All investment strategies have the potential for profit and loss, capital is at risk. Past performance is not a guide to future returns.
Many of the companies we most admire have a clear and simple purpose, an essential ambition that explains why they exist and guides how they will succeed.
As we set out as managers of the Sustainable Growth strategy, what is ours?
Two fundamental beliefs
We believe that:
- companies capable of sustaining profitable growth over a genuinely long time horizon will make the best investments
- companies can be a force for good, making a difference to society through what they do or how they do it
These two beliefs underpin the purpose of Sustainable Growth: to invest in enduring growth companies that deliver enduring good.
Making a difference?
Typically, when people think about a company’s influence on society, they think about its products and services, ie what it does. The companies that provide new and transformative medicines or technology that help cut costs and emissions.
But companies can also make a difference through their behaviours, the choices they make about how they run their businesses, ie how they do it. Firms that show leadership in addressing a challenge can help raise standards across their industry and the wider economy, making the world a better place. This is less obvious but can be just as significant.
Companies that make a difference, either through what they do or how they do it, will be long-term winners. Either their products will fulfil an unmet need and contribute to solving a global problem, leading to growing demand. Or their distinctive culture and behaviours will allow them to tackle problems more effectively than their competitors, leading to market share gains.
Virtuous circles and enduring growth
How does this translate into shareholder value? Admittedly, in the short term, a company’s societal impact is unlikely to make much difference to economic outcomes. At times there may be a direct conflict between what helps society and what helps short-term profits. Investing to reduce the environmental impact of your supply chain or increasing benefits for your staff will inevitably eat into today’s earnings, prompting ire from many shareholders.
But over the longer term, a virtuous circle emerges. Businesses that show leadership in how they treat stakeholders will strengthen their competitive position and, thereby, their growth prospects. For example, they may become an employer of choice, command unusual customer loyalty, or experience a lower impact from carbon pricing. This economic success will, in turn, increase their ability to make a difference to society, both via their growing share and the likelihood of industry peers following their example.
But most investors don’t stick around long enough to see this play out. Attention spans are getting shorter, with average holding periods measured in months rather than years. To benefit from these virtuous circles, we, too, need to do things differently. That’s why we invest with a ten-year time horizon.
To buy and hold with a ten-year view requires a very high degree of conviction in our investee companies. This is where our focus on enduring growth comes in. What differentiates a great company from a merely good one is its potential over the genuinely long term, whether it is capable of delivering meaningful growth over five, ten years and beyond.
These great companies share some common traits: a significant market opportunity, a competitive edge that helps them to win in an increasingly complex world, the resilience to ride out cycles and shocks, and leadership that can take the long view and ‘think around corners’.
That’s the key to Sustainable Growth. We work hard to find the best opportunities, then stand back and let the wonder of compounding play out.
How we do it: our principles
- Long-term focus. This is our most important advantage and is embedded in every aspect of our approach. We are privileged to be supported by an investment-led partnership and clients who share our time horizon.
- Opportunity-driven. The best investors are natural optimists. The core of our philosophy is to look for opportunities to improve the status quo.
- Act as owners. Our time horizon allows us to build genuinely collaborative relationships with investee companies. We will use this to support their success however we can – including by offering supportive challenges.
- Materiality matters. Our edge is in the quality of our research, analysis and debate and our desire to understand the businesses we invest in truly. We spend our time on issues material to the future success of investee companies, not seeking to tick boxes, which dictates our engagement.
- Full transparency. We will communicate to our clients in the same way that we would want from companies. We will be clear about how and why we make decisions and be honest when we get things wrong.
Holding us to account
We ask clients to judge our progress in three ways:
- Investment performance. We believe that finding sustainable companies will help us to deliver returns that are meaningfully better than broad equity indices. We aim to outperform our benchmark by 2% net of fees over rolling 5-year periods.[1]
- Whether portfolio companies are making a difference. Our investment case always contains a ‘theory of change’, including evidence that would support or challenge our hypothesis. We won’t always be able to demonstrate this quantitatively, but we commit to appraising our investments with humility and integrity – and to sharing the results.
- Whether we are making a difference. Specifically, through our engagement activity. Again, this will be hard to quantify, and we will not confuse process (votes cast, letters written) with outcomes (a change in the real world).
Sustainable Growth, beyond ESG
Ultimately, what makes companies outstanding, and potentially great long-term investments, is when they do something different from the pack – to innovate, influence others, and shape their industries. When they make a difference.
Similarly, we won’t be able to deliver outperformance unless we do something different from our peers. We believe our approach is a more useful lens than the conventional approach to ‘ESG’, which is increasingly focused on compliance with minimum standards. We prefer a forward-looking approach that focuses on matters critical to a company’s success rather than trying to tick every box.
This is a road less trodden, but we believe it will make our journey more meaningful and rewarding for our clients.
[1] Sustainable Growth Benchmark = MSCI ACWI.
Risk factors
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 was produced and approved in November 2022 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.
Potential for Profit and Loss
All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk. Past performance is not a guide to future returns.
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) Limited provides investment management and advisory services to European (excluding UK) clients. It was incorporated in Ireland in May 2018. Baillie Gifford Investment Management (Europe) Limited 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. Baillie Gifford Investment Management (Europe) Limited is also authorised in accordance with Regulation 7 of the AIFM Regulations, to provide management of portfolios of investments, including Individual Portfolio Management (‘IPM’) and Non-Core Services. Baillie Gifford Investment Management (Europe) Limited has been appointed as UCITS management company to the following UCITS umbrella company; Baillie Gifford Worldwide Funds plc. Through passporting it has established Baillie Gifford Investment Management (Europe) Limited (Frankfurt Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in Germany. Similarly, it has established Baillie Gifford Investment Management (Europe) Limited (Amsterdam Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in The Netherlands. Baillie Gifford Investment Management (Europe) Limited also has a representative office in Zurich, Switzerland pursuant to Art. 58 of the Federal Act on Financial Institutions ('FinIA'). The representative office is authorised by the Swiss Financial Market Supervisory Authority (FINMA). The representative office does not constitute a branch and therefore does not have authority to commit Baillie Gifford Investment Management (Europe) Limited. Baillie Gifford Investment Management (Europe) Limited 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.
Hong Kong
Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 is wholly owned by Baillie Gifford Overseas Limited and holds a Type 1 and a Type 2 license from the Securities & Futures Commission of Hong Kong to market and distribute Baillie Gifford’s range of collective investment schemes to professional investors in Hong Kong. Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 can be contacted at Suites 2713–2715, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. Telephone +852 3756 5700.
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. n 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.
Ref: 28410 10017047
