Last Word
Perspective
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Fund Manager
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Square Mile
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strategy directly from the fund manager himself.
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research and market views together with an explanation of the
Baillie Gifford Pacific adopts a long-term investment strategy (of 5+ years) and invests in Asia excluding Japan and Australasia. That the fund adopts a growth strategy over this time frame makes it unusual in the region and means it invests in stocks that might otherwise be overlooked.
Axis analyses the fund from four perspectives to bring you insight,
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Review By Gary Corcoran
COMPANY_ Last Word
This unusual fund offers investors the opportunity to invest in growth stocks in the Pacific region over the long term. Its six-out-of-seven rating on the company’s own risk and reward indicator reflects domestic concerns common to the region. As such it will appeal to investors with a high appetite for risk and be likely to form part of a diversified portfolio.
Scroll down to read more...
“Although the fund is sector agnostic the team believes that many of the best ideas in Asia come from the IT sector with digitisation of the global economy being a key driver.”
JOB TITLE_ Director
YEARS IN INDUSTRY_ 25+
LOCATION_ London
G
at Last Word
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GARY CORCORA_
GARY CORCORAN_
GARY CORCORAN
investors looking for emerging
market growth potential
An appealing fund for
COMPANY_ Square Mile Investment
JOB TITLE_ Managing Director
R_
“A long-term proposition that takes advantage of the market’s tendency to be preoccupied by short-term events.”
The fund is managed by an experienced pair of investors who are part of the well-regarded emerging markets equity team at Baillie Gifford. They invest in companies with a strong growth outlook and competitive edge but which trade on sensible valuations. In line with Baillie Gifford’s wider philosophy, the team believes that too many market participants are preoccupied with short-term events, and try to take advantage of this by investing over the longer term.
Scroll down to read more...
To view Square Mile Investment Consulting and Research Ltd's disclosure on their involvement on this site, please click here.
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RICHARD ROMER-LEE_
RICHARD ROMER-LEE
Last Word
Perspective
Baillie Gifford Pacific is one of the very few funds that invests in the region over the long term (five years or more). The fund was launched in 2000, excludes Japan and Australasia, and is benchmarked against the MSCI AC Asia ex Japan Index.
Managers Roderick Snell and Ewan Markson-Brown are part of the nine strong Emerging Markets team at Baillie Gifford. Roderick has been with the firm since leaving university in 2006 while Ewan joined in 2013 with many years of managing money in Asia under his belt. Their fund aims to identify quality growth stocks that will outperform over the long term. Although the fund is sector-agnostic the team currently believes that many of the best ideas in Asia come from the IT sector with digitisation of the global economy being a key driver. All research is discussed at an Emerging Markets weekly meeting and the managers can also draw on the efforts of over 100 other fund managers from across the business.
The stock selection process looks at five key factors: a company must have the potential to achieve above average returns; it must show a competitive advantage; have the ability to deliver on aims; have financial strength and the right sort of management; and last but not least, it must have a good valuation. However, short-term valuation is less important than other factors when assessing a company. The team prefer to take a view on where the company will be in five years’ time, rather than look at the P/E when first choosing a stock.
Risk is managed from the bottom up. Snell and Markson-Brown choose companies with strong management that add diversity across country and sector. An understanding of how the macro situation in each region is likely to impact the micro situation is essential to the management of this fund, as is a willingness to ride out volatility over the five-year period.
Bottom-up growth approach delivers outperformance over the long term
AUTHOR_ GARY CORCORAN
The fund has £275.4m in assets under management, with the active share of the fund being 72%. The top three holdings by region are China at 31.2%, Korea at 22.8% and India at 18.4%. The fund typically holds 50-80 stocks (at the time of writing it holds 70) with turnover kept to a maximum of 20%. The investment process is bottom-up. The three most overweight stocks are Chinese e-commerce site, JD.com (4.2%), Chinese gaming and messaging platform, Tencent (8.1%), and Indian bank, Indusind (3.1%).
