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33. Uncovering Trusts – Baillie Gifford Conference: The Next Chapter
94 Plays24 days ago
In this episode, Chloe Wong, analyst at Edison Group, provides an overview of Baillie Gifford’s recent two-day Investment Trust Conference, entitled “The Next Chapter.” She begins by setting the macroeconomic context before highlighting Baillie Gifford’s continued commitment to its long-term, high-conviction investment approach, despite market volatility. Chloe then explores six key themes that emerged across the firm’s twelve listed trusts, including the importance of backing a small number of transformational winners, how organisational culture plays a role in identifying long-term leaders, and the growing relevance of private market exposure. She also discusses the firm’s contrarian optimism on Asia and Japan, and the role of diversification and dividend resilience in portfolio construction.
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About ‘Uncovering Trusts’
'Uncovering Trusts': is a podcast run by Edison analysts released every two weeks. Subscribe to hear analyst interviews on how investment trusts maximise returns while managing risks for investors.
About Edison:
Edison is a content-led IR business. We believe quality investment content should inform all investors, not just brokers. Our mission: engage and build bigger, better-informed investor audiences for our clients.
Edison covers 50+ investment trusts, read about them here: https://www.edisongroup.com/equities/investment-companies/
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Transcript
Introduction to 'Uncovered Trusts'
00:00:06
Speaker
Welcome to Uncovered Trusts, a podcast by the Edison Group, a content-led IR business integrating analyst content, digital targeting and investor engagement. I'm your host, Will Manuel, and today i'm joined by Chloe Wong, analyst at the Edison Group.
Bailey Gifford's Investment Trust Conference Highlights
00:00:21
Speaker
We talk about Bailey Gifford's recent investment trust conference. So Chloe, thanks for joining us today. Thanks for having me, Will. Right. So the the last conference Bailey Gifford held for their investment trust was three years ago now.
00:00:35
Speaker
um What was your overall impression of the event this year? My overall impressions of the conference was that despite the current environment of macroeconomic uncertainty and geopolitical disruptions going on around the world, Bailey Gifford's overall tone was quietly confident that they will deliver returns in the long term.
Investment Style and Market Volatility
00:01:00
Speaker
They remain committed to their long-term high-conviction investment style, which is grounded in patience, adaptability, and a big focus on growth companies.
00:01:11
Speaker
Across the two days, six important themes emerged that reflected how they are positioning for this next phase, including focusing on big winners, the role of culture, the growing strength of private markets, the opportunities in Asia,
00:01:28
Speaker
and how diversification and dividend resilience fit into their investment strategies. What came through clearly is that Bailey Gifford doesn't see volatility as something to avoid.
00:01:41
Speaker
They see it as an environment where long-term thinking and differentiated ideas can thrive.
Scottish Mortgage's Strategy and Success with Companies
00:01:47
Speaker
Okay, so um let's now dive into some of those six themes.
00:01:51
Speaker
um So let's start with the first one, focus on a small number of big winners. Why is that such a central idea for Bailey Gifford? So Tom Slater, that who's the portfolio manager at Scottish Mortgage, discussed his findings that only a small number of companies actually drive market gains.
00:02:11
Speaker
This conclusion was drawn by analyzing the performance of both the S&P 500 companies as well as global stocks. Both analysis reached the same conclusion that only a small number of big winners can drive portfolio success.
00:02:27
Speaker
And in the case of the S&P 500, this was 5% of stocks, which increased 5-fold over five years. Similarly, 5% of global stocks increased 4.5 times over the same period.
00:02:43
Speaker
This is why Scottish Mortgage backs a small number of companies that they believe will bring long-term success for their portfolio. They gave an example of this with their holdings in NVIDIA, where they've been shareholders since 2016. And in the past 10 years to March 2024, NVIDIA's share price has increased 80 times.
00:03:08
Speaker
And Scottish Mortgage took somewhere around £1 billion pounds in profits in the past year. What they were trying to highlight with that was that in order to make those returns, they had to hold the stock for nine years.
00:03:23
Speaker
This is why they believe in buying and holding for an average period of 9.7 years. Yeah, that that
Organizational Culture and Private Companies
00:03:30
Speaker
makes sense. So the obvious question is then, how do they find the next Nvidia?
00:03:34
Speaker
Finding the next NVIDIA is never easy. But Kirstie Gibson from the US Growth Trust believes that organizational culture is a key indicator of long-term success.
00:03:47
Speaker
She breaks it down into two types. Firstly, there's foundational culture where the core values are set by the founder. The second is a created culture which evolves as the company grows and adapts.
00:04:01
Speaker
And for a company to succeed over time, both need to be clearly defined and aligned. This framework is especially relevant for US growth, which can invest up to 50% of their portfolio in private companies.
00:04:18
Speaker
So the firms are still shaping their identities before going public. And when a company's culture is aligned, it helps them stay flexible and resilient especially in volatile conditions.
00:04:33
Speaker
That's why culture is central to how they identify companies with the potential to deliver long term returns. Okay, that that cultural insight is fascinating. um You also mentioned that companies are staying private for longer.
