With the benefit of foresight

If, as an investor, you had a time machine but were only afforded one journey and a single action, where would you choose to go? And what would you do?

We suspect a risk-averse investor would prefer to turn back the clock rather than leap forward – perhaps to 15 May 1997 to participate in Amazon’s initial public offering (IPO) or 22 January 1999 for NVIDIA’s – knowing that spectacular returns would eventually accrue. 

Having seen the future, precipitous drawdowns would be met with unwavering confidence and opportunistic additions. Her temptation to act on incessant yet irrelevant news headlines would be gone. And with twenty-twenty foresight in a portfolio context, the position size would be left to run large. In other words, all the rules of Modern Portfolio Theory would need to be broken to make the most of her futuristic insight.

Once our time traveller returned to 2025, she would again be faced with a choice. She could either interrupt compounding, lock in returns and revert to managing the omnipresent uncertainty through conventional prisms of risk – in the knowledge that this path would likely lead her to the same destination as most active managers: disappointing underperformance over meaningful time horizons. Or perhaps her journey through time would act as a lesson that uncertainty need not reflect loss – and that, when faced with truly transformative change, staying the course is necessary for stock pickers to create long-term value.

We do not have a DeLorean, Tardis or time portal in the Long Term Global Growth (LTGG) Team, but we do spend a disproportionate amount of time trying to transport ourselves to the future. We are not talking about three months or even a year from now, but rather a conscious exercise of thinking in scenarios and probabilities of how companies and the world they inhabit might look in five or 10 years – and even beyond. This approach allows us to ask different questions, build portfolios unconventionally and create opportunities from uncertainty. 

Opportunities for the unconstrained 

Our ability to look beyond the noise feels ever more valuable. News cycles continue to become shorter and louder, with sensationalist headlines dragging the market’s attention from one drama to the next. 

But has it not always been thus? We founded LTGG in the aftermath of the dot-com bubble. At that time, most of the large western powers were embroiled in wars in the Middle East. Before our fifth anniversary, the Global Financial Crisis struck. A European debt crisis promptly followed. By 2015, it was China’s turn, and the Shanghai stock exchange saw a 30 per cent decline in the space of a month. Our second decade was no smoother. 2020 brought the world to its knees with the first global pandemic in over a century. And now, increasing nationalism is upending longstanding trade systems, all while elevated interest rates continue to put pressure on consumers and businesses worldwide.

Even against this backdrop, there will be winners and losers – and they will likely differ from yesterdays. As such, the decision to free ourselves from the benchmark when we launched the strategy in 2004 remains as relevant today as ever. 

The unconstrained nature of LTGG means that we aren’t blinkered into disproportionately looking at one part of the universe. Instead, we focus on being selective and seeking individual opportunities with the best return prospects, irrespective of country or sector. Over the last 12 months, two-thirds of the MSCI ACWI has been in US companies. This is 24 times the representation of China. This may seem out of whack given that the USA is home to only about 4 per cent of the world’s population and contributes approximately 26 per cent to global GDP (adjusted for purchasing power parity) versus China’s 18 per cent of the world population and approximately 34 per cent of global GDP, yet this imbalance has persisted throughout LTGG’s 21 years.

Markets were certainly reminded of the risks that might arise from ignoring China when Chinese AI company DeepSeek launched its latest model a couple of months ago, achieving the same performance as ChatGPT-4 at a fraction of the cost. This supports our longstanding contention that innovation in China is alive and well. We are also beginning to see clear signs that the domestic regulatory backdrop for Chinese business has become more favourable. The market has yet to catch up with this view, so we have taken advantage of this disconnect. Over the past six months, we have been increasing our positions in online commerce company PDD Holdings and domestic liquor company Moutai. We have also participated in the IPO of autonomous software company Horizon Robotics. However, Tencent probably best encapsulates how the market’s perennial inability to understand China provides the opportunity for exceptional long-term returns.

Tencent has been held in LTGG portfolios since 2009 and is one of the highest-returning stocks at more than 30 times. From here, it strikes us as an obvious beneficiary of China’s ambition to progress its AI capabilities. Tencent commands approximately 15 per cent of the Chinese cloud market, counting DeepSeek as one of its customers, and has one of China’s largest AI chip inventories. More importantly, however, it has amassed an ecosystem of 1.35 billion users; this is nearly all of China’s population, who, on average, spend 95 minutes per day on the platform.

