Baillie Gifford Managed Fund
Growth that endures: Investing beyond the headlines
Beyond the headlines and short-term trends, the Baillie Gifford Managed Fund focuses on fundamental analysis to find companies with enduring growth potential. Investment managers Iain McCombie and Steven Hay discuss the firm's bottom-up approach, highlighting key investments and how they are positioned for the future, including the evolving landscape of AI.
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Simplicity is the key to maintaining long-term focus amid market volatility and a rapidly changing technological landscape. For 38 years, the Baillie Gifford Managed Fund has had a clear and consistent philosophy and process for finding the best growth companies across sectors and regions. Providing stability and simplicity, its core structure of regional equities, bonds and cash has remained largely unchanged. However, the world has not stayed the same and co-investment managers Iain McCombie and Steven Hay emphasise the need for adaptability and innovation to embrace new opportunities when identifying enduring growth companies. The team’s definition of a great growth company has evolved with the changing landscape over the years. Three asset classes, 75 percent equities and the remainder in cash and bonds, make life simple for clients and provide access to the best of Baillie Gifford stock and bond picking. In this content portal, we explore the team’s time-tested investment process, we highlight winners and offer exclusive access to manager insight on risks and opportunities and more.
Iain McCombie, Investment manager
Stability and Simplicity
Steven Hay, Investment manager
A long-term perspective, combined with a disciplined investment process, can uncover hidden gems and capitalise on the power of compounding to deliver steady returns over decades, explains Iain McCombie of the Baillie Gifford Managed Fund.
A patient approach to growth can pay off
Learn more about the Baillie Gifford Managed Fund
For long-term investors, its not about reacting to tricky environments, but to maintaining a steady long-term outlook. Watch the video for more on how the Managed Fund investment managers navigate uncertain terrain.
Perspectives on a difficult quarter
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Following a very difficult 2022 and a choppy 2023-24 global bond markets have seen a resurgence in 2025. Yields on government bonds, BBB corporate debt, and emerging market local currency bonds, while still elevated, offer compelling opportunities compared to much of the past two decades. The question now: What will shape the outlook for bonds over the next three to five years, and beyond?
What could drive bond markets after the recent rally?
In response to Trump's tariffs, the Baillie Gifford Managed Fund has adjusted its asset allocation and capitalised on opportunities in sovereign debt markets. As a result, the fund remains resilient and well-prepared to face the evolving economic landscape.
Responding to Trump’s tariffs
Market performance is rarely a straight line and while short-term fluctuations are inevitable, the Baillie Gifford Managed Fund has delivered impressive long-term returns through keeping it simple and maintaining exposure across core asset classes – equities, bonds, and cash.
30 years of growth: investment lessons from Iain McCombie
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US fast-salad business Sweetgreen has been one of Baillie Gifford's best performing stocks
You have a number of early stage, high growth companies in the fund, how do you balance out volatility? While managing volatility is not an explicit aim, we do recognise that growth comes in many flavours. It is not all tech. While we do get excited about early-stage growth companies, what we are seeking to deliver with this fund is much broader than that. For example, the UK is home to some world class businesses and long- term compounders like AstraZeneca and Bunzl. These companies can consistently grow their earnings and reinvest those earnings to generate even more growth over the long term. In Europe, we find acquisitive industrials with fantastic capital allocation records, like Dutch chemicals distributor IMCD and Danish freighter DSV. We also have a generous allocation to bonds and cash. Our bond portfolios are entirely active, each issuer, whether a country or a company, is handpicked. This portion of the portfolio plays two key roles: to ballast equity volatility, and provide some return. The cash, as well as providing some cushion for volatility, offers dry powder for new ideas.
The fund has a strong long-term record, what have been the key performance drivers for the fund historically? As active, growth investors, we were early enough in Amazon, Tesla, NVIDIA, Bunzl, Ashtead and others to allow clients to enjoy the best of their returns. That performance comes back to our core tenets: we look for companies with the potential for above-market earnings growth and believe that company fundamentals are the primary driver of investment returns. More recently, US exceptionalism came to the fore again last year. The Magnificent Seven were particularly strong, but what was interesting was that US stock market strength started to broaden as the year went on. That shift was very supportive of our strategy. Some of our best performing stocks were companies like Marks & Spencer, Sweetgreen (US fast-salad business), and TSMC (Taiwanese semiconductor and technology company). However, it is important that we do not get carried away with past performance. For example, at the portfolio level, we have been taking profits from some of our best-performing stocks. We have taken money out of Tesla and NVIDIA after they performed extremely well in 2024 and we are deploying some of that into what we think are attractive growth businesses, but at lower valuations. At the asset allocation level, we have banked some of those strong returns from our US portfolio and put money into cash.
