- Baillie Gifford's funds under management declined by 50% (£51.7 billion) over the last 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 May 2024 dropping 62.6%.
- Since the start of 2023 the Baillie Gifford American fund has returned growth of 43.54% compared to the 26.82% 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.
In this article we analyse 30 Baillie Gifford funds, their 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.
Baillie Gifford Fund Performance
The table below shows the cumulative performance and sector ranking of 32 Baillie Gifford unit trust funds over the past 6 months, 1 year, 3 years and 5 years periods.
*Performance figures cumulative up to 27th May 2024. Figures include fun charges only
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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 3 & 5 years. Prior to this period of underperformance, most Baillie Gifford funds consistently ranked in the top half of their sectors over all periods.
As the 10 year performance table shows - despite the huge drop off in 2021/22 - over the longer term, the majority of Baillie Gifford funds have outperformed their competitors. This shows the importance of looking beyond periods of short term underperformance when making investment decisions.
Best Baillie Gifford Funds
Due to the sharp decline in value of Baillie Gifford funds due to the 2022 crash, cumulatively over the past 5 years they have received poor performance ratings. But with many of their funds on the road to recovery and many also having longer term outperformance we list 3 of their funds that have shown the best growth potential.
The Baillie Gifford Long Term Global Growth fund
The Baillie Gifford Long Term Global Growth fund consistently ranks among the best in the IA Global universe. Excluding 2022, it has been a standout performer in the Baillie Gifford fund range.
In the past six months, the fund outperformed 97% of peers in its sector. Over five years, it returned an impressive 86.47% growth, ranking 17th out of 379 funds in the IA Global sector.
This exceptional track record, barring one challenging year, showcases the fund's robust investment strategy and expert management team. For investors seeking long-term global equity exposure and consistent outperformance, the Baillie Gifford Long Term Global Growth fund is a compelling choice. Its strong long term performance warrants its position among the best Baillie Gifford funds available.
Baillie Gifford American Fund
The Baillie Gifford American fund is a fund that we believe to offer strong future growth potential and long term value.
However, the Baillie Gifford American was one of the funds most heavily impacted by the market crash during 2021/2022. Between November 2021 and October 2022 the fund suffered a sharp performance drop (-52%) which due to its adventurous growth strategy was greater than many competing funds in the North American sector. Because of this period of under performance the Baillie Gifford American fund, for the first time in its history, had a sector average that was among the bottom of its sector. This period of underperformance has also impacted the funds cumulative returns over 5 years, but despite the funds
Since the end of 2022, the Baillie Gifford American fund has rapidly regained ground as one of the top performing funds in its category, achieving growth of 43.54% growth against a 26.82% sector average.
Baillie Gifford Pacific Fund
The Baillie Gifford Pacific fund is a top-performing Asia Pacific ex-Japan equity fund. Over the past 10 years, it has outperformed 99% of funds in the IA Asia Pacific ex-Japan sector, demonstrating exceptional long-term outperformance. Over the past 6 months the fund ranked 1st in its sector with growth of 19.59% more than double the 9.47% sector average. Over 5 years the fund has returned very high growth of 67.23% compared to the 19.49% sector average demonstrating its consistently strong returns. .
The fund's strategy focuses on identifying high-quality companies across the Asia Pacific region with sustainable growth prospects. Its disciplined investment approach and skilled management team have enabled consistent outperformance versus the benchmark and peer funds.
With its remarkable long-term and short-term track records, the Baillie Gifford Pacific fund stands out as one of the premier options for investors seeking exposure to Asia Pacific ex-Japan equities.
Worst Baillie Gifford Funds
For a proportion of Baillie Gifford the crash of 2022 was not the only cause of poor performance. Some of their funds have consistently underachieved. The 3 funds below represent some of their most disappointing performers.
Baillie Gifford UK Equity Alpha fund
The Baillie Gifford UK Equity Alpha fund has significantly underperformed its peers in the IA UK All Companies sector over an extended period. The fund's 5-year returns rank 206th out of 208 funds in the category, reflecting a persistent failure to generate competitive returns for investors.
The fund has consistently delivered below-average performance compared to the sector average with it's poor track record raising concerns about the effectiveness of the fund's investment strategy and its ability to identify attractive opportunities in the UK equity market.
While short-term underperformance can occur, the prolonged stretch of subpar returns calls into question the fund's processes, risk management, and overall portfolio construction approach. Investors may need to reevaluate whether the Baillie Gifford UK Equity Alpha fund aligns with their investment objectives and risk tolerance.
Baillie Gifford Japanese Smaller Companies Fund
The Baillie Gifford Japanese Smaller Companies fund has exhibited persistently poor performance relative to its peers in the IA Japan sector across multiple time periods. Over the past 6 months, 1 year, 3 years, and 5 years, the fund has ranked last in its sector by delivering the worst returns compared to all other peer funds.
Over the past 1, 3 & 5 years the funds has returned negative growth of -19.53%, -45.77% and -31.05%. In comparison, the sector average for the same periods was 11.24%, 6.70% and 30.62%.
Baillie Gifford Global Discovery B Acc
The Baillie Gifford Global Discovery fund is a concentrated global equity portfolio typically holding 50-90 stocks across a wide spectrum of industries.
The fund's strategy has a high holding of Biotechnology/Medical companies, which is a strategy that has recently failed to yield competitive returns for its investors. Over the past 1, 3 & 5 years the funds has returned negative growth of -16.67%, -61.01% and -29.16%, which were all considerably below the sector average.
Baillie Gifford Assets 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.
Early Investors
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.
Summary
Baillie Gifford funds consistently ranked among the top of their sectors with the firm becoming synonymous with high growth from their funds. But all this changed towards the end of 2021 when markets began to retract as investors attempted to determine the long-term effects of the pandemic on the global economy. This was exacerbated further with the outbreak of war in Ukraine and the subsequent rise in energy prices, growing inflation, interest rate hikes, valuation concerns and general uncertainty, all of which drove Global markets down. The FTSE All World Index dropped by over 26% in the first 3 quarters of 2022.
With conditions unfavourable to growth oriented funds, Baillie Gifford funds were among the hardest hit. During this period, their high growth strategy had the opposite effect resulting in their funds experiencing even greater valuation declines than most of their competitors. Although the market crash peaked towards the end of 2022, there was a period of stagnation for much of the following year, but over the past 9 months in particular, markets have entered into a positive growth period, which has been very favourable to Baillie Gifford funds. Over the past 6 months 20 of their 32 unit trust funds outperformed the sector average.
The fact is, many Baillie Gifford funds have underperformed over the past 3 to 5 years due to unfavourable market conditions for the fund manager. But their performance over a bear market should not define their quality. As identified in this report, over the longer term, the majority of Baillie Gifford funds have outperformed their sector peers which affirms their quality. Ultimately, time in the market is one of the most important requirements for investment success.
