and the fight against climate change.
“We invested in [Moderna]… back at IPO in 2018, at which point they didn’t even have any products on the market,” Rankin told Insider. Since then, Moderna has become one of the best known biotech companies in the world, thanks to the release of its COVID-19 vaccine, alongside bigger rivals Pfizer and AstraZeneca. Its stock price has gained over 470% since it first listed on the stock market via initial public offering nearly three years ago.
“It’s that ability to be excited about what a company could achieve, which wouldn’t appear in any kind of screened passive portfolio,” Rankin said.
In it for the long term
Baillie Gifford’s active strategy requires a longer-term investing horizons, usually over five to 10 years, she said.
Tesla, for example, is a holding in many of the Baillie Gifford funds, and Slater, who is head of the company’s US equities team, is bullish on the company.
“Why do we have a significant holding in Tesla? Because I think they’re the most important company in the world for driving us towards a sustainable energy future,” Slater said in a webinar last month. “So you keep that discipline upside from here and reflect that in holding sizes, but you don’t give up on something that has a massive opportunity which looks increasingly likely to materialise,” he added.
This is true across the firm. Even in the Chinese markets, this is what gives Baillie Gifford its edge, according to Roderick Snell, who manages $6.1 billion, including Baillie Gifford’s $1.2 billion China Fund.
“It’s very long-term, we’re looking to invest in a five- to 10-year time horizon, which gives you a real edge in the Chinese market, which is really retail driven. The average holding period on China A Shares is about 50 days and when you’re investing on a five-year time horizon, you really do have a differentiated mindset,” he told Insider in December.
You’re not renting, you’re an owner
Lastly, the firm is supportive of the companies in its portfolio, Rankin said. “You’re not just renting somebody shares, you’re viewing yourself as an actual owner,” she said.
For the likes of Moderna, and other early-stage companies within the firm’s portfolios, it is about supporting management as shareholders, by not agitating them for quarterly results, or encouraging them to stick to their long-term strategies, for example, she said.
Moreover, it’s “practical things as well,” Rankin said, like not lending their stock.
Shareholders can lend their stock to other parties, thereby transferring the title and ownership to another party, and a borrow fee is charged by a brokerage to a client. The strategy can provide liquidity in markets and create further interest income for long-term holders of stocks. But it also allows for short-selling.
“It’s just really trying to be that kind of responsible owner because you are… actually investing,” Rankin said.
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