By Lucy Haddow, Investment Specialist, Baillie Gifford
In July 1938, amid a turbulent political and economic backdrop, a team of German and Austrian climbers finally conquered the north face of the Eiger, a mountain in the Alps that had stolen many souls in the pursuit of a successful ascent.
While the problem had been cracked, it turns out there was no shortage of ways to solve it. The 1938 expedition took three days, but in 2015 the late Swiss climber Ueli Steck set a record ascent time of two hours, 22 minutes and 50 seconds. This goes to show that, the desire of humans to conquer challenges, grow and innovate continues, regardless of past success or what is going on in the world.
Against the backdrop of a tough 18 months for markets, one question has been asked over and over again: is this it for growth investors? The decade after the Global Financial Crisis was a great success, but have things changed? While some are now questioning if the solution for achieving long-term capital growth is still growth investing, we are of the opinion that it is.
The next decade will likely be very different to the one which has just passed and could prove to be testing for even the strongest businesses, not only due to a challenging economic environment but also due to delicate geopolitical tensions, most notably between the US and China. However, we have confidence in the resilience of our existing holdings, on top of which we believe there are reasons for long-term optimism, especially for companies that will further the integration of technology in our day-to-day lives.
Take the convergence of biology and technology, for example. This could represent a significant step forward for humanity as well as a meaningful investment opportunity. There are many high-quality health-tech companies in Europe, for instance, but we have found that valuation has always been a hurdle.
However, in light of recent market movements, we took the opportunity to reassess the situation and ultimately invest in CRISPR Therapeutics and Evotec. The former is a Swiss-American gene editing company that could drastically transform the treatment of many illnesses, from cancer to sickle cell disease. Furthermore, with around US$2bn on the balance sheet, it is in a position of financial strength.
German-listed Evotec is a business that companies outsource their research to as it can do this research faster and more cheaply. It is now evolving its business model to develop co-owned products to generate meaningful royalty payments, which could increase its already strong gross margins (20%).
Elsewhere, the demand for newer, cleaner energy sources continues apace – a trend only accelerated by the tragic war in Ukraine. One company driving energy innovation is Nexans – one of only two companies in the world able to lay sub-sea cables at extreme depths, a must-have for offshore wind. Another example is Fanuc, the Japanese robotics manufacturer, which is set to benefit from a broadening of applications as companies look to make entire plants more carbon efficient.
Growth can also be found in those companies addressing the more fundamental challenges too. Bellway, the UK house builder will struggle in the short term due to high interest rates and recession, but the reality is that the UK is not building enough homes right now. This is a profitable company with a robust balance sheet and a well-invested land bank.
Our job on the Baillie Gifford Managed Fund isn’t just to focus on near-term resilience but also to position the portfolio to deliver long-term capital growth. To do that, we need to find opportunities – ground-breaking businesses like that team of pioneering climbers, forging a path into uncharted territory, but also innovative companies, seeking new efficiencies and disrupting norms like Ueli Steck.
Baillie Gifford Managed Fund Annual Past Performance to 31 December each year (%)
Source: FE, StatPro, net of fees, total return in sterling. Class B Acc Shares. The manager believes an appropriate comparison for this Fund is the Investment Association Mixed Investment 40-85% Shares Sector median given the investment policy of the Fund and the approach taken by the manager when investing.
Past performance is not a guide to future returns. All investment strategies have the potential for profit and loss, capital is at risk.
This article does not constitute, and is not subject to the protections afforded to, independent research. Baillie Gifford and its staff may have dealt in the investments concerned. The views expressed are not statements of fact and should not be considered as advice or a recommendation to buy, sell or hold a particular investment.
The Fund’s share price can be volatile due to movements in the prices of the underlying holdings and the basis on which the Fund is priced. Investments with exposure to overseas securities can be affected by changing stock market conditions and currency exchange rates.
Baillie Gifford & Co Limited is authorised and regulated by the Financial Conduct Authority. Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs. All data is sourced from Baillie Gifford & Co unless otherwise stated.