What is your philosophy for finding the best growth companies? What we're trying to do as bottom-up growth investors is to find great companies with underappreciated long-term prospects. The key advantage we have is that we invest over much longer periods than the market average. Each investment case is assessed on at least a five-year view. This helps us get to know the businesses in a way that cannot be replicated by short-term speculators. We know from research that share prices will follow fundamentals over the long term, so that means we can ride out some short-term volatility. As such, the Managed Fund is not an all-weather portfolio that is trying to outperform in every scenario. In the current market environment, we have an overweight position in equities because we see long-run opportunities we think the market is still missing.
What is the Baillie Gifford Managed Fund? This is a balanced strategy that has existed for almost 40 years. It is designed for people in the accumulation phase of their investment journey who want growth without the higher risk often associated with all-equity portfolios. The strategic asset allocation of the fund is 75 per cent equities and 25 per cent bonds and cash. Typically, the driver of returns will be the equities. As bottom-up investors we look to find the best companies that will grow their earnings faster than the market.
“What we're trying to do as bottom-up growth investors is to find great companies with underappreciated long-term prospects”
This year has seen considerable economic and policy uncertainty. What key risks and opportunities do you see in the current environment? How are you positioning for those? We don't position for a particular macroeconomic backdrop since we can't control it and we (and indeed most economists it would appear) don't have an edge there. Our long-termism allows us to hold through market cycles. Artificial intelligence is clearly a massive opportunity. We hold NVIDIA in the Fund, which designs the chips that power AI tools, ASML which makes the machines that build chips, and companies like Autotrader and Shopify that are already using AI tools to their advantage. All change offers both risk and opportunity, and the array of outcomes for AI is very wide. For us that means holding companies with skilled, agile management teams and allowing them the time for these ideas to filter through to our clients’ returns.
Important information You or your clients' capital is at risk. This article does not constitute, and is not subject to the protections afforded to, independent research. Baillie Gifford and its staff may have dealt in the investments concerned. The views expressed are not statements of fact and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. Bonds issued by companies and governments may be adversely affected by changes in interest rates, expectations of inflation and a decline in the creditworthiness of the bond issuer. The issuers of bonds in which the Fund invests, particularly in emerging markets, may not be able to pay the bond income as promised or could fail to repay the capital amount. The Fund's share price can be volatile due to movements in the prices of the underlying holdings and the basis on which the Fund is priced. Baillie Gifford & Co Limited is authorised and regulated by the Financial Conduct Authority. Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs. All data is sourced from Baillie Gifford & Co unless otherwise stated.
Annual Discrete Performance to 31 December each year (%)
Past performance is not a guide to future returns.
Class B-Acc
Sector Median*
33.9
5.1
2020
4.3
2021
11.1
-24.3
2022
-9.5
10.7
2023
8.1
8.9
2024
9.1
Sector data based on B-Acc share class performance. Source: FE, Revolution. Total return net of charges, in sterling. Share class returns calculated using 10am prices, while the Index is calculated close-to-close. *IA Mixed Investment 40-85% Shares Sector. The manager believes an appropriate comparison for this Fund is the Investment Association Mixed Investment 40 – 85% Shares sector median given the investment policy of the Fund and the approach taken by the manager when investing.
Growth through early adoption Shopify, an e-commerce platform for online stores and retail point of sale (POS) systems is a company poised for growth due to early AI adoption. AI services help merchants create product listings and images. As a result, the platform is attracting more merchants willing to pay a higher price for its improved marketing analytics and new features, which in turn drive more customers to the platform. Embracing AI, the fund managers believe Shopify could deliver efficient growth for longer than the market anticipates.
