Every month we study the universe of funds in the investment marketplace to assess whether they meet our exacting standards and should be given the RSMR seal of approval.
The Baillie Gifford China Fund is an all China strategy investing in both offshore and domestically listed China ‘A’ shares. It is an unconstrained approach looking to invest in exceptional growth businesses which have the potential to double over a five year time horizon.
China remains one of the world’s fastest growing economies and the ‘A’ share market is biased to domestic consumption. Baillie Gifford is a leader in growth investing and has successfully invested in China for many years through its well established emerging market team. The research resource in China has been significantly strengthened through the opening of the Shanghai office. The Chinese stock market has historically rewarded the fastest growing companies with growth over value investment styles which helps to explain the team’s success, along with strong stock picking, at delivering excellent returns from this market.
The Chinese stock market is relatively inefficient which favours a research intensive fundamental approach. The stock picking approach focuses on a longer term view of a company’s potential, rather than looking for short term valuation anomalies with the fund looking to deliver results through the power of compounding over meaningful time periods, typically five years and beyond. The chief driver of returns for this portfolio will be the bottom up stock picking by the team and investors can be reassured with the long term record of the emerging markets team in both regional and country specific portfolios. This fund does, however, remain a satellite investment option for investors as it invests in only one country rather than the broader Asian or emerging market region.
The Goldman Sachs Global Millennials Equity portfolio was set up to capitalise on the spending power of millennials, the world’s most powerful consumer force. They have different priorities and spending habits than previous generations which will drive both consumption and disruption going forward. The fund has the flexibility to alter its industry and sector biases over time as spending patterns of millennials evolve. Some of this change will be driven by the eventual aging of this demographic cohort. The fund is looking to capitalise on a long-term thematic secular growth opportunity. As a result, the fund will have a higher leaning to technology and technology enabled businesses, and a lower weighting to financials and resource stocks rather than broad global market indices.
The fund managers believe that this fund will give investors exposure to some of the world’s fastest growing companies due to favourable tailwinds. Stocks will not only have to fit the theme, but will also have to offer valuation upside and there is a high emphasis on the opportunities presented by stocks already held within non-thematic fundamental equity team portfolios. The fund has three co-portfolio managers aided by over 80 research analysts working in six different offices across the world. The fund is looking to leverage the research resource to find less well understood companies that can benefit from the impact of millennials and the team have built up a proprietary universe of 400+ stocks which have significant exposure to the behavioural trends of this generation, taking into account both the technology part of the portfolio and the lifestyle part of the portfolio.
The Legg Mason ClearBridge US Equity Sustainability Leaders fund is managed by Mary Jane McQuillen and Derek Deutsch, who have both managed the fund since inception. The portfolio managers are supported by two dedicated portfolio analysts as well as the sector analysts of ClearBridge’s fundamental research team. The fundamental research team comprises a director of research and fourteen analysts who are split by sectors. Clearbridge conduct their own proprietary ESG scoring system based on how well a company has executed its ESG practices. The ESG framework has been fully integrated into the overall investment process which has been built up over thirty years, meaning that ESG principles are considered at the stock picking level across the full range of equity strategies within the company.
The Schroder Monthly Income Fund is a fettered fund of funds which aims to produce an annual yield of 5% through investing 50% of its assets in equities and 50% in fixed income. Except within the fixed income portfolio, there is no tactical asset allocation overlay.
This is an outcome orientated income solution where the methodology is relatively easy to understand. It utilises a combination of the expertise of Schroders structured fund management and fixed income teams that have significant resources for the fund manager to draw on. Schroders Monthly Income fund is a good option to be used as part of an income portfolio or as part of a pension portfolio, particularly for clients in the deaccumulation phase.
The Baillie Gifford US Growth Trust is a public company listed on the London Stock Exchange. The Trust is run by the long-term growth team and as a closed ended vehicle is able to hold unlisted investments. The team managing the fund believe that long-term equity returns are dominated by a small handful of exceptional growth companies that deliver outsized returns. There is a quest for exceptional growth companies as there is inherent asymmetry in equity markets where it is possible to make far more money if a company succeeds than lose if a company does not leading to a strong philosophy that the costliness of mistakes is excessive risk aversion.
There is a nine question framework used to analyse companies looking to evaluate the source of competitive advantage and a the large market opportunity. For the fund to invest, there must be the potential or likelihood of the fund making a 2.5x return over the next five years, with the team focussing on potential outliers.
The Trust is focused on winners from long-term structural change in the economy, with a spotlight on technology enabled disruptive companies. While many of these have benefitted in the short-term from the significant market share shift driven by Covid, these gains are expected to continue to expand going forward with many businesses benefitting from both network effects and social effects in a world where the big have become stronger. The long term growth team at Baillie Gifford have delivered outstanding returns with a number of strategies and even though short-term performance can be volatile, the Trust is an excellent investment for longer-term investors.