00:04:48
Speaker
So how is Bailey Gifford approaching that trend? So first of all, this trend that companies are staying private for longer is extensively covered on the Edison website.
00:05:00
Speaker
And it was explored at the conference by Robert Natzler, who is the portfolio manager at Chehelion Fund. He shared that today around 87% of US companies with over $100 million dollars in revenues are still private and increasingly private secondaries where existing shares are sold are exceeding total IPO volumes.
00:05:26
Speaker
This means that a growing share of value creation is having is happening away from public markets. Shahidian exists to breach that gap. It gives Bailey Gifford clients Exposure to later stage private companies that are scaling fast, but not yet public.
00:05:44
Speaker
Often it's in areas like biotech, fintech, AI. And these companies typically have strong growth margins, clear unit economics, and a robust cash position.
00:05:57
Speaker
In fact, it was shared that nearly 70% of Shehalian's portfolio had more than four years of cash runway, which provides resilience. Yeah, no, that's some impressive data. um So let's talk about portfolio
Building Resilient Portfolios
00:06:12
Speaker
construction. Now, ah how Bailey Giffords Trust building resilience into their portfolios?
00:06:18
Speaker
Another key takeaway was that the importance of resilience as a proactive way to thrive through volatility. For instance, the monks trust builds resilience by having a diversified three-dimensional growth structure.
00:06:35
Speaker
These included growth stalwarts, which are long-term compounders. There are rapid growth companies and cyclical growth companies. This blend of different types of growth companies allows them to ride different waves of market behavior.
00:06:52
Speaker
I found this to be practical, um especially in a world where not all tech is booming. Whereas the Bayley Gifford European Growth Trust offered a different take on resilience, their team focused on aligning company fundamentals with market expectations.
00:07:12
Speaker
In other words, it's not just about whether a company is growing. It's about whether it's growing more than people think. Yeah, i think I think that's right. um And so geographically, you mentioned that Asia was another focus.
Opportunities in Asia and Japan
00:07:25
Speaker
What are Bailey Gifford's views on the long term opportunity in the markets there?
00:07:31
Speaker
Yes, emerging Asia and Japan were a key focus. Roderick Snell from Pacific Horizon Trust um talked about how Asia is a major long-term growth opportunity with over 80% of the world's near middle-class consumers coming from that region ah will come from that region. And markets like Vietnam and China are already showing domestic strength and getting policy support for growth.
00:08:02
Speaker
The China Growth Trust made a strong case for contrarian optimism. Chinese companies are currently trading at a 50% discount to US peers, even though their earning growth is just as strong, and if not stronger. And in areas like AI, development is happening at a third of a cost compared to the US.
00:08:27
Speaker
Japan is also getting renewed attention. It's long been seen as a stagnant market, but according to Matthew Brett from the Japan Trust and Brian Lum from Shinipin, that view is shifting.
00:08:39
Speaker
After 30 years of their economic slumber, Japan is showing signs of reawakening. Companies are getting pricing power, they're becoming financially fitter, which could improve valuations.
00:08:53
Speaker
On top of that, we also see real wage growth, infrastructure investments, and low inflation, which creates a better environment for selective growth investing.
00:09:04
Speaker
The Japan Trust is focused on companies riding this domestic momentum and expanding globally. They see Japan not as a recovery plate, but as a rare growth opportunity in a developed market.
00:09:17
Speaker
Whereas Shinipun targets Japanese small cap companies, which is part of a market with 3,000 to 4,000 listed companies. And many of them are founder-led and operating in a niche or emerging sector that doesn't get much analyst coverage.
00:09:35
Speaker
Right. Interesting.
Dividend Growth and Sustainability
00:09:36
Speaker
So, um finally, what's the role of income-focused strategies within this long-term growth framework? And did the Scottish American Investment Trust, which I think is also known as Saints, stand out again this year?
00:09:49
Speaker
Yes, so for more conservative or income oriented investors, things does stand out. James Dow reminded us that resilient is dividend growth is what delivers long term income security.
00:10:05
Speaker
During the COVID shock in 2020, nine out of their top 10 holdings increased their dividends. And that wasn't just luck. That was the result of a carefully curated portfolio.
00:10:18
Speaker
They use a resilience checklist to filter out which companies have high debt, fragile margins, or unsustainable payouts. The result is then their portfolio yielding at 3%.
00:10:31
Speaker
And that's compromised of companies that combine ah long-term earnings compounding with dependable income. And they target around 10% annual growth. and growth Great. Thanks, Chloe. So that's a really good overview of the key messages coming out of the conference.
00:10:47
Speaker
um So if you had to sum it up, what's the one take takeaway for investors from Bailey Gifford's positioning right now? I'd say that the core message is that Bailey Gifford is standing firm in its belief that long-term growth-led investing will continue to deliver over time.
00:11:07
Speaker
While others may panic in short-term uncertainty, they're clearly staying the course and looking ahead. Okay, so thanks again, Chloe. Thanks to our listeners for joining us on Uncovering Trusts.
00:11:19
Speaker
If you'd like to read more about any of the trusts mentioned in this episode, head over to Edison's website at www.edisongroup.com.