Inevitable and investable: five long-term growth drivers

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Capital at risk

The future is uncertain, but that doesn’t make it unknowable.

One way to find great growth companies is to identify developments that are bound to occur, even if you can’t be certain of every exact detail or timing.

“We try to think about what has to change,” partner Stuart Dunbar tells our Short Briefings on Long Term Thinking podcast.

“Things that don’t depend on the government of the day or short-term economic policies or interest rates, but rather what inevitably will happen over the next 10 years.”

Smarter, agile robots

Dunbar gives the use of smarter, more capable robotics as an example, suggesting that the ageing populations of many developed economies make the technology’s development and adoption imperative.

“We’re seeing a decline in the number of working-age people,” he explains. “And since labour shortages drive up wages, we’ll need to find ways to automate everything we can.”

Machines are many years, if not decades, away from matching humans at every manual task. But there are already signs of their potential, whether it’s Deere & Co’s self-driving tractors and precision spraying equipment or the multitude of robots ferrying goods around Amazon and Coupang’s ecommerce warehouses.

NVIDIA, among others, predicts a wave of ‘physical AI’, in which the large language model (LLM) systems that supercharged chatbots next deliver ‘intelligent machines’ capable of tackling ‘real world’ complexities. That would further drive demand for advanced semiconductors. But this is not the only supply chain opportunity.

“Take Renishaw – one of the great British companies,” Dunbar says. “It builds its own machinery with sophisticated sensors, and more often, its sensors are attached to others’ products to translate the physical world into a digital format so that robots can be aware of their surroundings.

“We know there will be huge demand for such components even if it’s not clear how the robots will end up being used.”

Innovative healthcare

Dunbar highlights “intelligent design” of new medicines as a second inevitable, investable theme. Mass gene sequencing and cloud computing services combined with machine learning are giving researchers a more informed understanding of how drugs work.

“Companies like Illumina radically reduced the cost of gene-sequencing, creating large data sets that are almost unfathomably huge,” Dunbar explains.

“Now, AI is starting to mine that data for meaningful relationships. A good example is Recursion Pharmaceuticals. It’s doing millions of tests to identify new drugs for previously untreatable conditions.”

That has the potential to speed up drug discovery and reduce its cost.

“Any reasonable assessment of the ever-rising spend on healthcare dictates that at some point it becomes unaffordable,” Dunbar says. “That creates a drive for less expensive, more effective treatments.

“It’s hard because the companies developing new therapies face funding pressure themselves. But it must happen or there will be a tipping point where treatments become unavailable because they’re too costly.”

Energy transition

The shift to renewable energy and electrification of transport is the third unstoppable growth driver discussed. Fossil fuels and nuclear fission still have the advantage of providing reliable power, whatever the weather. But Dunbar suggests intermittency issues will be addressed.

“It’s cheaper to create electricity through solar and wind, the problem is that we can’t yet store it. But there are companies out there doing amazing things to address that.

“For example, the Chinese firm CATL is probably the most advanced battery maker. And in the US, Redwood Materials is working hard to create critical battery components from recycled and reclaimed scrap.”

He also highlights the excellent growth potential of lesser-known names, Prysmian and Nexans. Their extra-high-voltage submarine and underground cables connect offshore wind farms to the mainland. Both are also developing ‘smart grid’ solutions to make power management more flexible.

“Enphase is another favourite of ours,” Dunbar adds. “It makes and fits solar power systems to homes and businesses in the US. It’s a very local business, obviously, but is playing a vital role in creating this distributed grid, which couldn’t have existed 10 years ago.”

Payment systems

Just as the energy transition is driving demand for new physical infrastructure, commerce is doing the same for its digital equivalent. Dunbar has little doubt our dependence on the financial plumbing behind cashless transactions will only grow over the coming years.

“The Dutch payments company Adyen exists in the background and few people stop to think how important it has become,” he offers as an example. “But it’s what allows Netflix, Booking.com, McDonald’s and many others to take payments in different parts of the world and multiple currencies and then seamlessly transfer them where they need to be.”

He adds that consumer-focused fintechs with superior service and lower fees to industry incumbents should also prosper over the decade ahead. Baillie Gifford’s exposure includes the fast-growing Brazil-based online lender Nubank and the international money transfer services Wise and Remitly.

“I always think it’s funny when traditional banks talk about providing commission-free exchanges but charge a 10 per cent spread,” comments Dunbar, referring to the large gap between the exchange rate traditional banks use and that of the true market.

“That’s now up for grabs. Moreover, these apps let you change your currency in the blink of an eye.”

Autonomous transport

The podcast’s final topic is autonomous vehicles. Dunbar acknowledges that self-driving cars have proved to be a more difficult and expensive engineering challenge than many automakers had envisaged, but he says progress is being made elsewhere.

He cites Aurora Innovation, which plans to launch a driverless trucking service between Dallas and Houston this April. To do so, it is partnering with established lorry makers Volvo and PACCAR and focusing on highway routes rather than more complicated inner-city settings. Given the US freight sector’s longstanding shortage of human drivers, the long-term impact could be transformational.

Drones should also have their day. Zipline, one of Baillie Gifford’s private company investments, made its one-millionth commercial drone delivery in 2024. It has served customers across parts of Africa, Japan and the US, including a tie-up with the retail giant Walmart in Texas.

“It’s not mainstream yet,” Dunbar adds. “You need a huge amount of density – many and frequent deliveries in a given area – to make it a sensible commercial proposition. And there are still regulatory issues to sort out. But these things are not far away.”

It takes “stubborn optimism” and patience to be a long-term growth investor, Dunbar concludes. These transformations will take years to play out. But so long as you believe progress will continue, it’s possible to use the ‘inevitable’ as a guide to achieving strong returns.

“You have to focus on the possibilities, on what’s changing and the great entrepreneurs solving problems and finding ways to do things better,” he says. “That’s how you get growth.”

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Words by Leo Kelion

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