Baillie Gifford Positive Change & Fundsmith Equity

Today’s markets appear and perform rather differently to the start of the year following the quickest sell-off since markets began, wiping out up to 25-30% of equity investors portfolios. While markets are no longer in freefall, and we are beginning to see recovery especially in equity markets – this has provided funds with a fantastic backdrop to begin to ‘show their mettle’.

In particular we have focused our attention on two of our favoured Satellite investments, that are currently ‘leading the pack’ in equity markets. Articles on Baillie Gifford Positive Change¹ and Terry Smith’s Fundsmith Equity² were published in the most recent edition of AJ Bell Shares Magazine³ breaking down the potential drivers of their phenomenal performance. We take pride in having identified the potential of these funds, and so we would like to relay the praise each fund has received within recent weeks.

Baillie Gifford’s Positive Change has a short but stellar track record from it’s inception in 2017, having since produced a 110% return over this 3 year period – a relative return to its benchmark (MSCI World Index) of 91.4%! Such returns have been added to as the fund managed to achieve a positive return of 10.7% during the pandemic sell-off that saw the MSCI World Index dip by 9.7% over the same period¹. Analysts attribute this out-performance to the ‘high conviction concentrated portfolio’¹ of 30-50 holdings that that promote social change in a number of areas including social inclusion, access to education, environmental change, and healthcare amongst other environmental, social and governance goals.

Baillie Gifford’s Positive Change has a short but stellar track record from it’s inception in 2017, having since produced a 110% return over this 3 year period

The funds largest exposure is North American Equity at circa 45% of the portfolio, investing in companies such as ‘Teladoc Healthcare’ a service aimed at providing access to digital healthcare within the US and other territories, and has produced fantastic 3 year returns of ~600%¹. The limited exposure the fund has in the UK is allocated to LSE stocks like consultancy firm FDM highlighted for its recruitment philosophy – welcoming workers back from maternity leave, and actively recruiting and re-training ex-services personnel¹. As the ESG sector continues to grow, the Positive Change fund continues to highlight to investors the growth that can be produced while avoiding ‘sin stocks’.

While Fundsmith Equity does not share the Socially Responsible Investing tilt that the Positive Change fund employs, a particular similarity of the two funds is their concentrated portfolio of ‘buy and hold’ companies. Terry Smith’s Fundsmith Equity is renowned for ‘investing in quality stocks and holding them over long periods’² and this has paid off as the fund has benefitted from the recent market recovery². The fund has posted a 22.05% return from its trough (16th March – 12th May), a 6.21% out-performance of its benchmark, the FTSE All Share.

The significant out-performance has been mostly generated by the fund’s exposure to tech companies Microsoft, PayPal, Facebook, and business software firm Intuit², companies that have all greatly benefitted from a shift to home working. The fund recently sold a substantial holding in Clorox, which unsurprisingly performed well during the crisis, and this move has freed up plenty of cash for the fund to begin building positions in heavily devalued long term opportunities². While the fund has continued to produce returns from the aforementioned Tech stocks, the performance has been dragged by airline booking service Amadeus and testing specialist Intertek. As noted in a letter to investors, exposure to these funds is limited, limiting their maximum losses to just 5% of the portfolios value.

¹ AJ Bell Youinvest Shares Magazine, May 2020 ‘The growth fund beating the market & helping to improve the world’, The Big Comeback: Markets have rallied, so what about the economy? Vol. 22, Issue 18, P.13-14

² AJ Bell Youinvest Shares Magazine, May 2020 ‘Great Ideas: Fundsmith Equity (B41YBW7), The Big Comeback: Markets have rallied, so what about the economy? Vol. 22, Issue 18, P.17

³ ‘AJ Bell Youinvest Shares Magazine, May 2020, The Big Comeback: Markets have rallied, so what about the economy? Vol. 22, Issue 18