Growth doesn’t come overnight or in a straight line and the average holding period is 5-10 years. That long-term perspective recognises the power of compounding and that returns can be generated slowly and steadily over decades. The equities portion of the fund is kept simple yet broadly diversified. Regional experts pick their best ideas across the UK, North America, Europe, developed Asia and Emerging Markets. That approach provides a breadth of exposure to different flavours of growth in an investment landscape which has of late been dominated by and concentrated in the Magnificent 7.
Share prices tend to follow fundamentals over time and the portfolio exhibits strong potential; the earnings of companies held in the fund are growing much faster than average.
Complexity is not required for investment success and a simple and consistent approach can be a true differentiator amongst strategies. Despite almost four decades of bullish and bearish markets as well as numerous financial and geopolitical crises, the Baillie Gifford Managed Fund has stayed focused. It specialises in long-term, bottom-up growth investing by looking for innovative and growing businesses across industries, as it has done since 1987. Stock selection is the main driver of returns, and the fund is therefore tilted towards equities. There are over 200 equity holdings that comprise 75% of the portfolio (the other 25% is in bonds and cash).
No compromise on quality Balancing different forms of growth and investing in a diverse range of companies provides protection against short-term market sentiment. Focusing on identifying quality businesses further strengthens the resilience of the portfolio – the managers typically prefer profitable companies with low debt levels which can weather various market conditions. This enables those businesses to invest in their futures and support their long-term growth prospects.
Navigating shocks with a balanced approach
Source: StatPro and MSCI, sterling. Total return in sterling terms. Returns based on £10,000 investment. Benchmark: IA Mixed Investment 40% - 85% Shares Sector Median (CAPS Median Balanced Pooled Fund to 30 September 2004, IA Balanced Median to 30 June 2006). *31 March 1987. Image sources: ©Sipa/Rex/Shutterstock, ©STAN HONDA/AFP via Getty Images, ©Kpa/Zuma/Shutterstock, ©Corbis via Getty Images, ©JUSTIN TALLIS/AFP via Getty Images.
Above average growth – 3 year forward earnings
Winning equities
Not a typical growth company With early holdings in blowout stocks such as Tesla, Amazon, and NVIDIA, investors could be forgiven for thinking that fund strategy is predominantly tech-focused. Recent additions to the portfolio that have the fund managers excited highlight a balanced approach to innovative, growing business across industries. Yorkshire-based Cranswick is a leading food producer in the UK and a company with a strong long-term track record as the number one player in pork products in the UK. The managers like the businesses because it is a clever allocator of capital, is expanding into convenience foods and winning valuable contracts with McDonalds for poultry and halloumi fries. The business is cash-generative with reasonable margins, but Cranswick is investing ambitiously to increase market share and can improve margins by gaining greater control over its supply chains. Alongside moving into the poultry business, the company has been reinvesting in the state-of-the-art facilities to produce higher quality products.
These contrasting examples highlight that there is room in a balanced growth fund for long-term quality compounders as well as disrupters. Baillie Gifford’s genuinely long-term horizon allows the fund managers to spot avenues for growth that the market often misses.
Looking ahead Recently, momentum following the US presidential election has been a driver for risk assets such as equities. The foundations are set for that to continue: economic growth remains resilient, inflation is not dead but close to targets, and interest rates are likely past their peaks. However, regardless of how market sentiment swings, the best defence is a strong portfolio of businesses that have robust balance sheets and can withstand tough market events.
US ecommerce flows through Shopify
12%
7%
Fund
Index
Short-term headwind, long-term opportunity Growth potential can be overlooked due to short-term headwinds. Shaftesbury Capital’s portfolio includes retail, restaurants, office and residential properties in Covent Garden, Seven Dials, Chinatown, Carnaby Street and Soho. Despite a significant setback due to a drop in retail footfall during the Covid-19 pandemic, management is successfully revitalising their portfolio of Central London real estate. Rents and footfall in these areas have rebounded since Covid, but shares are trading at a discount to net asset value. The fund managers see long-term growth potential from Shaftesbury’s unique portfolio of highly attractive properties and solid underlying business.
