Baillie Gifford's director of marketing and distribution, James Budden, talks to Jayna Rana about taking a joint approach to open- and closed-ended funds and why the group has launched a campaign calling out firms it believes are 'dragging down the industry'
Longevity
A team-based approach has also helped emphasise the complementary nature of both structures, while keeping style and performance as consistent as possible, Budden says.
For example, following the retirement of Sarah Whitley, long-serving manager of the £2.7bn Japanese fund and £700m Japan trust in April 2018, Matthew Brett was able to transition into the role of lead manager seamlessly, having been a member of the group's Japanese equity team since 2003 and Whitley's co-manager since 2008.
"We are very much a team at Baillie Gifford," Budden says. "We rarely have one manager on our retail funds, but rather groups of managers and analysts. We believe in longevity and that small teams make better investment decisions. That also takes away that risk of the star manager culture.
"The star manager? Not for us."
The team-based approach also means the entire firm follows a growth style across its ranges. Its biggest and most successful products invest in famous growth names such as the FAANGs and BATs, while Amazon is a firm favourite in many of the global and US vehicles.
Budden adds he is not irked by industry noise claiming growth has had its day in the sun and value is making a comeback. He says: "We are not really worried. There is an argument to say we have done well and so can understand why people have taken their profits on valuation grounds (though we would not agree) but have they recycled into value? I am not convinced."
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What investors should be worried about, he adds, is falsely describing a value stock as one that is underpriced because it appears to not have much of a future. He notes some investors believe banks are going to come back or think its time for the return of pharma, but that there are long-term structural issues in those areas such as regulation, growing debt problems and challenges from disruptors.
"Those areas might be cheap but they are cheap for a reason and may well get cheaper," he says. "I am not saying growth will go on and upwards for ever - we saw 10% knocked off our fund values last month, which is not unusual for us as there will always be periods of volatility. But I am saying five years from now you will be happier to have been in growth over value."
Short-term game
Another "bandwagon" the group does not plan on jumping on any time soon is in the passive arena, which has significantly grown in recent years.
The group has not been shy in sharing its opinion on the active versus passive debate, from senior partner Charles Plowden's 2016 letter to the Financial Times expressing his concern over the "over-simplification of the topic and its consequences", to the firm's recent marketing campaign for "actual investing".
Budden says there is nothing wrong with investors having a combination of active and passive products, adding there is a place for the latter as they offer low-cost access to markets.
However, he says he is frustrated by managers who say they are active when they are not and the impact this is having on the debate.
"Some have lost their way and are not looking at fundamentals and we have an issue with those that call themselves active and respond to short-term macro problems - like what is happening in Saudi Arabia or what Donald Trump has said - simply based on sentiment or whether something is cheap for the sake of being cheap."
Budden adds these managers are simply playing a short-term game against each other that is judged against 12-month benchmarks, which he believes does not encourage or stimulate what Baillie Gifford would call investing, but is closer to trading.
"Because of this, passive players can argue the average active manager is underperforming but that is not really an argument at all. Average tennis players do not win Wimbledon. That is why we have coined the term ‘actual investing' - we see ourselves at the forefront of that, with high active share, low turnover and stockpicking managers that are index-agnostic.
"This is a challenge to our peer group to get back to their knitting, which will hopefully put clear water between real active managers and those we think are dragging down the industry."
