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BAILLIE GIFFORD
This presentation has been prepared for use by professional advisers and intermediaries only. It is not intended for use by retail clients.
Baillie Gifford American Fund
April 2013
Baillie Gifford Baillie Gifford American Fund April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361
This is a marketing communication and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. This presentation contains information on investments which does not constitute independent investment 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. Investment markets and conditions can change rapidly and as such the views expressed should not be taken as statements of fact nor should reliance be placed on these views when making investment decisions. 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.
As with any investment, your clients capital is at risk. Past performance is not a guide to future returns.
Important Information and Risk Factors
Registered Office: Baillie Gifford & Co LimitedCalton Square, 1 Greenside Row, Edinburgh EH1 3ANTelephone 0800 917 4752 Fax: 0131 275 3955 www.bailliegifford.com/intermediariesYour call may be recorded for training or monitoring purposes.
Copyright © Baillie Gifford & Co 2009. Authorised and regulated by the Financial Services Authority.
April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361 1
Baillie Gifford Baillie Gifford American Fund
A Differentiated Approach – North American Equities
Long-term, bottom-up, growth investors with a quality bias
Performance: — +1.9% p.a. relative to S&P 500 Composite Index since launch
Appointed by Vanguard in 2008Source: FE, Baillie Gifford American Fund (B Inc), annualised, 31st July 1997 to 31st March 2013, in sterling, total return.
April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361 2
Baillie Gifford Baillie Gifford American Fund
Specialist Mandates
Baillie Gifford American Fund
Baillie Gifford North American Equity Pension Fund
Baillie Gifford Worldwide North American Fund
Vanguard
Two other segregated clients
North American AUM
£bn
1 Firmwide 17.9
2 Managed by Team 2.9
3 Specialist Mandates 0.7
Source: Baillie Gifford & Co.As at 31st March 2013.
Committed US equity investors with growing client base
April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361 3
Baillie Gifford Baillie Gifford American Fund
Our Philosophy
Active management — Beating the index means differing from it
Growth is rewarded — Superior compounding profits growth leads to long-run outperformance – searching for under-appreciated growth
Quality is valuable — The market struggles to assess the long-term value of a ‘wide moat’ business or superior capital allocation by a management team
Long Term — Investment not speculation; we seek to turn time and volatility to our advantage
Global Perspective — Global insights benefit regional stock picking
The Decline in Active Management Across the Industry in the USA
Source: Cremers and Petajisto. The share of US all-equity mutual fund assets in each active share category in 1980–2009.
80–100% 60–80% 40–60%
20–40% 0–20%
19881980 19961992 2000 2004 20081984
Year
Active Share Over Time
Sha
re o
f mut
ual f
und
ass
ets
(%)
0
60
40
80
100
20
90
70
50
30
10
April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361 4
Baillie Gifford Baillie Gifford American Fund
Genuinely Long-term
The market — New York Stock Exchange turnover around 100% per annum — Wall Street preoccupied with short-term trends, has persistent tendency to undervalue sustainable earnings growth
Our approach — Longer-term perspective, turnover averages < 30% per annum — Fundamental research, with a focus on business characteristics, to identify companies with above average, sustainable earnings growth
— We believe Baillie Gifford’s partnership structure is a crucial advantage
Exploitable opportunities for longer-term investors
Turnover
Rolling annual turnover to 31st March 2013
%
Mar05
Mar06
Mar07
Mar08
Mar09
Mar10
Mar11
Mar12
Mar13
Mar04
0
20
40
60
80
100
Mar02
Mar03
Source: Baillie Gifford & Co
5
Baillie Gifford Baillie Gifford American Fund April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361
Genuinely Active
Equity market inefficiencies exist and are exploitable for the benefit of our clients through active managementActive Share
Source: APT, Baillie Gifford & Co
Predicted Tracking Error
%
Year
Mar13
0
1
2
3
4
5
6
8
Predicted TE: Barra Predicted TE: APT
7
Mar12
Mar01
Mar02
Mar03
Mar04
Mar05
Mar06
Mar07
Mar08
Mar09
Mar10
Mar11
Active Share vs S&P 500
%
Year
0
20
30
40
50
60
70
80
90
100
10
Mar13
Mar07
Mar08
Mar09
Mar10
Mar11
Mar12
Mar06
Mar01
Mar02
Mar03
Mar04
Mar05
Source: APT, Baillie Gifford & Co
6
Baillie Gifford Baillie Gifford American Fund April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361
Genuinely Global
46%* of S&P 500 revenues were derived from outside the US
The global context to competitive position and industry backdrop is often crucial
Global insights benefit regional stock picking
Global investment firm with a culture of information sharing*2011.