Sales in Black Friday/ Cyber Monday sales in 2024
Revenue growth
Free cash flow margin in 2024, from negative numbers in 2021
50%
Amount aiming to invest per year
Share of UK pork market
£100m
£4.8bn
Lettable units
Value of property portfolio
+7%
Growth in rental value
10%
$11bn
+25%
+20%
9% p.a.
Earnings per share over 25 years
90% equity holdings profitable
Strong foundations
Net debt/equity: 21% vs 49% (fund vs index)
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While we debate the likelihood of different economic scenarios to inform our process, much of our investment research is directed towards finding bonds that can do well across a range of environments. Enthusiasm for underlying holdings is a key driver of our asset allocation within fixed income and across the Managed Fund. Our active approach means we often find attractively priced bonds that are underestimated by the market. We hold a resilient portfolio of actively picked government and corporate bonds that outyields the index by more than 2 per cent2. Bonds are held in the Managed Fund for diversification and balance but also to add to returns.
A market rout and ongoing volatility resulting from Donald Trump’s tariff announcements has caused investors to scramble to safety and wait on the sidelines. However, rather than be paralysed by uncertainty it is important to consider the broad macroeconomic scenarios that might unfold over the next few years, and how bonds might fare in each of them. We are concentrating on three scenarios:
Annual past performance to 30 June each year (net %)
Source: FE, Revolution, net of fees, total return in sterling. Class B Acc Shares. The manager believes an appropriate comparison for this Fund is the Investment Association Mixed Investment 40-85% Shares Sector median given the investment policy of the Fund and the approach taken by the manager when investing.
Baillie Gifford Managed Fund B Acc
IA Mixed Investment 40%-85%
16.1
-0.0
26.9
17.2
-28.3
-6.4
9.7
3.0
9.4
11.9
An active approach to bonds
Bonds in the Managed Fund
1. Slowing US growth with inflation still sticky This is our core scenario. It sees a less upbeat US growth picture which builds pressure on the Federal Reserve to cut rates. However, the central bank will have limited room to do so because inflation remains sticky. For bonds this is a bit of an arm wrestle between growth and inflation but in this scenario we think developed market government bonds will still offer an appealing return of 5-7 per cent per annum. Starting yields are high and especially when compared to the negative yields many developed market government bonds offered just a few years ago. The additional yield available from corporate bonds and emerging market government bonds is attractive in this scenario and investing in these asset classes will help boost the yield from developed-market government bonds. The Managed Fund bond portfolio currently yields 6.7 per cent1 - this compares to just 2.2 per cent just five years ago. In this core scenario, bonds justify their position in the portfolio and offer a higher return and better hedging properties relative to cash. If weaker growth wins the arm wrestle bonds will perform well. Having been underweight bonds in our asset allocation for five years, we are now back to our strategic weight of 20 per cent.
2. Hard landing: growth continues to slow and the economy tips into a recession In this scenario, bonds are the best place to invest compared with equities, especially developed-market government bonds because they provide a safe haven. In the event of recession, even more rate cuts would be priced in causing bond yields to fall and prices to rise by 5-10 per cent, on top of a 5-7 per cent coupon. Higher-quality corporates would also do well and we are positioned for this. Most of the Managed Fund corporate bond portfolio is in investment-grade corporates with an average credit rating of BBB across all bond exposures. Assuming the recession is not too deep, high-yield corporate bonds would see some weakness, but the better names would be resilient. This highlights the importance of good bond selection and not just investing passively across the index. Emerging market bond yields would likely compress alongside developed market government yields, although not as strongly. Overall, the bond portfolio would likely have a positive impact on returns and offer balance to the fund in what may be a tricky scenario for equities in the short run.
3. Inflation moves up There is a possibility that inflation stays stubbornly above central bank targets. In this case, investors would reduce their rate cut expectations and we could see all bond markets sell off. In that scenario bond yields may test recent peak levels – the nearly 5 per cent seen over the last year or two – resulting in a 3-5 per cent decrease in price, thereby offsetting most of the income return. This would not be nearly as painful as the rapid rate rises of 2022, but it would be a challenging environment for bonds and other assets in the Managed Fund, regardless of the robustness of its holdings.
