- Baillie Gifford's funds under management declined by 50% (£51.7 billion) over the past 2 years.
- Their funds endured a tough spell of poor performance from 2021 up to October 2022. But since then many of their funds have shown strong signs of recovery
- The Baillie Gifford American fund went from managing £7.5 billion in September 2021 to £2.8 billion in September 2023. A drop of 62.6%.
- Since the start of 2023 the Baillie Gifford American fund has returned growth of 34.92% compared to the 11.02% sector average
Edinburgh-based investment firm Baillie Gifford has built a reputation as one of the premier fund management firms in the world with a history of consistently delivering exceptional returns for their investors.
The firms high-growth style has been driven by their preference for technology stocks, which have typically been some of the highest growth companies of the past 25 years.
But in 2022, a sharp turn in market sentiment resulted in Baillie Gifford enduring the worst year in their history. High inflation, interest rate rises, geopolitical tensions and the continued impact of the Covid pandemic all conspired to create uncertainty across financial markets. High inflation in particular severely impacted early-stage growth businesses, putting Baillie Gifford’s investing style out of favour with the market. As a result, most of their funds significantly underperformed in 2022.
As we move towards the last quarter of the year has the worst now passed for Baillie Gifford and their funds?
In this article we analyse 30 Baillie Gifford funds for performance and sector ranking over the past 6 months, 1 year, 3 years, 5 years and 10 year periods. We identify that as markets slowly begin to recover some of Baillie Gifford's most popular funds have once again begun to excel.
2022 Was A Year To Forget For Baillie Gifford
Global markets entered into a prolonged period of negative growth towards the end of 2021, which had a sizeable impact on all investment funds. But it was the growth focused funds such as those managed by Baillie Gifford that experienced the sharpest declines - the most notable of which being their hugely popular American fund.
The Baillie Gifford American fund had consistently been the best performing fund in not only the IA North American sector in which it is classified but also across the entire Investment Association universe of 4,000 plus funds.
In the 10 year period up to November 2021 the fund returned staggering growth of 958.94% compared the IA North America sector average of 355.18%.
But from 17th November 2021 until 30th December 2022 the fund experienced a sharp decline in value as Global markets tumbled.
For the period between 17th November 2021 and 30th December 2022 the fund returned negative growth of -57.95%, compared to the IA North American sector average of -10.04%.
As a consequence of its poor performance, the Baillie Gifford American fund was one the most sold funds in 2022 as spooked investors dumped the fund, with many doing so only to move into lower quality funds with less long term growth potential simply because such funds had less exposure to industry leading companies and therefore experienced less of fall as markets tumbled.
However, it is important to remember that selling off investments during a market downturn is rarely a wise strategy. Many analysts believe that the Baillie Gifford funds, with their depth of quality and long-term growth potential, are likely to yield better returns over the long term. While it can be challenging to remain patient during periods of falling investment values, those who choose to hold onto quality funds like the Baillie Gifford American may experience large short-term losses, but over the course of a long term investment horizon of 5 or more years they could potentially gain much greater returns.
A Positive Outlook For Baillie Gifford
Since the end of 2022, many Baillie Gifford funds have shown signs of recovery. Over the past 6 months, 21 of the 30 Baillie Gifford funds analysed have outperformed the sector average despite markets volatility remaining high. This period of recovery from Baillie Gifford coupled with analyst forecasts that most core global markets are expected to return to growth the future could be much brighter for Baillie Gifford and their investors.
The Baillie Gifford American fund in particular has shown resilience and is making strides towards recovering from its previous losses. As of the year to date, the fund has experienced impressive growth of 34.92%, more than 3X times the IA North America sector average of 11.05%.
Baillie Gifford Fund Performance
The table below shows the cumulative performance and sector ranking of 30 Baillie Gifford unit trust funds over the past 6 months, 1 year, 3 years, 5 years and 10 year periods.
The period from the end of 2021 and 2022 was one that had a big negative impact on Baillie Gifford funds as market conditions were not favourable to the high growth composition of their funds. As a consequence, this period of underperformance had a significant negative impact on their funds cumulative performance, particularly over the past 1, 3 & 5 years. Prior to this period of underperformance, Baillie Gifford funds consistently ranked in the top half of their sectors over all periods.
