Fund Size: £3236.00m

Total screened & themed / SRI assets: £17872.00

Total Responsible Ownership assets: £317968.00

Total assets under management: £335840.00

As at: 31/12/21

Overview

Filters

Fund information

Policy

After centuries of progress and advancement, humanity is now facing a number of challenges that must be addressed in order to place our society onto a path of sustainable development. Everyone has a role to play: governments, businesses, investors and individuals. We believe that the best way for the investment community to contribute to this effort is through a positive and proactive approach, where investing is focused on companies that are addressing those challenges, rather than simply excluding companies that cause harm.

We believe companies that are solving those challenges should see rising demand for their products and services and are naturally growth companies. By focusing on a subset of those companies that enjoy sustainable competitive advantages and are run by committed management teams, we should be able to deliver attractive investment returns over the long term. We have two, equally important objectives, and we aim to measure both over periods of at least five years.

• We aim to deliver attractive investment returns. Patient ownership of listed equities offers a liquid, low-cost way to invest in the economic fruits of human ingenuity. In broad terms, we look for companies with the potential to double in value over a five-year period, while still having significant growth prospects thereafter. Patience is required to tolerate short-term volatility that we embrace in order to generate superior long-term financial returns.

We expect our portfolio of 25–50 companies to be significantly different from the index,. While measuring portfolio returns relative to an index can be a helpful way to monitor the output of our investment process, we do not consider the index when constructing the portfolio.

• We aim to deliver a positive impact. We look for companies for whom delivering a positive impact is core to their business; whose products and services represent a significant improvement to the status quo; and who conduct business with honesty and integrity. We look for areas where there is a meaningful, and widely-accepted, opportunity gap between the current situation and the desirable social outcome, and for companies that are proactively narrowing that gap through their business activities.

To this end, we have identified Four Impact Themes: Social Inclusion and Education; Environment and Resource Needs; Healthcare and Quality of Life; and Base of the Pyramid (addressing the needs of the poorest four billion people in the world). Similar to financial returns, making a meaningful positive impact on society requires patience and perseverance. We are not looking for quick fixes, but genuine improvements which often take years, if not decades, of hard work.

Process

Positive Change focuses on bottom-up, fundamental research rather than technical analysis, as is the case for all Baillie Gifford equity strategies. It is managed by a team of four decision makers: two investment managers and two senior impact analysts.

What We Look For

Positive Change is a global strategy, so the universe of companies in which we can invest is very large – there are roughly 9,000 listed stocks with a market capitalisation greater than $1 billion. We make no attempt to cover the whole universe. Neither do we use quantitative screens to cut it down to a manageable size. Instead, we rely on a clear and consistent set of filters to focus our attention on the relatively small number of businesses that might be of interest to us.

These filters flow naturally from our dual objectives and focus on: (1) the company’s potential to address one of our four thematic global challenges; (2) its potential to build a profitably growing business.

 Idea Generation

We are bottom-up stock-pickers who let our curiosity and enthusiasm drive our research agenda. Idea generation takes place throughout the investment process: when we meet companies; through attendance at conferences; during team meetings; and through general reading. Our long investment horizon, focus on fundamental in-house research and desire to take a different perspective means we use diverse sources of information, from independent research to engaging with academics and industry experts. Sharing a common objective with the rest of our investment colleagues (seeking high quality growth companies), we are fortunate in being able to leverage the intellectual resources of our wider investment department of around a hundred investors, including regional and global teams and sector specialists, and our Governance and Sustainability Team.

Gaining insight into social and environmental challenges and impact of companies is complicated and requires a consistent and robust process. Our analysis consists of two stages: fundamental company research and an impact analysis

Fundamental Company Research: This research is carried out by the Positive Change investment managers or analysts using our eight-question framework:

• What change is the company driving?
• What is the scale of the growth opportunity and how might it evolve over time?
• What is required to unlock the opportunity and how quickly can the company capitalise on it?
• What is the competitive edge and how might it develop?
• What attributes of the culture, governance and management attitude will support or detract from the company’s ability to capitalise on the opportunity?
• What are the financial characteristics today and how might they evolve?
• What might the company look like and what might its valuation be in 5 to 10 years?
• What will it take to be an outlier?

