Baillie Gifford Global Discovery - focusing on tomorrow, not today
Jonathon Curtis | Fri 30 August 2019
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- Douglas Brodie invests in small companies he thinks could solve big global problems
- Brodie and his team use an unconventional approach to find companies
- The fund’s long-term performance has been excellent
Our view
The best things come in small packages. That’s the view of Douglas Brodie, manager of Baillie Gifford Global Discovery. He thinks the biggest opportunities for growth are found among small, innovative companies from around the world.
Brodie runs the fund in a way that Baillie Gifford has become well-known for – focusing on companies with big long-term growth potential. He’s prepared to be patient – he doesn’t often sell companies he invests in, even if they’ve had periods of short-term poor performance, providing he thinks they can grow over the long run. Most recent sales have been due to companies being taken over.
We think Brodie’s a bold investor and he’s shown excellent stock-picking skills. The fund’s an adventurous option that could work well as part of a diversified portfolio with a long investment time horizon. We rate the fund highly but won’t be considering it for the Wealth 50 list. Brodie wants to avoid attracting lots of new investment as he thinks it could potentially constrain performance.
Remember investments can go down as well as up in value so you may not get back what you have invested.
How does the manager invest?
Brodie looks for small companies he thinks have the potential to solve global problems and grow into large companies. If they do he’s happy to ‘run his winners’ and stay invested if he thinks they’ll keep growing. He was the first Baillie Gifford manager to invest in electric car maker Tesla, and is still invested in the company as it’s gone from a relatively new business to a global manufacturer.
Many fund managers use a screening process to sift through the array of global companies and to eliminate those that don't meet certain criteria. Instead, Brodie and his team begin their search by exploring areas that interest them, such as biotechnology and disruptive software. They’ll dig deep to uncover what they think are future stars. With a small team though, there are only so many areas that can be researched this way. That means they’ll inevitably miss some uncovered opportunities.
Brodie prefers entrepreneurial businesses, especially where the founder is still involved. His focus on new and innovative businesses means he focuses more on tomorrow’s potential than what a company looks like today. He’s comfortable with around a third of the fund invested in currently unprofitable companies, as he thinks their profits will grow in future.
Brodie’s found the most opportunities in the US, so two-thirds of the fund's invested there. Most others are based in developed countries like the UK and Japan but some are from higher-risk emerging markets. With over 100 companies in the portfolio it’s got plenty of diversification. We think that’s a good thing as smaller companies are higher risk than larger ones.
How’s the fund performed?
Douglas Brodie started the fund in March 2011 and performance since then has been excellent. It’s grown 345.6%* compared with 164.3% for the FTSE Global Small Cap index. The fund’s tended to beat the benchmark when stock markets have risen, but lost more when markets fall. Remember past performance doesn’t indicate future performance.
Brodie expects the fund to struggle in jittery markets or when investors focus heavily on global politics, rather than what's going on with individual companies. But he’s a patient investor and we think he has the resolve to see through any volatility and remain focused on the long term. Investors in the fund need to make sure they have the patience to do the same.
Baillie Gifford Global Discovery performance
Past performance is not a guide to the future. Source: *Lipper IM to 31/07/2019
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Jul 14 -
Jul 15 |
Jul 15 -
Jul 16 |
Jul 16 -
Jul 17 |
Jul 17 -
Jul 18 |
Jul 18 -
Jul 19 |
|
| Baillie Gifford Global Discovery | 22.9% | 9.6% | 24.6% | 30.1% | 15.1% |
| FTSE Global Small Cap | 12.2% | 19.4% | 16.9% | 13.2% | 5.3% |
Past performance is not a guide to the future. Source: Lipper IM to 31/07/2019