The fund’s high weighting to tech and his preference for smaller companies means Baillie Gifford Global Discovery was one of the worst hit IMA funds by the recent rotation out of high multiple growth stocks into larger, more defensive companies.
Our data shows that between early March and late May, the fund fell close to 20 per cent while the IMA Global sector average lost just 1.85 per cent.
Performance of fund vs sector in 2014
Source: FE Analytics
However, Swaby says now is a very good entry point for those investors who can stomach the inevitable volatility as he expects it to deliver high returns over the long term. “One fund we have started using recently has been the Baillie Gifford Global Discovery fund,” Swaby (pictured) said.
“We are not necessarily using it from a tech point of view, although it has that sub-theme to it, but it is a fund we are using for our higher risk clients seeking long term growth.”
“It has traits of a global smaller companies fund but its focus is on less mature companies so it is quite unique in what it does.”
“It falls into our “alternatives/other” category, so we are using it as a differentiator instead of just using a natural resources fund or a higher risk absolute return fund.”
Swaby admits that the fund doesn’t suit cautious investors, however.
“We have been watching the fund for a while,” Swaby said. “It had been performing very well but we had seen volatility increase and everyone seemed to be getting quite twitchy.”
“However, we felt that valuations had fallen to a level where we thought it would be a good entry point.”
“Nevertheless, we re-balance our portfolios regularly so we can protect investors to an extent if it were to fall significantly again.”
While the five-crown rated Baillie Gifford Global Discovery fund was launched in October, it has only be run by FE Alpha Manager Douglas Brodie since May 2011.
According to FE Analytics, the £142m fund has been the eighth best performing portfolio in the highly competitive IMA Global sector since Brodie has been in charge with returns of 46.24 per cent. As a point of comparison, the MSCI World Small Cap index has returned 33.91 per cent.
Performance of fund vs sector and index since May 2011
Source: FE Analytics
The portfolio, which has a significant weighting to technology stocks, delivered a 19 per cent return in 2012 and was the sector’s second best performer in last year’s bull market; boasting a hefty 55.76 per cent return.
However, as the previous graph demonstrates, the fund has fallen significantly this year and is currently down 3.34 per cent in 2014.
Swaby says that two of the major reasons why he was drawn to the Baillie Gifford were its investment mandate and management’s expertise.
“For us the attraction to the fund was the focus on less mature companies that were potentially the innovators and disruptors of tomorrow,” he explained.
“The team managing the fund are ‘home grown’ by Baillie Gifford with a decent amount of experience behind them. They can also call on the resources of Baillie Gifford’s other investment teams so we find this is a good structure for debating ideas and challenging each other.”
Baillie Gifford Global Discovery is a relatively diverse portfolio, with Brodie investing in just over 100 companies. His top 10 accounts for 25 per cent of the portfolio and as Swaby says, the manager focuses on growth companies that operate in industries with potential for structural change and innovation.
One of his top 10 holdings, for example, is Stratasys which is a US based 3D printing company.
While the manager invests across the global smaller company indices, he holds UK-listed stocks such as IP Group, Ocado and XAAR in his top 10. He also has 1.8 per cent in ASOS, which will have hurt the fund’s performance recently.
A recent FE Trustnet story highlighted that shares in the FTSE AIM-listed online retailer had fallen signficantly following its profit warning last week.
Those losses, combined with an earnings revision earlier in the year, has meant that ASOS has lost close to 50 per cent in 2014.
Performance of stock vs index in 2014
Source: FE Analytics
The fund holds 36.3 per cent information technology, 18.5 per cent in consumer discretionary, 17.9 per cent in healthcare, 9.6 per cent in industrials and 9.0 per cent in financials. Brodie also has close to 10 per cent of his portfolio in cash.
The Baillie Gifford Global Discovery fund’s clean share class has an ongoing charges figure (OCF) of 0.84 per cent.
