Baillie Gifford Sustainable Income fund added to the Wealth Shortlist

The fund invests across three broad investment areas: shares, real assets (such as property) and bonds. The aim of the fund is to increase the income paid to investors by more than the increase in the consumer prices index (a measure of inflation) over the long term. The fund focuses on providing a resilient income over time, meaning that while the income provided by this fund may not be the highest available, it can be expected to be more consistent.

The managers invest evenly between the three areas noted above, but the real assets section is made up of companies listed on the stock market, meaning most of the fund is invested in shares.

The fund is managed by James Dow, Nicoleta Dumitru, Lesley Dunn and Steven Hay. They each have different areas of investment specialism and are managers of other funds at Baillie Gifford. James Dow is Co-Head of Global Income and also manages the Baillie Gifford Global Income Growth fund. Lesley Dunn is Head of the Credit Team and also manages the Baillie Gifford Strategic Bond fund. Nicoleta Dumitru is a multi-asset investment manager, specialising in real assets and specifically infrastructure investments. Steven Hay is Head of Income Research and also manages the Baillie Gifford Managed fund. His focus is on fixed income (bonds).

All of the managers look for investments that will contribute to the income paid by the fund, so that it’s not reliant on any one asset class to generate its income. This diversification helps the level of income to be more consistent. That said, it’s expected the bonds will be the largest contributor to the fund’s income over time.

The fund applies a screening process to remove companies from their universe that are subject to UN Security Council sanctions or are non-compliant with the UN Global Compact initiative. They also screen out companies that have revenues above particular thresholds coming from fossil fuel extraction and production, thermal coal distribution, tobacco production, controversial weapons and armaments.

As part of their company assessments, the managers also consider a number of different sustainability metrics and assign each company an overall score. This helps them to compare different companies’ sustainability credentials. Those that are considered leaders within their sector are preferred.

The underlying universe of potential investments for this fund is large and includes emerging markets shares, emerging market bonds, high yield bonds and derivatives. All of these types of investment add risk.

Please note that the fund takes its charges from capital which can increase the yield but reduces the potential for capital growth.

We think the fund could be used to provide diversification to an investment portfolio focused on growth or be a useful addition to a portfolio focused on providing an income.

We like the diversified nature of the approach and the clear focus on providing a resilient income over time. The fund makes use of a variety of teams within Baillie Gifford, which helps to reduce the level of key person risk associated with any individual manager. That said, our conviction in this fund is impacted by Steven Hay’s involvement as Head of Income Research at Baillie Gifford. Overall, we have confidence that the team will achieve their income objective over the long term. Though as always, there are no guarantees.

This fund holds shares in Hargreaves Lansdown plc.

We've also published a full fund update to go alongside this notification.