International Concentrated Growth: investor letter Q1 2025

Your capital is at risk.

What’s the weather going to be like next year? We don’t know. It’s highly unlikely that you know either and neither of us would make any investment decision based on the prevailing atmospheric conditions a year from now anyway. To borrow from Warren Buffett.

“Nobody buys a farm based on whether they think it's going to rain next year or not. They buy because they think it is a good investment over 10-20 years”

When headlines oscillate between technological marvels and shifting geopolitical sands, we're reminded that periods of great change create the most fertile soil for extraordinary growth. We remain firmly rooted in examining the long term impact of technological disruption, demographic shifts, and broader trends that are often overlooked by those focused on quarterly results cycles. The likelihood of consistently predicting Federal Reserve decisions or quarterly earnings figures with any degree of accuracy is extremely low. As is predicting next year’s rain fall.

Performance

Following very strong investment returns in 2024, the start of 2025 has been stormy. Significant changes in the approach of the world's dominant power to both trade and geopolitics have caused a sharp mood swing in equity markets over the quarter. Your portfolio has been affected by the rotation away from technology companies in particular and a sharp sell-off in software and semiconductor stocks has weighed on performance at the start of the year. Three months is far too short a time frame over which to judge performance. We continue to focus on a five to ten-year investment horizon, over which time performance remains excellent.

At a company level, turning specifically to NVIDIA, it is the largest detractor from your portfolio’s performance over the quarter, but over more meaningful periods it remains a top contributor to returns. Whilst we believe the long term implications of generative AI are still potentially profound, over the past year we have been balancing our enthusiasm for the opportunity, cognisant that the pathway for hardware companies could be bumpy in the years ahead. As such we have been consistently managing your holding size as the share price rose.

During the quarter, we attended NVIDIA’s GPU Technology Conference. The main questions on our mind going into the event were around the strength of its edge in an increasingly noisy environment: Does AI face a scaling problem? Is custom silicon going to erode its competitive position? We came away believing that the reports of NVIDIA’s impending demise are overstated and that so long as we do not see the pace of change in AI slowing down, NVIDIA’s edge should continue to deepen.

Despite strong operational progress from TSMC, it also detracted from performance. Management recently upgraded its mid-term guidance and now expects compound revenue growth to approach 20 per cent per annum over the next five years. We believe they may materially exceed this target. Similarly, Shopify and Wise have both been weak despite continued progress in their businesses. Building large positions in these winning companies and growing alongside them over many years is our bread and butter.

“You would not cut the value of a good farm in half just because bad weather conditions caused a crop failure in a single year" - Philip Fisher

On the positive side of the ledger, Spotify's growth continues to exemplify the power of patient innovation. What began in a small Stockholm apartment with a simple idea – making music universally accessible – has evolved into a global audio platform reaching hundreds of millions of listeners. It continues to be a standout contributor to your portfolio's recent performance, and more meaningfully, its long term returns. We’re currently reviewing our Spotify investment case. It remains a significant holding in your portfolio, but we have already been taking profits following a strong period of share price performance. Good returns from several Emerging Market holdings including BYD, MercadoLibre, SEA and PDD were insufficient to prevent a negative overall outcome at the start of the year.

Portfolio Activity

Commensurate with our long term investment horizon and concentrated portfolio of holdings, turnover remains low, and we have made no new additions during the quarter. Of note, however, is the final exit from Tesla. We had already sold the majority of your position last year after the steep rise in the share price that followed the outcome of the US elections, but it is no longer held in your portfolio.  

Tesla has been a top contributor to the strategy's performance over the past decade, yet looking to the decade ahead, one must look beyond the core auto business to deliver outlier growth from here. The upside case must, therefore, largely rest on a successful 'second act' in autonomous driving or robotics. These are nascent opportunities, however, with little evidence to date of their likely success. Compounding our Tesla caution is the progress Chinese competitor BYD, a holding we added to your portfolio a year ago, is making in both autonomy and battery charging technology.

BYD is now offering autonomous driving capability at no additional cost on most models in China. Features vary across their price range. Entry-level models are capable of on-highway and self-parking, while higher-spec versions are generally autonomous. All of these, to be clear, are supervised solutions that still require some intervention, but it is clearly a significant compression on its domestic competitors, Tesla and other Western equivalents, raising the question of the industry's ability to monetise autonomy more broadly. Furthermore, BYD’s recently unveiled battery technology is revolutionary. The Super e-Platform will soon be available in some models that sell for around $40k. This technology allows EVs to charge at a speed of less than one second per mile. Or to put it another way, is equivalent to the time required to fuel a traditional gasoline-power vehicle. Removing yet another obstacle to further EV uptake.

Looking ahead, BYD will inevitably face industry headwinds from competition and pricing, particularly in China. However, we remain confident about its ability to continue to expand its already impressive share in China’s passenger vehicles market as well as internationalise the business, due to its highly competitive cost structure and strong R&D capabilities. It has a proven ability to bring innovative products to market quickly and at competitive prices, positioning it well for continued growth.

The power of external perspectives

In an era of unprecedented technological and social change, a traditional approach to investment analysis – rooted in financial metrics and equity market dynamics – is increasingly insufficient to capture the full scope of transformative growth opportunities. Looking for insight beyond the traditional confines of the financial market is critical to how we invest.

In a world where the boundaries of possibility keep expanding, our long term investment horizon provides us with a unique opportunity to look beyond short-term noise and focus on the fundamental forces driving value creation.

Your portfolio remains positioned to benefit from transformative businesses reshaping their industries. While short-term market volatility is inevitable, particularly in this environment of geopolitical uncertainty and technological disruption, we remain focused on identifying companies with the culture, innovation capacity, and financial strength to deliver exceptional long term returns.