It is easy to underestimate how powerful a springboard this could be. We know this from experience. Our 2015 predictions of how Tencent’s mobile payments business might evolve speculated that 30 per cent of Chinese financial activity might shift online, with Tencent winning one-third of the online share. However, over the ensuing decade, China essentially became cashless, and in 2024, Tencent processed more than 40 per cent of mobile payment volumes. Tencent has proven its ability to morph with new opportunities time and time again. The most popular offerings from our original research, such as QQPet, are but a distant memory, yet gaming has grown to be 10 times larger despite having shrunk to just under a third of the business; advertising and marketing have exploded by 40 times and are nearing 20 per cent of total revenue; and Business Services (where cloud and AI are reported) has quietly grown to be another 30 per cent.

Is it sufficiently blue sky to suggest that Tencent can comfortably double from here? Might WeChat be to AI what the internet-enabled mobile phone was to its instant messaging app, QQ? Could it become China’s AI superapp? We certainly think there is a high enough probability combined with an astonishingly attractive valuation. Tencent’s mycelium-like pervasiveness makes it one of the most exceptional businesses in the world, not just in China. 

The winding road to outlier returns

Just as our Chinese holdings have often proved emotive, so have some of our highest-returning stocks. In our experience, we can generate outlier returns by identifying inefficiencies in the longevity or quantum of growth implied in a company’s valuation or by spotting novel patterns emerging, often in the form of disruptors upending their ‘industries’. As market expectations adjust, we encounter several bouts of volatility that test both our hold and sell discipline. There is no better example of this dynamic than Tesla, which we recently sold from the portfolio after a 12-year holding period. 

In 2013, Tesla was hoping to sell 20,000 cars, and we speculated that “in 15 years’ time, Tesla could be akin to BMW: two million units per year and a market capitalisation of $45bn with a few billion in net cash.”

Clearly, we, too, were guilty of underestimating Tesla in the early days, but the comfort of hindsight masks the numerous challenges Tesla faced over our holding period. Some of those challenges related to scaling up vehicle production, a massively capital-intensive undertaking that brought significant moments of financial and operational risk. Others were of Elon Musk’s own making and separate from the company’s operations.

Despite all the naysayers and volatility, it wasn’t until 2020 that we first trimmed Tesla, but only because the position kept blasting through our 10 per cent limit in a single stock. A year later, with Tesla’s market capitalisation at around $500bn and most market participants squealing about the potential for any upside, our investment case became increasingly reliant on more nascent parts of the business. There was plenty to be excited about, from energy storage to autonomous driving and embryonic ventures in humanoid robots. Musk has always been capable of defying the norm. There are few, if any, others who can build a business, such as Tesla, while simultaneously pursuing private space exploration (SpaceX), and developing brain-computer interfaces (Neuralink) and AI capabilities (xAI), but even his bandwidth is finite. We’ve come to the view that his appointed responsibilities with the US Government are placing too much strain on them at a time when Tesla’s core automotive business is under increasing competitive pressure. 

As Tesla's probabilities and outcomes have evolved, so has our position size. Since the first trim in 2020, we have recycled 24 per cent of portfolio weight from the holding—recycling into existing names and new ideas. Tesla has not only been one of the highest-returning stocks over the last 21 years at 78x[1], but it has also been critical for the regeneration of the portfolio.

The proceeds from the final Tesla sale went into two existing holdings: The Trade Desk and AppLovin. These two companies are applying AI to radically improve their customers’ advertising outcomes. Both have been victims of the market’s short-term magnifying glass this quarter. The Trade Desk missed guidance for the first time in its eight-year history as a public company. Low single-digit misses on the top and bottom line resulted in more than a 50 per cent drawdown. Essentially bringing the share price back to our initial purchase price. In our view, this reaction overlooks the fact that The Trade Desk continued to grow more than 20 per cent and at a much faster pace than the wider industry and peers. The whole dynamic here reminds us of Tesla's early days, where each short-term execution hiccup eclipsed the long-term opportunity. As with Tesla, though, we benefit from significantly stronger access to the management team. Our recent discussions with chief executive (CEO) Jeff Green have reassured us that the operational hiccups result from rectifiable missteps already being addressed, not a signal that their competitive advantage is eroding. We corroborated this with several of their customers. We retain conviction in the possibility of future outlier returns, so we viewed this as an opportunity to add.

