What lies ahead: Milena Mileva and the International All Cap strategy

© Chris Close

Please remember that the value of an investment can fall and you may not get back the amount invested.

As Milena Mileva walks in, a wave of energy sweeps across the blue room in the Kimpton Charlotte Square Hotel in Edinburgh.

In April, Mileva officially became an investment manager on Baillie Gifford’s International All Cap Strategy. But she has actively participated since last September when the firm first announced the appointment. She combines this responsibility with her longstanding role on the firm’s UK Equity Team and brings her expertise in the country’s growth stocks to her new post.

Declining a coffee, she dives straight into conversation. We begin by discussing some of the investments made since her start. Sharp-eyed investors may have noticed a slight evolution in the Developed EAFE All Cap portfolio, with new additions including four UK-based companies:

• Farfetch, the luxury online fashion store
• Experian, the credit score company
• Wise, the exchange-rate platform for consumers and small to medium enterprises
• Games Workshop, the maker of fantasy table-top battle games and the miniature character pieces involved

These names, among other recent UK investments, suggest Mileva’s influence. However, she stresses that investment decisions are shared with the strategy’s other portfolio managers and are finely tuned since the strategy only holds between 50 to 90 stocks. The team selects companies from all the world’s major markets, excluding the US.

What if she or one of the other four members of the construction group disagree?

“We don’t have any vetoes,” Mileva answers. “And as we share the same investment style and philosophy, we’re unlikely to have any radical disagreements. If we did, the onus would be on the sponsor of the stock to do some follow-up, answer any outstanding questions and provide reassurance. But in practice, this doesn’t happen.” 

Challenge and debate

Mileva sees herself as the natural challenger within the group. A sceptic who asks questions and tends to probe. She jokingly attributes this to growing up with a strong mother and grandmother. Yet she recognises the need for balance.

“Ideas are fragile things,” she explains. “You need to have personalities who nurture them –something my colleagues Sophie Earnshaw and Joe Faraday are excellent at. We need a combination of temperaments because everyone has a blind spot. So it’s about being able to complement each other and understand where our natural strengths are.” 

I ask whether it can be challenging to make decisions, especially if it concerns a stock where the investment managers have got to know the company’s leaders well.

Investment managers must be objective, Mileva replies. “All we do as investors is construct hypotheses, but we need to be able to recalibrate from information or evidence. We need to be enthusiastic in backing our convictions to make a case for investing in a stock, but we must recognise things change all the time. I think removing the ego from decisions is important – it makes it easier when you’re trying to figure out a company and think what might happen.”

Seeing into the future 

Baillie Gifford investment managers spend a lot of time looking into the future. Beyond their own research, that involves consulting experts from many fields to explore trends that could shape growth and deliver strong returns to clients.

One area Mileva is excited about is the use of automation and other advanced manufacturing techniques to improve efficiency and sustainability.

She mentions the industrial tool manufacturer Atlas Copco as one example. It acquired ISRA Vision in 2020 for its ‘intelligent machine vision systems’. These imitate the human eye to detect faults in components and automatically carry out other quality assurance tasks.

And she gives Keyence as another. The Japanese firm makes sensors, measuring instruments and other products that its customers use to automate and simplify complex tasks in factories and research labs.

More from the anthology:

Shimano: our strategy in one stock

The pursuit of growth

Snippets from the archives

Perhaps the area Mileva is most excited about, however, is the application of artificial intelligence (AI) in drug discovery and development. “Productivity of R&D [research and development] in pharmacology is dismal. It takes 10 years to get a drug to market and costs about $2bn to develop one,” says Mileva.

“The industry failure rate for new drugs is around 90 per cent. If a company can create great efficiencies in the various stages of development – from discovering a target or designing a molecule to clinical trial – then the possible value for customers and returns to investors are vast. For instance, a system that learns from huge amounts of processed data from patient tissue samples to see the effects of drugs on tumours could be very successful.”

Investing in such a nascent field is risky. But one way to gain exposure relatively safely is to invest in ‘picks and shovels’ companies – those providing services and technologies to enterprises taking the more perilous biotech bets. Mileva sees parallels with the semiconductor industry. There, leading computer chip designers tend to outsource the capital-intensive and time consuming manufacturing process to specialists. Biotech companies seem to be doing something similar.

Mileva gives Lonza as an example of one beneficiary. The Swiss company develops and manufactures advanced biologic drugs – which target parts of the immune system to treat disease – and other treatments under contract for its customers. Lonza enjoys about 30 per cent of its specialised market. The strategy first invested in the business in May.

In addition, some of Lonza’s equipment is made by another specialised company, Germany’s Sartorius. It’s been in the portfolio since 2017 and offers solutions to help biopharma companies develop, produce and safely transport their treatments.

Decarbonisation innovation

Mileva also sees the transition to cleaner energy as a potentially rich source of opportunities. Still, as a stock-picker, she admits the challenge is to identify companies with an edge that means they should outperform rivals. One such holding is CATL, the Chinese electric battery company.

“CATL benefits from a huge competitive advantage because the Chinese government is providing so much support to electrify transport,” observes Mileva. “With China the largest electric vehicle market in the world, it’s almost inevitable that any company with 50 per cent of battery sales at home will enjoy a lead over the international competition because it already has the top technology, R&D and scale of production.” 

Our conversation now turns to less positive topics – inflation, recession and volatility. It is a difficult time for investors, admits Mileva. “We are very aware clients have trusted us with their money and we sympathise with their experience, but ultimately we believe that a long-term growth investing approach will generate good returns. Of course, there will be periods of underperformance, which will be quite uncomfortable. Volatility is undesirable but ultimately it doesn’t matter if we can preserve and grow investors’ capital.”

She adds, regarding inflation, that the portfolio contains several high-margin stocks that can absorb price rises and have previously withstood recessions, such as Games Workshop, offering plenty of resilience. 

But she says the long-term focus remains on opportunities arising out of rapid technological change. “As growth investors, we capitalise on the vast amount of human ingenuity committed to solving some of the most intractable problems we face. Those that are successful are the companies that become huge and profitable and make great investments.”

Read more from the anthology:

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 September 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.

Stock Examples

Any stock examples and images used in this communication are not intended to represent recommendations to buy or sell, neither is it implied that they will prove profitable in the future. It is not known whether they will feature in any future portfolio produced by us. Any individual examples will represent only a small part of the overall portfolio and are inserted purely to help illustrate our investment style.

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.

Source: Baillie Gifford & Co and underlying index provider(s). USD.

Source: MSCI. 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.

Past performance is not a guide to future results.

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.

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.

25225 10013231

About the investor