However, as the 10 year performance column shows - despite the huge drop off in 2021/22 - over the longer term, Baillie Gifford funds have still significantly outperformed their competitors. This shows the importance of looking beyond periods of relatively short term underperformance when making investment decisions.
Baillie Gifford Funds Under Management Fall By 50%
The last quarter of 2021 and much of 2022 ended up being one to forget for many fund managers but none more so than Baillie Gifford who witnessed their funds under management fall by 50% from £103 billion in September 2021 to £51.2 billion by September 2023.
The majority of losses occurred when sentiment shifted towards value stocks and away from the growth focused, tech heavy strategy that Baillie Gifford had become renowned for.
From the funds analysed, 91% had experienced a decline in value in the 2 years from September 2021. This was a direct consequence of poor performance from unfavourable market conditions and investor's withdrawing their money in favour of investing in alternative funds. As the chart shows, Baillie Gifford lost 50% of their funds under management - a huge blow for such a highly regarded fund manager.
Baillie Gifford Active Fund Management
Baillie Gifford was an early investor into some of the world’s most valuable private and public tech companies, boasting a roster of portfolio companies that includes unicorns from nearly all generations in modern tech, including everything from Amazon, Google and Salesforce to Tesla, Airbnb, Spotify, Lyft, Palantir and even SpaceX.
They have an extensive history of investing across geographies, with one of its first and most successful investments coming from an early entry into Chinese e-commerce titan Alibaba.
Baillie Gifford has a reputation of actively building and managing some of the best performing funds across different regions and are widely respected as one of the top fund managers in the world.
Despite the huge losses to funds under management over the past few years, Baillie Gifford can expect to recover much of this as market sentiment begins to once again favour a growth strategy and investors move back into their funds. Also many analysts believe their funds are currently under priced, which could represent a very attractive investment opportunity for many investors.
Baillie Gifford's Patient Strategy Strives For Outperformance Over The Long Term
While most asset managers obsess over benchmark tracking and quarterly results, Baillie Gifford keeps an intensely long-term mindset. This deliberate contrarian perspective allows the firm to find exceptional growth opportunities where others see only risk.
Quality Not Quantity
Unlike peers running 40-60 stock portfolios, Baillie Gifford’s flagship funds hold just 25-40 stocks reflecting the team’s highest conviction ideas. Top 10 holdings often comprise 30-40% of assets. Baillie Gifford believes diversity of thought, not diversity of securities, prevents overexposure. They invest only in companies where they have done exhaustive research.
Long Holding Periods
The typical Baillie Gifford stock is held for 5+ years. This contrasts with the average period of just 11 months amongst other fund management firms. Baillie Gifford views volatility as an opportunity, not a risk, allowing them to add at lower prices.
Baillie Gifford often provides early private funding to startups and keeps investing post-IPO. Backing companies through ups and downs demonstrates true partnership, not just trading. This approach concentrates gains while providing steadfast support to management teams.
Ignore the Benchmark
With such long holding periods, Baillie Gifford can ignore benchmark turnover and short-term underperformance. They would rather be approximately right than precisely wrong. Peers obliged to mimic quarterly benchmark returns lack this flexibility.
Seek the Exceptional
Baillie Gifford hunts for emerging winners with vast addressable markets and visionary leadership. They avoid crowded trades, preferring to get in early and ride growth for years. This sometimes leads to speculative picks, but also yields huge wins on overlooked gems.
Baillie Gifford distinguishes itself by ignoring the short-term thinking that drives much of the asset management industry. Their patient pursuit of growth is not restricted by benchmark constraints which they believe allows them even greater potential to obtain exceptional returns from exceptional companies. Their long-term investors have been handsomely rewarded by this approach.
There is no doubt Baillie Gifford funds took a battering in 2022 but to dismiss them based on one bad year would be foolish.
It is Baillie Gifford's patience and unwillingness to time markets that has helped them deliver exceptional long term returns for their investors, which makes them particularly attractive to investors who share their long horizon. With inflation likely peaking, Baillie Gifford's fortunes are forecast to recover in 2023 and beyond offering enormous potential for those able to stomach the swings that comes with volatile markets.