There are different parallels between Tesla and AppLovin, which has recently been the target of a series of short-seller reports. During most of our holding period, as much as 20 per cent of Tesla’s share register was frequently out on loan to shorts who doubted what the company would go on to achieve. AppLovin operates in a highly technical area and has a jaw-dropping effect on improving customers' return-on-advertising-spend. AppLovin’s technology is driving such impressive results that short sellers are challenging the veracity and legitimacy of these achievements. Our views to the contrary are based on years of getting to know the company, having first met while they were still private, as well as comprehensive due diligence and customer interviews that we carried out ahead of initiating our position in October of last year. We have encouraged AppLovin to host its first Capital Markets Day to help investors better understand the potential of their technology. In the meantime, we have taken advantage of the weakness in the share price as we think there is far more to come from this holding. 

It's not always the case that navigating volatility drives outlier returns. Our recent sale of Moderna comes after four and a half years of holding through unique circumstances. We bought the stock in September 2020, having written the research from our homes and hosted the stock discussion over Zoom. This small Boston-based biotech certainly had the traits of an outlier. When the world needed it most, Moderna coded the genetic sequence for its Covid-19 vaccine in 48 hours. A mere 42 days later, the human clinical trial had started. Authorisation for emergency use was achieved in under a year, obliterating the previous four-year record. What’s more, the messenger RNA (mRNA) technology underpinning this vaccine was entirely novel and had the potential to deliver a far more scalable, rapid, and cost-effective way of developing vaccines. The pandemic validated the underlying mRNA technology, and if the same success could be achieved across the remainder of the abundant pipeline (that spanned respiratory, rare diseases, and oncology), our thesis was that endemic-Covid revenues would be a rounding error. Our first research report on Moderna concluded as follows: “Therefore, our point of difference appears to be in looking through just Coronavirus to read across and the emergent platform: the hypothesis that the pandemic represents an accelerant for the technology and shifts the probability of it taking a larger slice of a gargantuan market.”

Moderna’s revenues peaked in 2022 at $19bn—nearly 400 times higher than a few years earlier. In the process, Moderna transformed its balance sheet, accumulating a war chest in excess of $18bn. Ultimately, we feel that poor commercial execution has overwhelmed Moderna’s scientific success. It has now had to retreat and rationalise much of the pipeline, as revenues have collapsed, and cash reserves have depleted much faster than initially anticipated. It is easy to forget that when we wrote that first research report, Moderna’s revenues were a mere $50m, mostly in grants. They were forced to learn how to run before they could walk. 

We sold our Moderna holding in January, crystallising a loss, having allocated just shy of 2 per cent [2] of portfolio capital throughout our holding period. In the end, Moderna was an error in judgment rather than process. Our thesis on the broader applicability of mRNA has played out, but we misjudged management’s ability to capitalise on this. The possibility of asymmetric returns still exists for the stock, but the probability-adjusted payoffs are no longer attractive enough, particularly when compared to the remainder of the LTGG portfolio. 

Together, Tesla and Moderna act as a profound reminder that the asymmetry of stock markets makes our successes disproportionately more valuable than our failures. 

It all comes down to adaptability 

Amid the ongoing chatter of tariffs and macroeconomic concerns, it remains the case that a tougher backdrop plays into the hands of the most resilient and adaptable companies. As capital costs have increased, less financially prudent companies have been required to pull back, while the disciplined outliers have been able to forge ahead and win share from those in retreat. This has been a theme we have observed across the portfolio over the last three years, with many portfolio companies thriving not despite but because of the tougher environment. 

On LTGG, we’re not spending a great deal of time mired in tariff analysis because we know that deep, multi-decade structural transformations that many of the companies in the portfolio are pioneering can be very difficult to dislodge. Texas now has more installed solar energy capacity than California, electric vehicle (EV) sales are growing at around 25 per cent per annum globally, ecommerce penetration of global retail has doubled from about 10 per cent to nearly 20 per cent since 2017 and despite US-China trade restrictions, DeepSeek developed a large language model that rivalled western counterparts.