Key to the long-term success of the fund is the growing Chinese middle class. Consumer products and services are already producing more than 50% of GDP, more than 90% of GDP growth and almost all new jobs. Retail sales in the country have growth 10% year on year. Key companies for the fund are those that combine technology with consumption. For example, the company expects C-Trip, the largest online travel company in China with 80% market share, to grow 20-25x over the next five years.
Similarly, China’s online sales figures are huge. Whereas eBay’s total worldwide merchandise value for 2015 stood at around $80bn, the online Chinese retailer Alibaba generated $14bn of gross merchandise sales in one day last year.
Performance
over five years_
.
%
m
Number of
holdings_
Baillie Gifford Pacific
Performance
last year_
Size of
fund (£)_
Annual
management charge_
Data correct as at 30.04.2017
/
Source: FE Analytics
Rank in sector
over five years_
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Kames Global Diversified Income Fund
Fund
Vincent McEntegart has been managing the Kames Global Diversified Income Fund for six years and is well-versed to the changeable financial climate. Curabitur blandit tempus porttitor. Aenean lacinia bibendum nulla sed consectetur.
Manager
Vincent McEntegart
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We believe this fund should do well when markets advance at a steady pace and are driven by stock specific fundamentals. Stock selection is a strong driver of performance in this strategy, though in aggressively rising markets the fund is expected to hold up well relative to the benchmark index given its strong growth bias. That said, in markets led by big index stocks, such as state-owned enterprises with poor growth outlooks, the fund may well underperform. Over the past five years ending January 2017, the fund has generated a return of 69%, comfortably outperforming the MSCI AC Asia ex Japan index, which rose 52%. However, as mentioned before, the fund can experience good and poor growth when viewed over a shorter time frame.
The fund's ongoing charge figure (OCF) on the clean share class is currently lower than the IA Asia Pacific ex Japan sector average (though investors should always look at the specific share class they are accessing). This is a sector that includes a broad church of funds all with different objectives and investment parameters. We believe that the fund offers reasonable value for money given the sensible investment process and level of resources at Baillie Gifford.
AUTHOR_ RICHARD ROMER-LEE
“Baillie Gifford is well known for its Emerging Market expertise, and this fund is run by the same team. In line with the company’s philosophy, the managers try to look through short term market noise and take a longer term approach to investing, focusing on finding stocks trading below their fair long term values – an approach that has produced good long term results.”
We think this proposition will appeal to investors attracted to the region's growth potential. A long-term investment horizon is necessary as the emerging markets equity team believes the wider market base is often too preoccupied with short-term events. Importantly, the team aims to identify quality growth companies that will outperform over a five-year time horizon (or longer). The resulting portfolio may have little resemblance to a regional index both in terms of sector and country allocations and will not suit investors seeking strategies designed to produce index-like returns.
The team is made up of experienced managers and some less experienced investors (we consider this a positive) and it follows what we regard as a well thought through investment process. This sensible process, together with the team’s level of resources (including Baillie Gifford's global investment experts), means the fund should be well positioned to navigate a range of economic conditions.
Baillie Gifford is a well known and long established Edinburgh-based investment partnership. It benefits from some very experienced investment professionals who have spent their entire careers at the firm. The teams have a defined investment philosophy and growth-focused approach that is followed across the company.
The Pacific fund is run by Roderick Snell and Ewan Markson-Brown, both members of Baillie Gifford’s emerging markets equity team. In line with the house philosophy, the team shares a common approach to investing. It seeks companies with a strong growth outlook and a competitive edge with the potential to grow and take market share from weaker rivals. Moreover, these companies must be in a solid financial position (in terms of their balance sheet and cash flows) to be able to scale up and weather cyclical downturns. The team aims for long-term investment in such companies, and spends considerable time on company analysis and meeting company management to ascertain growth potential. Corporate governance is another important consideration for the team as this is a region with a track record of poor treatment of minority shareholders. Potential candidates for the portfolio must also have sensible valuation multiples (or at least those with multiples likely to fall over time due to their strong growth rate).
This long-term fund will appeal to investors seeking growth
Victoria Hasler, head of research, Square Mile Investment Consulting and Research
Square Mile
Perspective
Fund buyers' perspective
Performance in the Pacific region excluding Japan and Australasia has improved considerably over the past year. Similarly, growth in company earnings will result in greater optimism.
