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BAILLIE GIFFORD
This presentation is intended solely for the use of professional investors and should not be relied upon by any other person. It is not intended for use by retail clients.
Investing in a changing worldThree Unfashionable Assertions
May 2016
Tim Garratt
CM2225 Investing Changing World 19460 0516.ppt
Ref: 19460 INS PS 2225 Powerpoint
BAILLIE GIFFORD
Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised
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regulated by the Financial Conduct Authority and the Prudential
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and the OEICs’ Authorised Corporate Director.
Baillie Gifford & Co claims compliance with the Global Investment
Performance Standards (GIPS®). An example of a compliant
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performance results are available on request.
This presentation 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.
All information is current and sourced from Baillie Gifford & Co
unless otherwise stated.
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All investment strategies have the potential for profit and loss.
Stock Examples
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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.
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Copyright © Baillie Gifford & Co 2009.
Important Information and Risk Factors
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CM2225 Investing Changing World 19460 0516.ppt
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BAILLIE GIFFORD
1. The investment industry’s inputs and yardsticks are broken
2
CM2225 Investing Changing World 19460 0516.ppt
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BAILLIE GIFFORD
“GNP counts air pollution and cigarette advertising…
It counts the destruction of the redwood and ambulances
to clear our highways of carnage...
…It counts nuclear warheads and armored cars for the
police to fight the riots in our cities.
Yet the GNP does not allow for the health of our children,
the quality of their education or the joy of their play…
It measures neither our wit nor our courage,
Neither our wisdom nor our learning,
…it measures everything in short, except that which
makes life worthwhile”.
Robert Kennedy, March 1968
3
At a macro level….
1. The investment industry’s inputs and yardsticks are broken
© William James Warren/Science Faction/Corbis
CM2225 Investing Changing World 19460 0516.ppt
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BAILLIE GIFFORD
4
Cash use within the S&P 500
Source: Compustat and Goldman Sachs Global Investment Research.
“The biggest risk is not taking any risk
…in a world that’s changing really
quickly, the only strategy that is
guaranteed to fail is not taking risks”
Mark Zuckerberg
1. The investment industry’s inputs and yardsticks are broken
At a company analysis level:
CM2225 Investing Changing World 19460 0516.ppt
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BAILLIE GIFFORD
2. The benchmark and its ‘safehavens’ are very risky
5
CM2225 Investing Changing World 19460 0516.ppt
Ref: 19460 INS PS 2225 Powerpoint
BAILLIE GIFFORD
Energy7% Utilities
4%
Health Care12%
Consumer Discretionary
13%
Financials20%
Telecommunication Services
4%
Information Technology
15%
Industrials11%
Consumer Staples
11%
Materials5%
6
Global Equity
Index*
2. The benchmark and its ‘safehavens’ are very risky
LI-ION Battery Pack Cost and Production, 2010–30
Source: Bloomberg New Energy Finance.
Energy storage and renewables render the electricity grid and oil companies redundant
*MSCI ACWI as at 31 March 2016.
CM2225 Investing Changing World 19460 0516.ppt
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BAILLIE GIFFORD
Personalised medicine and advances in genetics render ‘Big Pharma’ obsolete
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2. The benchmark and its ‘safehavens’ are very risky
The Falling Cost of Gene Sequencing
Source: National Human Genome Research Institute.
Energy7% Utilities
4%
Health Care12%
Consumer Discretionary
13%
Financials20%
Telecommunication Services
4%
Information Technology
15%
Industrials11%
Consumer Staples
11%
Materials5%
Global Equity
Index*
*MSCI ACWI as at 31 March 2016.
CM2225 Investing Changing World 19460 0516.ppt
Ref: 19460 INS PS 2225 Powerpoint
BAILLIE GIFFORD
Mobile payments and peer to peer lending platforms circumvent traditional banks
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2. The benchmark and its ‘safehavens’ are very risky
Average Interest Rate Spreads in the West
Sources: Federalreserve.gov G.19 and H.15 reports,
backrate.com April 2014.
*MSCI ACWI as at 31 March 2016.
Note: 1970 borrower rate is commercial bank interest rate on 24 month personal loan Feb 1972; Today borrower rate is commercial bank interest rate on credit cards assessed
interest Feb 2014; 1970 savings rate is average 3 month secondary market CD rate Feb 1971-1973; Today savings rate is 3 month CD rate in the secondary market as of April 2014.
Energy7% Utilities
4%
Health Care12%
Consumer Discretionary
13%
Financials20%
Telecommunication Services
4%
Information Technology
15%
Industrials11%
Consumer Staples
11%
Materials5%
Global Equity
Index*
CM2225 Investing Changing World 19460 0516.ppt
Ref: 19460 INS PS 2225 Powerpoint
BAILLIE GIFFORD
New communications tools circumvent traditional telco infrastructure
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High beta stocks may be the ‘safest’ of all!
2. The benchmark and its ‘safehavens’ are very risky
What next for the Telcos?
Source: Portio Research; a16z, Economist.com...
Energy7% Utilities
4%
Health Care12%
Consumer Discretionary
13%
Financials20%
Telecommunication Services
4%
Information Technology
15%
Industrials11%
Consumer Staples
11%
Materials5%
Global Equity
Index*
*MSCI ACWI as at 31 March 2016.
CM2225 Investing Changing World 19460 0516.ppt
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BAILLIE GIFFORD
3. Equity volatility is not new and is to be welcomed
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CM2225 Investing Changing World 19460 0516.ppt
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3. Equity volatility is not new and is to be welcomed
Worst 1 year rolling return over the past decade
Source: Datastream. December 2005 to December 2015. Based on a typical global equity portfolio.
CM2225 Investing Changing World 19460 0516.ppt
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3. Equity volatility is not new and is to be welcomed
Cumulative returns over the past decade
Source: Datastream. December 2005 to December 2015. Based on a typical global equity portfolio.
CM2225 Investing Changing World 19460 0516.ppt
Ref: 19460 INS PS 2225 Powerpoint
BAILLIE GIFFORD
Look beyond the usual inputs and signposts – they are not fit
for purpose
— Sponsoring academia, employing visiting professors,
learning from urban geographers, archaeologists and
historians is much more helpful
A stable culture underpins long term investment performance
— Creative thinking without fear of ‘career risk’
Equity managers should be more concerned about missing
out on the upside than avoiding the downside
— Embrace asymmetric payoffs!
Implications…
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