INTERVIEW “Nothing changes”: Baillie Gifford sticks to guns after tough 2022 for growth investing

Nothing is fundamentally changing in Baillie Gifford’s marketing messaging or investment approach despite industry volatility, says the firm’s Director for Marketing and Distribution.

The asset manager continues to fly the flag for growth investing after a 2022 that saw record outflows across the asset management as a whole.

Baillie Gifford has been particularly impacted due to its large investments in technology companies such as Tesla. In a year that saw many major indexes falling, the tech-focused NASDAQ Composite fell in value by a third as major tech stocks were abandoned by investors in favour of those offering short-term profitability.

For Baillie Gifford, however, “nothing changes” in either its approach or messaging, says James Budden, Director for Marketing and Distribution.

The firm continues to run its always-on campaign, which talks about how ‘Actual Investors’ “think in decades, not quarters”.

Actual, not active

The Actual Investors strapline was launched in 2018-2019. James says that it was devised as a way of cutting through in the battleground which was misleadingly divided between active and passive fund managers.

“We thought we were being lumped into the active bucket; quite a lot of people in active buckets weren’t particularly active.”

The phrase was coined internally to sum up the growth management approach, defined as picking companies that over a 5-10 year period will grow between two and five times in cash flow terms. James characterises this as a return to the roots of stock market investing, supplying great companies with capital, “building a partnership with [them] and supporting them through thick and thin as long as the investment case is solid.”

James calls this “the antithesis of trading”. He notes that Baillie Gifford’s surge during the stock market boom in late 2020 and 2021 attracted a large number of “performance-driven money”, whether directly through platforms or through intermediaries.

“It became clear in the first half of last year that a lot of these people didn’t understand what they were getting into.

“They thought that we were investing in these growth companies on the way up and then would suddenly change and invest in [fossil fuels], property or financials. That was not the case and never would be because we are what we are.

“We say if you can’t invest for five years then don’t invest with us because we need that kind of time to add value we think.”

James admits that outflows are “unsettling” but adds that this is “part of investing.”

“It’s a behavioural issue we have to stomach or not.

“There will be times when we’re very different from the market and volatile against an index, because we look nothing like the index.”

Long-term growth trends

He says that the trends that were in place prior to Covid will continue, such as Moore’s Law, digital disruption, artificial intelligence and the green revolution.

“What’s changed? Not a great deal, we think.”

“These are long-term trends.

“It’s about where the future is going and where you want to be.”

James says that while Shell and BP have had a “jolly nice time for a couple of years”, the share price for Shell is fairly flat compared to ten years ago.

“So where’s the future gain? Are you an investor that thinks in five years’ time BP is going to go up more than Tesla or whatever it may be?”

He talks about the misalignment of aims: while somebody investing their pension might have a time horizon of 25 years, trustees may be appointed every five years, fund managers are reviewed on an annual basis and CEOs are looked at through the prism of quarterly earnings.

“So what you have is a huge misalignment of aims between the investor and the actual practical delivery of their capital.”

Ultimately, Baillie Gifford is “not a hedge fund” and is not trying to guess short-term market swings, says James. The firm’s philosophy is that positive fundamentals will be reflected over the long term.