- This fund draws on investment expertise from across Baillie Gifford's equity and fixed income teams
- We like their long-term, disciplined investment process, which has helped the managers deliver excellent long-term performance
- We think this is a great option for diversified exposure to stock and bond markets across the globe
- This fund is on our Wealth Shortlist of funds chosen by our experts for their long-term performance potential
How it fits in a portfolio
This fund invests across six major investment areas: shares in the UK, the US, Europe, Asia and the emerging markets, and bonds. It provides a huge amount of diversification in one fund. Shares tend to make up more of the fund than others in the same sector, so we consider it a more adventurous option than many of its peers. It could boost the growth of a more defensive portfolio with a focus on bonds or add a little stability to a portfolio focused on shares.
The team behind this fund is made up of eight experienced investors who are all experts in their fields.
Iain McCombie and Steven Hay have been the fund's lead managers since November 2012. McCombie specialises in UK equities and joined Baillie Gifford in 1994. Hay joined in 2004 and is a fixed income specialist.
The other six managers are representatives of the fixed income, US, Europe, emerging markets and developed Asia equity teams. To choose investments they draw on the research and analysis of their colleagues in their respective teams, but also on the best investment ideas of around 100 investment managers and analysts at Baillie Gifford. Please note the fund's investments in emerging markets add risk.
The managers like to keep things simple. They tend to invest around 75% of the fund in shares because they think shares will be the main driver of returns over the long run. The rest is invested in bonds and cash with the aim to dampen volatility and add diversification.
The managers tend to invest more in shares than most other funds in the IA Mixed Investment 40-85% Shares sector, which we think makes it a more adventurous option than many of its peers. This means the fund could perform differently to other funds in the same sector. The ratio of shares to bonds can change over time though, depending on the team's economic outlook. The amount invested in each geographical location also changes, depending on where the team feel the best opportunities are available.
The shares section of the portfolio is managed in line with Baillie Gifford's growth-focused investment philosophy. The managers look for high quality companies with clear and sustainable advantages over the competition. They consider a variety of factors, such as how fast the industry is growing, how the company's pricing structure works, how easily their products or services could be copied and how loyal customers tend to be.
Once they have a firm grasp on the opportunities available to the business, they try to work out whether the company is well placed to take advantage of those opportunities. Is the company financially secure? Is it run by a high-calibre management team? Are senior managers' interests aligned with those of long-term shareholders? These are just some of the questions the managers ask themselves at this stage of the process.
Lastly they consider valuation, investing in companies where they feel other investors are underestimating the potential for earnings and cash flow growth in the medium to long term.
In the equity section of the portfolio the managers have recently trimmed some large positions in the North American region, including Tesla, following very strong performance and to maintain their preferred balance.
The bond section of the portfolio invests in government bonds and investment grade and higher-risk, high-yield corporate bonds. However, the managers have found fewer opportunities in bond markets in recent years as yields have fallen (and in some cases, turned negative). This has led to a reduction in the allocation to developed countries’ government bonds over the past two years, with the managers preferring to add to areas like corporate and emerging market bonds, particularly when the coronavirus crisis provided an opportunity to buy these bonds at lower prices. The managers can also invest in derivatives, which add risk.
Around 5%-10% of the fund is typically held in cash. This acts as a cushion when other assets decline in value and can also provide a source of funding for the managers when buying opportunities arise.
Baillie Gifford is an independent private partnership founded in 1908. It's owned by partners who work full time at the firm. This ownership structure means senior managers have a vested interest in the company, and its funds, performing well. We think this has helped cultivate a culture with a long-term focus, where investors' interests are at the centre of decision making. We also like that fund managers are incentivised in a way that aligns their interests with those of long-term investors.
Baillie Gifford recognises the risks posed by Environmental, Social and Governance (ESG) issues and uses its position to encourage companies to act in a sustainable way. The company has a dedicated Governance and Sustainability Team of over 20 which is responsible for producing ESG research which challenges and contributes to the investment decision-making process. They also monitor companies' progress on an ongoing basis, engaging with them on ESG matters where appropriate.
This fund has an ongoing annual charge of 0.43%, but we've secured HL clients an ongoing saving of 0.15%. This means you pay a net ongoing charge of 0.28%. We think this is an attractive price to access a team we hold in high regard. The fund discount is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.
The fund's outperformed its peers over the long term. The managers' ability to select outstanding companies has added value, but our analysis suggests being in the right sectors and countries at the right time had the biggest impact on returns over the long term.
The managers tend to invest more in shares than many other mixed-asset funds. This means we'd normally expect it to perform well compared to peers when stock markets rise, but lag behind when markets fall.
A focus on high-quality companies helped the fund hold up relatively well in the early months of 2020 amid the coronavirus panic. However, we don't usually expect performance to be quite so strong in falling markets.
The managers' focus on higher-quality companies with the ability to grow profits year after year has boosted returns as these companies have largely been in favour. There could be a time when higher-quality companies go out of favour though, and we wouldn’t expect the fund to do so well under those circumstances.
Over the past 12 months the fund grew 33.4%*, compared to the IA Mixed Investment 40-85% Shares sector’s return of 5.2%. 2020 saw a particularly large contribution from some key North American equity holdings including Tesla and Shopify, which performed strongly. The managers acknowledge that 2020 was an unusual year, and we don’t think annual returns of this magnitude should be expected going forward. Past performance is not a guide to the future.
|Annual percentage growth|
| Jan 16 -
| Jan 17 -
| Jan 18 -
| Jan 19 -
| Jan 20 -
|Baillie Gifford Managed||26.17%||14.01%||-0.39%||17.76%||33.42%|
|IA Mixed Investment 40-85% Shares||18.35%||9.54%||-3.03%||11.91%||5.18%|
Past performance is not a guide to the future. Source: * Lipper IM to 31/01/2021.
This fund has a holding in Hargreaves Lansdown PLC.