Market Reaction
Next
Jonathan Woo_ investment research_ Santander Asset Management
×
“There has been considerable structural reform in giant markets like India, China and the Pacific Tiger economies. It’s a time of change from investment in infrastructure to innovation. Baillie Gifford looks for superior growth, meaning its style is suited to this change. They make some debatable valuations but are valiant investors and can spot businesses with great fundamentals early. They are picking the sort of businesses that have the potential to steam ahead and accrue multiple years of earnings growth for investors.”
Scott Spencer_ Investment Manager_ F&C Multi-manager solutions, BMO Global Asset Management
“The key rationale behind Income Maximiser is the delivery of a 7% yield. The use of derivatives in the portfolio means the upside is therefore limited but we find the fund is a lower beta way of getting equity exposure as well as some downside protection.”
“The fund managers of Schroder Income [Nick Kirrage and Kevin Murphy] pick the stocks, and the derivatives for Income Maximiser are then written accordingly. We like the fact that derivatives provide a diversification element and we have a great deal of confidence that the derivatives are run by a separate team. It is a very different skill set and is a USP of theirs.”
Richard Philbin_ CIO_ Wellian Investment Solutions
Mona Shah_ head of collectives_ Rathbones
“After years of lacklustre performance, Asia and the emerging world experienced a resurgence last year, driven by rising commodity prices and a fundamental shift in favour of more cyclical sectors like financials, energy and materials. But many of the fortunes of Asia and emerging markets are driven by sentiment from the West, which was negatively affected by the US election in November. While markets have regained their initial losses, we’ve had no more clarity on what Donald Trump’s policies will mean with regards to global trade and protectionism. For this reason, we believe that diversification should offer benefits in a period where markets are likely to be volatile. In addition, the economies in Asia-Pacific are showing increasing dependence on domestic demand, and we believe funds exposed to growing demand from consumers in China, for example, may be better placed to withstand headwinds from the US.”
Robert Shepherd_ Director_ Bright & Co.
We were on the lookout for something different and, let’s face it, 4% or lower is the norm in this environment. So this is attractive”
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Achievable, sustainable, reliable
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Fund
Manager
Perspective
Fund Buyer
Perspective
This demo version has been optimised for desktop, laptop and tablet. Smartphones, iPhones will be supported in the next version.
to bring you insight, research and market views
together with an explanation of the strategy
directly from the fund manager himself.
Axis analyses the fund from four perspectives
Baillie Gifford Pacific is one of the very few funds that invests in the region over the long term (five years or more). The fund was launched in 2000, excludes Japan and Australasia, and is benchmarked against the MSCI AC Asia ex Japan Index.
Managers Roderick Snell and Ewan Markson-Brown are part of the nine strong Emerging Markets team at Baillie Gifford. Roderick has been with the firm since leaving university in 2006 while Ewan joined in 2013 with many years of managing money in Asia under his belt. Their fund aims to identify quality growth stocks that will outperform over the long term. Although the fund is sector-agnostic the team currently believes that many of the best ideas in Asia come from the IT sector with digitisation of the global economy being a key driver. All research is discussed at an Emerging Markets weekly meeting and the managers can also draw on the efforts of over 100 other fund managers from across the business.
-
Income
target_
Size of
fund in £_
Launch date_25/02/2014
Performance
year to date_
Kames Diversified Monthly Income Fund
pa paid monthly
Performance
since launch_
Total return
target_
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Roderick has been with Baillie Gifford since 2006. He initially worked in the UK and European Equity Teams before joining the Emerging Markets Equity Team where he is now an investment manager.
Investment Manager, Baillie Gifford Pacific Fund
Roderick Snell
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The fund is managed by an experienced pair of investors who are part of the well-regarded emerging markets equity team at Baillie Gifford. They invest in companies with a strong growth outlook and competitive edge but which trade on sensible valuations. In line with Baillie Gifford’s wider philosophy, the team believes that too many market participants are preoccupied with short-term events, and try to take advantage of this by investing over the longer term. Scroll down to read more...
for emerging market growth potential
An appealing fund for investors looking
Victoria Hasler, head of research, Square Mile Investment Consulting and Research
Victoria Hasler, head of research,
Square Mile Investment Consulting and Research
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market viewpoints, together with the
to bring you incisive analysis, research and
Fund Manager’s own investment strategy.