One example is Brightline East (B-rated, 13 per cent yield to maturity). This bond is part of the financing for the first private high-speed rail line in the US for many years. The line between Orlando and Miami is now fully open and passenger numbers are ramping up. Brightline East is focused on attracting ‘long-haul’ passengers travelling along the whole route, to and from Orlando airport. The brand-new trains and stations are an attractive alternative to a long drive or congested short-haul flight. We think the project will reach profitability in the next few years, leading to rating upgrades and strong double-digit returns for bondholders. As fixed-income portfolio managers for the Managed Fund, it is our job to construct a bond portfolio that allows room for standout investments like Brightline East but also has steadier names to ensure diversification and resilience.
One fifth of the Managed Fund is invested in fixed income, per our strategic asset allocation of 75 per cent equities, 20 per cent bonds, and 5 per cent cash. We expect the fund’s active equities to be the main driver of value creation in the long run. However, bonds play an important balancing role and can offer an attractive level of return in their own right, especially when active management unearths overlooked opportunities. Such opportunities place the fund in a strong position for long-term capital growth.
Conclusion
“Our active approach means we often find attractively priced bonds that are underestimated by the market”
Xxxxxxxx xxxx x
© Markus Mainka/Shutterstock.
1 As of the 18th March 2025. 2 As of the 28th February 2025.
Philip Scott, Investment specialist
This recording 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.
Kitchen supplier Howdens are a good example of gaining a share in a tough market and positioning itself well for recovery.
LH: There's been a huge amount of volatility in recent years, there now seems to be a persistent level of pessimism. How does this compare to previous periods? IM: Well, look, I'm Scottish and a chartered accountant. It's hard to fight those biases. But examples like Y2K show that doomsday scenarios often don’t materialise. It’s also the case that pessimism and fear aren’t anything new. My father, a teacher, would highlight newspaper articles about disrespectful youth and falling education standards. When asked about the publication date, people guessed it would be quite recent, but it was actually from over 100 years ago. Sometimes there’s a good reason to be fearful but other times not, and it often comes at the detriment of thinking about the path to progress. One negative from the past 30 years is the market’s reduced time frames and holding periods. Our consistent long-term focus is becoming rarer and it allows us to think differently. There’s no doubt that short-term noise can overshadow phenomenal long-term changes like technological and healthcare advancements. Bringing that to life with our home market, the UK excels at self-criticism, but it's still growing despite challenges. The key for us is maintaining a long-term vision and focusing on investing in companies we believe have a competitive edge. Howdens (UK-listed manufacturer and supplier of kitchens) exemplifies this, gaining share in a tough market and positioning itself well for recovery.
LH: We've talked about two success stories, but is there a company you regret not holding in the Managed Fund portfolio? IM: I think you can torture yourself with that question because there are always things you regret not holding. But that's the business we're in; we make decisions. It’s what our clients are paying us to do. You get some right and you get some wrong. The key is whether you get the balance right over time. And in that regard, notwithstanding a tough few years, our long-term track record speaks for itself. Where I think Baillie Gifford has gotten better over the years is in being much more willing to back an idea at an earlier stage. I think I was the first person to write a note on Amazon. Re-reading it after 25 years, the conclusion was that it was a much more interesting business than I thought it would be but that it was a bit overvalued. In the short run, I was right given what we know happened next with the dot-com bubble. But in the long term, I was hopelessly wrong. Having the strength of conviction to back ideas at an earlier stage, while acknowledging the importance of valuation, is really important.
LH: What are the secrets to identifying enduring growth companies like Amazon and Bunzl? IM: When you look at the data, it shows that the fastest-growing businesses, generally speaking, have performed the best in share price terms over five-year-plus time horizons. But, trying to find businesses with that length of growth runway is much harder than you might think. It therefore comes down to two things. One is looking for businesses where you have a great growth opportunity. The second is that companies must have management and a culture that can exploit those opportunities. That’s not easy, and it’s particularly not easy to sustain that over long periods, but businesses like Amazon (bought in 2014) and Bunzl show it is possible.