Much like the farmer who sows seeds without foresight over next year’s rain, we invest with conviction in the long term potential of exceptional growth companies. The storms of market volatility may come and go, but our strategy is designed to yield results over five-year periods, not seasons.

Source: Revolution, MSCI. US dollar. Returns have been calculated by reducing the gross return by the highest annual management fee for the composite. 1 year figures are not annualised.

Past performance is not a guide to future returns.

Legal notice: MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Risk factors

This communication was produced and approved in April 2025 and has not been updated subsequently. It represents views held at the time and may not reflect current thinking.

The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.

All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.

The images used in this communication are for illustrative purposes only.

Important Information

Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs.

Baillie Gifford Overseas Limited provides investment management and advisory services to non-UK Professional/Institutional clients only. Baillie Gifford Overseas Limited is wholly owned by Baillie Gifford & Co. Baillie Gifford & Co and Baillie Gifford Overseas Limited are authorised and regulated by the FCA in the UK.

Persons resident or domiciled outside the UK should consult with their professional advisers as to whether they require any governmental or other consents in order to enable them to invest, and with their tax advisers for advice relevant to their own particular circumstances.

Financial Intermediaries

This communication is suitable for use of financial intermediaries. Financial intermediaries are solely responsible for any further distribution and Baillie Gifford takes no responsibility for the reliance on this document by any other person who did not receive this document directly from Baillie Gifford.

Europe

Baillie Gifford Investment Management (Europe) Ltd (BGE) is authorised by the Central Bank of Ireland as an AIFM under the AIFM Regulations and as a UCITS management company under the UCITS Regulation. BGE also has regulatory permissions to perform Individual Portfolio Management activities. BGE provides investment management and advisory services to European (excluding UK) segregated clients. BGE has been appointed as UCITS management company to the following UCITS umbrella company; Baillie Gifford
Worldwide Funds plc. BGE is a wholly owned subsidiary of Baillie Gifford Overseas Limited, which is wholly owned by Baillie Gifford & Co. Baillie Gifford Overseas Limited and Baillie Gifford & Co are authorised and regulated in the UK by the Financial Conduct Authority.

South Korea

Baillie Gifford Overseas Limited is licensed with the Financial Services Commission in South Korea as a cross border Discretionary Investment Manager and Non-discretionary Investment Adviser.

Japan

Mitsubishi UFJ Baillie Gifford Asset Management Limited (‘MUBGAM’) is a joint venture company between Mitsubishi UFJ Trust & Banking Corporation and Baillie Gifford Overseas Limited. MUBGAM is authorised and regulated by the Financial Conduct Authority.

Australia

Baillie Gifford Overseas Limited (ARBN 118 567 178) is registered as a foreign company under the Corporations Act 2001 (Cth) and holds Foreign Australian Financial Services Licence No 528911. This material is provided to you on the basis that you are a “wholesale client” within the meaning of section 761G of the Corporations Act 2001 (Cth) (“Corporations Act”).  Please advise Baillie Gifford Overseas Limited immediately if you are not a wholesale client.  In no circumstances may this material be made available to a “retail client” within the meaning of section 761G of the Corporations Act.

This material contains general information only.  It does not take into account any person’s objectives, financial situation or needs.

South Africa

Baillie Gifford Overseas Limited is registered as a Foreign Financial Services Provider with the Financial Sector Conduct Authority in South Africa.

North America

Baillie Gifford International LLC is wholly owned by Baillie Gifford Overseas Limited; it was formed in Delaware in 2005 and is registered with the SEC. It is the legal entity through which Baillie Gifford Overseas Limited provides client service and marketing functions in North America. Baillie Gifford Overseas Limited is registered with the SEC in the United States of America.

The Manager is not resident in Canada, its head office and principal place of business is in Edinburgh, Scotland. Baillie Gifford Overseas Limited is regulated in Canada as a portfolio manager and exempt market dealer with the Ontario Securities Commission ('OSC'). Its portfolio manager licence is currently passported into Alberta, Quebec, Saskatchewan, Manitoba and Newfoundland & Labrador whereas the exempt market dealer licence is passported across all Canadian provinces and territories. Baillie Gifford International LLC is regulated by the OSC as an exempt market and its licence is passported across all Canadian provinces and territories. Baillie Gifford Investment Management (Europe) Limited (‘BGE’) relies on the International Investment Fund Manager Exemption in the provinces of Ontario and Quebec.

Israel

Baillie Gifford Overseas is not licensed under Israel’s Regulation of Investment Advising, Investment Marketing and Portfolio Management Law, 5755-1995 (the Advice Law) and does not carry insurance pursuant to the Advice Law. This material is only intended for those categories of Israeli residents who are qualified clients listed on the First Addendum to the Advice Law.

Singapore

Baillie Gifford Asia (Singapore) Private Limited is wholly owned by Baillie Gifford Overseas Limited and is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence to conduct fund management activities for institutional investors and accredited investors in Singapore. Baillie Gifford Overseas Limited, as a foreign related corporation of Baillie Gifford Asia (Singapore) Private Limited, has entered into a cross-border business arrangement with Baillie Gifford Asia (Singapore) Private Limited, and shall be relying upon the exemption under regulation 4 of the Securities and Futures (Exemption for Cross-Border Arrangements) (Foreign Related Corporations) Regulations 2021 which enables both Baillie Gifford Overseas Limited and Baillie Gifford Asia (Singapore) Private Limited to market the full range of segregated mandate services to institutional investors and accredited investors in Singapore.

145123 10054070