Axis interrogates the fund from four perspectives
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Income Fund
Baillie Gifford Pacific
This unusual fund offers investors the opportunity to invest in growth stocks in the Pacific region over the long term. Its six-out-of-seven rating on the company’s own risk and reward indicator reflects domestic concerns common to the region. As such it will appeal to investors with a high appetite for risk and be likely to form part of a diversified portfolio.
Review By Gary Corcoran at Last Word
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The fund is managed by an experienced pair of investors who are part of the well-regarded emerging markets equity team at Baillie Gifford. They invest in companies with a strong growth outlook and competitive edge but which trade on sensible valuations. In line with Baillie Gifford’s wider philosophy, the team believes that too many market participants are preoccupied with short-term events, and try to take advantage of this by investing over the longer term. Disclaimer »
An appealing fund for investors looking for emerging market growth potential
We think this proposition will appeal to investors attracted to the region's growth potential. A long-term investment horizon is necessary as the emerging markets equity team believes the wider market base is often too preoccupied with short-term events. Importantly, the team aims to identify quality growth companies that will outperform over a five-year time horizon (or longer). The resulting portfolio may have little resemblance to a regional index both in terms of sector and country allocations and will not suit investors seeking strategies designed to produce index-like returns.
The team is made up of experienced managers and some less experienced investors (we consider this a positive) and it follows what we regard as a well thought through investment process. This sensible process, together with the team’s level of resources (including Baillie Gifford's global investment experts), means the fund should be well positioned to navigate a range of economic conditions.
We believe this fund should do well when markets advance at a steady pace and are driven by stock specific fundamentals. Stock selection is a strong driver of performance in this strategy, though in aggressively rising markets the fund is expected to hold up well relative to the benchmark index given its strong growth bias. That said, in markets led by big index stocks, such as state-owned enterprises with poor growth outlooks, the fund may well underperform. Over the past five years ending January 2017, the fund has generated a return of 69%, comfortably outperforming the MSCI AC Asia ex Japan index, which rose 52%. However, as mentioned before, the fund can experience good and poor growth when viewed over a shorter time frame.
The fund's ongoing charge figure (OCF) on the clean share class is currently lower than the IA Asia Pacific ex Japan sector average (though investors should always look at the specific share class they are accessing). This is a sector that includes a broad church of funds all with different objectives and investment parameters. We believe that the fund offers reasonable value for money given the sensible investment process and level of resources at Baillie Gifford.
“There has been considerable structural reform in giant markets like India, China and the Pacific Tiger economies. It’s a time of change from investment in infrastructure to innovation. Baillie Gifford looks for superior growth, meaning its style is suited to this change. They make some debatable valuations but are valiant investors and can spot businesses with great fundamentals early. They are picking the sort of businesses that have the potential to steam ahead and accrue multiple years of earnings growth for investors.”
Yeit Lee_ fund research analyst_ Quilter Cheviot
“Asia underperformed global markets until last year, when it moved broadly into line with global markets - this is the first time since 2011. Whether it means Asia has come back into favour is yet to be seen, but we have seen a positive start to the year. I am optimistic about the region because the improvement in company earnings in the region seems to have a positive momentum.”
Michael Paul_ fund analyst_ Brewin Dolphin
“Whilst sentiment around the Asian region tends to swing according to the latest Trump tweet or the most recent macro indicator for the Chinese economy, our optimism is based on the investment fundamentals. Specifically, the region is cheap relative to global markets and earnings have been gradually improving. Whilst it might be assumed that either the market looks cheap due to the Chinese banks and certain state-owned companies or the earnings improvement is due to the rebound in energy and commodity prices, our analysis suggests that the contributory factors are far more broad based than this.”