Lucy Haddow: Iain, you joined Baillie Gifford in 1994 and have been involved with the Managed Fund since 2000, co-managing it with Steven Hay since 2012. In your three decades at the firm, what's changed and what hasn’t? Iain McCombie: It's an interesting question. Baillie Gifford has remained consistent in many ways but has also changed a lot. 30 years ago, virtually nobody had a mobile phone. Baillie Gifford didn't have the internet at that point. There was no email. In terms of the Managed Fund, its core structure of regional equities, bonds and cash remains largely unchanged, providing stability and simplicity. But, as we have across the firm, we’ve adapted to new opportunities: adding more emerging market stocks to the fund and embracing investment opportunities as a result of technological advancements. Our definition of a “great growth company” has evolved a lot. Some long-term holdings like Bunzl (UK-listed distributor of consumables such as packaging) continue to thrive. Held since 1999, it's the Energizer Bunny of the UK market; it just keeps on going! But, other growth areas like regional newspaper companies have clearly completely changed. That’s not to say that such businesses don’t have the odd hiccup. Bunzl had a rare one this year in one of its larger US businesses reporting disappointing results that led to the shares falling. We’ve had separate meetings with the Finance Director and then the CEO to understand what happened and how they think they can sort it. While there are no guarantees about a quick fix, I was reassured that the CEO, who has been with the business for many years, understands why the problems occurred, knows what they need to do to rectify them and is determined to put that particular business back on the growth path. There’s always the danger of hearing what you want to hear in such conversations but our long term style has allowed us to build relationships with management teams that allow us to ask frank questions and get straight answers in return. To me it’s the benefit of trying to build a mutually respectful relationship with management teams. But at the same time we are always clear that our clients come first so I believe there should always be ‘a slither of ice’ element in our relationships with management and we should always be prepared to sell, regardless of how well we know the management if we think the investment case has changed. Whatever the company, we’re always looking for innovation, and trying to understand the opportunities and threats this presents. Amazon is a good example. I remember many years ago, the head of Baillie Gifford’s US team started talking about Amazon Web Services and nobody had a clue what it was, or how big it would become. Now it’s one of the key drivers of Amazon’s growth. That's the exciting thing, I think, about innovation. You've always got to keep looking forward. You can't rest on your laurels.
“Our consistent long-term focus is becoming rarer and it allows us to think differently”
LH: One last question from me, what words of wisdom would you leave with readers? IM: For investors in balanced funds, I’d ignore the naysayers predicting the demise of balanced funds. Our Managed Fund, despite fluctuations, has delivered impressive long-term returns after fees. Remember: short-term volatility is the price of long-term success. We believe keeping it simple, investing in equities, bonds and cash, does work. The most valuable lesson from my 30-year career: treat triumph and disaster with equanimity. Avoid overconfidence in good times and despair in challenging periods. I think this is crucial for navigating market and performance cycles. They’re inevitable if you’re really after long-term investment success.
Annual past performance to 30 September each year (net %)
Lucy Haddow Investment specialist
Important information and risk factors You or your clients' capital is at risk. This recording was produced and approved in December 2024 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, and Baillie Gifford and its staff may have dealt in the investments concerned. 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. Investment markets can go down as well as up and market conditions can change rapidly. The value of an investment in the Fund, and any income from it, can fall as well as rise and investors may not get back the amount invested. The Fund’s share price can be volatile due to movements in the prices of the underlying holdings and the basis on which the Fund is priced. Further details of the risks associated with investing in the Fund can be found in the Key Investor Information Document or the Prospectus, copies of which are available at bailliegifford.com.
-0.5
16.5
16.8
-28.2
-9.6
6.4
16.0
13.8
Managers began trimming the US chipmaker Nvidia early in 2024
Recently, the global economic landscape and investment markets have been significantly influenced by the policies and decisions of political leaders, particularly US President Donald Trump's imposition of tariffs. Research experience with the Bank of England’s Monetary Policy Committee and managing the UK’s foreign exchange reserves has helped shape my thinking on how these tariffs might impact various sectors and markets, and on their implications for the Managed Fund’s investment approach.
“Our equity managers are still optimistic about their companies’ underlying potential despite the uncertainties”
Important information and risk factors You or your clients' capital is at risk. 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, and Baillie Gifford and its staff may have dealt in the investments concerned. 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. Investment markets can go down as well as up and market conditions can change rapidly. The value of an investment, and any income from it, can fall as well as rise and investors may not get back the amount invested.
