One result of the extraordinary fluctuations in the performance of Baillie Gifford funds has been that a number of people have been investing in them for the first time, without understanding the company’s USP.
“We found [that] some people had invested in our funds on the basis of performance [during] an abnormal performance period, and did not really understand fundamentally what we are trying to do,” Budden said.
“We had some strange questions like, why did you not you sell at the top and then reinvest the money in BP and Shell..it is not what we do.”
China
One part of Baillie Gifford’s investment style that has been questioned is its stance on China.
Scottish Mortgage was an early investor in Alibaba, the Chinese tech firm, and also has holdings in Meituan and Tencent.
It has been somewhat of an outlier in the investment management community for its continued favouring of the state, which spooked investors with a regulatory crackdown.
A number of government interventions in Chinese companies last summer led to a significant fall in the value of emerging markets' economies and the country’s markets were further punished by its “no Covid” policies which have led to rolling lockdowns, though it remains to be seen what will happen as the country scrapped the zero covid rules.
Scottish Mortgage’s previous manager, James Anderson, said in April this year before he retired that investment managers can learn more from Marxism than the media or US hedge funds.
Then, in November, Scottish Mortgage’s investment managers, Tom Slater and his deputy Lawrence Burns performed an about-turn, cutting the trust’s exposure to a number of Chinese companies, including Alibaba.
At the time, the pair said the regulatory environment in China remains challenging, and they were concerned that ongoing uncertainty will harm the risk-tolerant culture that has driven the long-term success of China's private sector.
The last 10 to 15 years have been dominated by big platforms in China, Budden said.
“I think this is where the government, the party, and Xi Jinping have shown a change in attitude.”
Budden references the disappearance of Jack Ma in 2020, linked to a speech he made about regulators, followed by another regulatory crackdown.
“This environment is likely to persist…these are very big companies, can they get much bigger within this environment,” he asked.
“The answer is probably, ‘unlikely’, so there are better options elsewhere.”
Furthermore, the “innate prejudice” against a party state as opposed to a democracy creates a lot of “philisophical headwinds” for western investors.