Impact Analysis: This is carried out by one of the three impact analysts. Analyzing impact is complex and can be highly subjective. Our impact analysis is carried out independent of the investment case using a rigorous, qualitative framework that is based upon three factors:

• Intent - management strategy, actions and commitment, structures;
• Product Impact - relationship of product and impact, breadth and depth of impact, materiality;
• Business Practices - governance and attitude to all stakeholders (shareholders, employees, customers, industry, environment & society).

Our impact analysis is holistic, as we recognize that there is no perfect company. Under each of these three factors we also consider areas of controversy, the negative consequences of operations, and a company’s awareness of those issues.

We are active investors and our portfolio of 25 to 50 companies will be significantly different to the benchmark. In order for a company to enter our portfolio, it must meet both of our objectives – there are no compromises.

When making portfolio decisions, the team’s conviction in both the impact and investment potential of a company is taken into consideration. Investment decisions are made by the group with a bias to backing the enthusiasm of the individuals who are responsible for the investment and impact analysis. We have established a process that allows us to harness diverse perspectives whilst also retaining conviction and accountability of individual decision-making and reducing personal bias.

With a long-term investment horizon, portfolio turnover is low and we expect it to be below 20% per annum over the long term. We will carefully monitor the companies in which we invest through ongoing research and engagement with management teams. It is inevitable that companies will have setbacks and we are happy to own companies through periods of short-term operational weakness. However, if longer-term concerns develop that are not addressed by management, or if we detect a deterioration in the fundamental investment case for either element of our dual objectives, we will sell a holding.

Resources, Affiliations & Corporate Strategies

Positive Change Fund

Positive Change decisions are taken by the investment managers Kate Fox and Lee Qian and senior impact analysts Michelle O’Keeffe and Edward Whitten. The Positive Change Team has three investment analysts, Thaiha Nguyen, Josie Bentley and Adrien Levacic, and one Impact Analyst, Punit Desai.

The Positive Change decision makers are supported by three Portfolio Advisers from across Baillie Gifford’s Investment Department representing the following teams: Emerging Markets, Health Innovation and International Equities. The Portfolio Advisers contribute to idea generation and provide challenge to portfolio construction.

Positive Change is also able to draw on the vast pool of internal investment research from the 140 investment managers and analysts at Baillie Gifford, as well as our broader ESG Team.

Baillie Gifford

We have 140 investment staff at Baillie Gifford who are first and foremost analysts, regardless of seniority, and spend the majority of their time carrying out research. Research is conducted in regional and global teams all based in our open-plan Edinburgh office. It is widely shared and openly discussed. The aim is to gain broad, long-term insights into business models and competitive advantages of companies.

Baillie Gifford makes very little to no use of broker research as our investment horizons are very different (years not months).

We have a dedicated ESG resource of over 40. In conjunction with the investment teams, the ESG Team is responsible for ESG research and engagement, coordinating and processing proxy voting. The ESG Team is responsible for highlighting ESG risks and opportunities to the different investment strategies, monitoring companies we have holdings in, engaging with companies on ESG criteria, and challenging them when appropriate.

The team is structured so that specific members have regional market expertise, but all members have knowledge of global ESG issues.  This ensures that everyone in the team has a broad understanding of governance structures, norms and variations, as well as a specialism. Every member of the team is responsible for considering all environmental, social and governance matters which requires broad understanding of key ESG matters including remuneration, board diversity, labour practices, health and safety expectations, climate change and other social and environmental challenges. As this illustrates, the role of the ESG Analyst is wide ranging. The discussion and debate within the team and with the investment teams is an important part of the analysis process. The team reports directly to our Investment Management Group (a committee of five investment partners). This reporting line helps to ensure that our research is of value to the investors and integrated into the investment decision-making process.

In conducting ESG research our ESG Team have access to several external information providers and are members of several industry organisations such as third-party research providers; MSCI, RepRisk and South Pole. We also employ several external corporate governance advisers including ISS and BoardEx which assists us in voting clients’ shares and analysing board experience, diversity and independence.

We are members of the UNPRI, the UK Corporate Governance Forum, the Investor Forum, the International Corporate Governance Network, UK Sustainable Investment and Finance Association, the Japan Focus Group, the Council of Institutional Investors, the Carbon Disclosure Project and the Asian Corporate Governance Association.

Literature

• Baillie Gifford Positive Change Fund

Last amended: 04/01/24 12:45