The uncertainty surrounding Trump's tariffs has been a significant concern for both markets and companies. Nobody really knows the full impact, and that uncertainty affects markets. Markets don’t like it, and companies don’t like it in terms of their investment plans. Several management teams have lowered or ditched guidance after the tariff announcement. This uncertainty has led to fluctuations in market sentiment, affecting investment decisions and strategies. One of the immediate effects of the tariffs has been on US gross domestic product (GDP). In the first quarter of 2025, GDP was just below zero as the anticipation of tariffs led to a surge in imports, detracting from GDP growth. However, I believe that despite the tariffs, the underlying growth rate in the US remains close to 2 per cent.
The impact of uncertainty
Clearly, Trump likes tariffs because he can impose them without going to Congress. However, Trump’s administration has also shown that it wants to reset trade relationships. Because of this, we are monitoring trade policies and their potential impact on the Managed Fund more closely. US fiscal policy under Trump's current administration has been more restrained than markets expected. Everyone was expecting him to come in with big tax cuts, but, at least for the moment, Trump’s been focusing more on cutting expenditures. This focus on cutting expenditures and concerns about the US running a deficit of between 6 per cent and 7 per cent of GDP have pushed up long-dated bond yields. Our underweight position in long-term bonds added to performance in the first quarter of 2025.
Trade relationships, US fiscal policy, and deficit concerns
Europe’s economic landscape has also changed significantly, with Germany's stimulus package leading to increased spending on infrastructure and defence. This could potentially add 1 per cent to Germany’s GDP annually. This is significant for a region that has grown slowly for many years. This stimulus has implications for bond supply and yields, with the dispersion in government bond markets creating opportunities for the Managed Fund. We closed our underweight position in European government bonds after yields rose sharply, helping performance. Concerns about Trump and the tariffs have also affected Mexico. The Mexican currency weakened, and bond yields rose significantly. We had a more positive view on the Mexican economy and this situation allowed the Managed Fund to capitalise on high-yielding Mexican bonds, reflecting our opportunistic investment approach.
European stimulus and sovereign debt markets
Inflation risks remain a concern, but I believe weaker growth in some countries and tight central bank policies will help contain inflation. Additionally, artificial intelligence could affect efficiency gains and prove to be disinflationary, slowing down price increases across the economy. Over the past few years, NVIDIA has been the main character in the AI story. We began trimming the US chipmaker early in 2024 because we were already considering what could happen next. We’ve bought Globant, an Argentinian IT company that provides the software behind Disney’s park bracelets and Ferrari’s pitstop monitoring. We think Globant will be part of a new generation of companies that help others make the most of AI.
Inflation risks and artificial intelligence (AI) impact
Trump’s tariffs have undoubtedly created challenges and uncertainties for investors, but the Managed Fund remains focused on the long term. We’ve honed our approach to navigating turbulence since 1987 and remain patiently focused on bottom-up stock and bond picking. By closely monitoring developments, analysing their implications, adjusting asset allocations, and capitalising on opportunities in debt and equity markets, the Managed Fund remains resilient and well-prepared to face the evolving economic landscape.
Trumping tariffs
Our Policy Setting Group meets quarterly to discuss asset allocation and guide the Managed Fund's investment approach. We’ve had a couple of ad-hoc meetings recently because so much is happening. It’s not always possible to have a very clear view on what’s going to happen, but we have to be aware of how the outlook for equities or bonds might change. This proactive approach ensures that the fund remains responsive to market changes and uncertainties. Over 90 per cent of companies in the Managed Fund are profitable and can finance their own growth. They hold less debt than the market average, paying less in expensive interest, and spend more on innovation. In fixed income, the companies we lend to are creditworthy – our average credit rating is BBB – and have a lower risk of default. Our equity managers are still optimistic about their companies’ underlying potential despite the uncertainties. However, we reduced our equity exposure slightly, increasing cash holdings to maintain flexibility in the face of market volatility. On the fixed income side, the opportunities look good from here, so we are maintaining our long-duration position. This balanced approach between equities and fixed income ensures that the fund is well-positioned to navigate the complexities of the current economic environment.
Despite the uncertainties, the underlying potential remains
Host Cherry Reynard discusses tariffs with Baillie Gifford Managed Fund's Steven Hay on Upfront