We are mindful, however, of the nearer-term implications that changes in trade relations could have on the portfolio; a quick health check here is reassuring on three fronts. First, the announced tariffs appear to primarily target physical goods, not services. Roughly 40 per cent [3] of the portfolio by weight consists of companies that specialise entirely in software and online services, such as Atlassian, Adyen, Roblox, Spotify, AppLovin, Workday and Datadog, and therefore would appear largely immune to the first-order impacts of the tariffs that are currently mooted. Second, for the companies whose businesses primarily depend on selling physical goods, the majority would also appear to be relatively insulated. This is partly due to the increasing number of companies in the portfolio with a sufficiently attractive domestic opportunity to satisfy our upside hurdle. For example, Symbotic and Rivian generate 100 per cent of their revenues in the US, whereas Coupang, MercadoLibre, Titan and Moutai have zero revenue exposure to the US. It is worth highlighting that this is not accidental but rather a reflection of our process that has identified deteriorating trade relations for the best part of a decade, particularly between the US and China. Underreported amidst all the headlines about tariffs is the fact that intra-Emerging Market trade is at a record high and providing vast opportunities for several LTGG holdings operating in those markets – consider, for example, that China is the world’s largest auto market and approximately 75 per cent of Chinese automobiles are exported to emerging markets (autonomous driving software company Horizon Robotics stands to benefit from this trend directly). 

We’re also focused on the ability of holdings to adapt their supply chains in a world of trade friction. For example, having imported a significant portion of its batteries from Asian markets, Rivian has been diversifying its supply chain to include batteries produced in Arizona. New buy TSMC has been making similar contingencies in its semiconductor supply chain; having already invested billions of dollars in its Arizona facility, it has recently committed a further $100bn toward expanding its US manufacturing footprint. Meanwhile, the continuous glucose monitoring company Dexcom has been expanding its international production facilities (eg in Ireland and Malaysia) to meet growing global demand. 

The output of searching for adaptability at the individual company level means the portfolio is in robust shape. Even through the roller coaster of the past five years, the portfolio has sustained revenue and earnings compound annual growth rates above 25 per cent compared to the mid-single-digit growth of the index. Based on independent forecasts, this trend should continue in the years ahead, with the portfolio’s earnings at a three-year forward growth rate of 25 per cent—almost two and a half times faster than the index [4]. 

Observations from 2045

Had our time traveller ventured to the future, she would have witnessed immense technological feats that make 2025’s world look utterly antiquated. The last mobile phone to ever be manufactured was Apple’s XX, and people now communicate via brain-computer interfaces powered by NVIDIA chips. Teenagers don’t know what she means when she says she has a driving license; planes, trains, and automobiles are all autonomous. As a result, Horizon Robotics and Joby Aviation have become household names. And to her utter surprise, skiing in the Alps has been replaced with sandboarding on Mars. The tour operator for these trips didn’t even exist in 2025, and the journey is quicker than what Edinburgh to Sydney once was. 

However, not everything has changed, and she takes comfort in noticing that, just as the many ‘crises’ that punctuated LTGG’s history between 2004 and 2024, the all-consuming headlines of 2025 have paled into insignificance. And importantly, portfolio returns in LTGG continue to be dominated by a handful of outlier stocks, such as Tesla, Tencent and Amazon, which endured a bumpy ride on their way to shaping 2045. 

Irrespective of what the world looks like in 2045, LTGG’s task of futureproofing our clients’ portfolios remains unchanged. Investing with an eye on the next ten years instead of the next quarter necessitates adaptability, diligent capital allocation and resilience from our holdings. These same qualities will enable the portfolio to leverage the opportunities that come from continuous technological advancements and change. This long-termism, however, does not mean we are static, and our unconstrained approach means we are best placed to continue identifying future outliers. 

Footnotes:

1. Source: Baillie Gifford & Co, Revolution, USD. Data from 30 November 2007 to 31 March 2025.
2. Source: Baillie Gifford & Co, data as at 28 February 2025.
3. Source: Baillie Gifford & Co, data as at 28 February 2025.
4. Source: Baillie Gifford & Co, FactSet, data as at 28 February 2025.

Past performance

Annual past performance to 31 March each year (net%)

Annualised returns to 31 March 2025 (net%)

Source: Revolution, MSCI. USD. Returns have been calculated by reducing the gross return by the highest annual management fee for the composite. LTGG composite is more concentrated than MSCI ACWI Index.

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 and important information

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 April 2025 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) 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.

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 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. 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 Limited 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.

129508 10051927