Baillie Gifford
Pacific
and market views together
Axis analyses the fund
strategy directly from the
from four perspectives to
bring you insight, research
fund manager himself.
with an explanation of the
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An appealing fund for investors looking
for emerging market growth potential
Victoria Hasler, head of research,
Square Mile Investment Consulting
and Research
We think this proposition will appeal to investors attracted to the region's growth potential. A long-term investment horizon is necessary as the emerging markets equity team believes the wider market base is often too preoccupied with short-term events. Importantly, the team aims to identify quality growth companies that will outperform over a five-year time horizon (or longer). The resulting portfolio may have little resemblance to a regional index both in terms of sector and country allocations and will not suit investors seeking strategies designed to produce index-like returns.
The team is made up of experienced managers and some less experienced investors (we consider this a positive) and it follows what we regard as a well thought through investment process. This sensible process, together with the team’s level of resources (including Baillie Gifford's global investment experts), means the fund should be well positioned to navigate a range of economic conditions.
Jonathan Woo_ investment research_
Santander Asset Management
Yeit Lee_ fund research analyst_
Quilter Cheviot
“Asia underperformed global markets until last year, when it moved broadly into line with global markets - this is the first time since 2011. Whether it means Asia has come back into favour is yet to be seen, but we have seen a positive start to the year. I am optimistic about the region because the improvement in company earnings in the region seems to have a positive momentum”
market growth potential
Annual management
charge_
Scroll down to see what the Fund Managers have to say...
Scroll down to see what the Fund Buyers have to say...
Pacific Tiger economies. It’s a time of change from investment in infrastructure to innovation. Baillie Gifford looks for superior growth, meaning its style is suited to this change. They make some debatable valuations but are valiant investors and can spot businesses with great fundamentals early. They are picking the sort of businesses that have the potential to steam ahead and accrue multiple years of earnings growth for investors.”
Jonathan Woo_ investment research_
Santander Asset Management
“There has been considerable structural reform in giant markets like India, China and the
markets - this is the first time since 2011. Whether it means Asia has come back into favour is yet to be seen, but we have seen a positive start to the year. I am optimistic about the region because the improvement in company earnings in the region seems to have a positive momentum.”
“Asia underperformed global markets until last year, when it moved broadly into line with global
“Whilst sentiment around the Asian region tends to swing according to the latest Trump tweet or the most recent
macro indicator for the Chinese economy, our optimism is based on the investment fundamentals. Specifically, the region is cheap relative to global markets and earnings have been gradually improving. Whilst it might be assumed that either the market looks cheap due to the Chinese banks and certain state-owned companies or the earnings improvement is due to the rebound in energy and commodity prices, our analysis suggests that the contributory factors are far more broad based than this.”
“After years of lacklustre performance, Asia and the emerging world experienced a resurgence last year, driven by rising commodity prices and a fundamental shift in favour of more cyclical sectors like financials, energy and materials. But many of the fortunes of Asia and emerging markets are driven by sentiment from the West, which was negatively affected by the
US election in November. While markets have regained their initial losses, we’ve had no more clarity on what Donald Trump’s policies will mean with regards to global trade and protectionism. For this reason, we believe that diversification should offer benefits in a period where markets are likely to be volatile. In addition, the economies in Asia-Pacific are showing increasing dependence on domestic demand, and we believe funds exposed to growing demand from consumers in China, for example, may be better placed to withstand headwinds from the US.”
* One-year forward estimate
Baillie Gifford Pacific - portfolio characteristics
Source: UBS, sterling. As at 31 December 2016
Forecast earnings
growth* %
MSCI AC Asia ex Japan
20
Debt/equity %
10
-5
5
0
15
-10
Price/earnings* %
Return on equity* %
25
Source: Baillie Gifford
Baillie Gifford Pacific - performance versus the MSCI AC Asia ex Japan
Baillie Gifford Pacific - performance versus
the MSCI AC Asia ex Japan
-3
‘06
‘08
‘03
‘11
Difference %
-6
9
12
‘13
‘14
‘05
‘07
‘09
‘04
‘15
6
3
‘16
‘10
‘12