Global investors, regional specialists
Foreign sales as % of S&P 500 total sales
2003 2004 2005 2006 2007 2008 2009 2010 2011
%
40
41
42
43
44
45
46
47
48
49
50
Foreign Sales as % of S&P 500 Total Sales
Source: Standard and Poors/William Blair International Ltd.
7
Baillie Gifford Baillie Gifford American Fund April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361
Regional Stock Selection: Global Insight
Global Research
North American Research
Single location – culture of debate – shared insight
Annual review of North American materials sector
August 2012
Brazilian Agriculture Sector Company meetings review
February 2011
What happens in the agricultural sector when
1.3bn people change their diets?
October 2011Visit to Monsanto’s R&D facility
October 2012
Meeting at Baillie Gifford with Syngenta CFO
February 2013
Monsanto’s research report and stock discussion
September 2011
View on the biggest growth opportunities in the biotech
seed industry
October 2011
8
Baillie Gifford Baillie Gifford American Fund April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361
Price relative to S&P 500 Composite – Price IndexPrice
160
140
100
60
20
02012
120
80
40
201120102009200820072006200520042003
Monsanto
Price and Price Relative Chart
Source: Thomson Datastream, March 2003 – March 2013.
Original Purchase Additions
Reductions
Additions
April 2013
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Baillie Gifford Baillie Gifford American Fund
The Team
Experienced team with consistent approach
Generalists with sector responsibilities
Strong internal relationships with global investment teams and research groups
Team approach to research, individual decision making for conviction stock picking
Ian Tabberer
Investment Manager
— 12 years’ experience — 5 years with Baillie Gifford
Gary Robinson
Investment Manager
— 10 years’ experience — 10 years with Baillie Gifford
Mick Brewis
Head of North American Equities
— 28 years’ experience — 28 years with Baillie Gifford
+ 2 graduates/analysts
April 2013
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Baillie Gifford Baillie Gifford American Fund
From Idea Generation to Ownership
1. Discovery 2. Debate 3. Decision
— US universe >5,000 companies — Focus on Market Cap of >$1.5bn,
c.1,000 companies — Attractive businesses proposed for the focus list
— Detailed research and monitoring – focus list 125-150 companies
— Benefit from diversity of views — Continuous process
US Equity Portfolios
NorthAmericanFocus List
North AmericanTeam
GlobalSector
Analysts
GlobalTeams
Stock Review Meeting
North American Team
Invitees:
— Product Specialists
— Global Sector Analysts
— Global Investment Managers
Investment Manager
— Individual accountability for: — Stock selection — Portfolio shape — Position sizes — Performance
Stock Review Meeting
11
Baillie Gifford Baillie Gifford American Fund April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361
Portfolio
Source: Baillie Gifford & Co, as at 31st March 2013.Total may not sum due to rounding.
Stock Name Weight (%)
Progressive 4.5
Monsanto 4.2
eBay 4.0
First Republic Bank 4.0
US Bancorp 3.9
Colgate-Palmolive 3.9
Berkshire Hathaway 3.8
Brown-Forman 3.6
United Parcel Service 3.5
Johnson & Johnson 3.2
M&T Bank 3.2
Harley-Davidson 3.2
Pfizer 3.2
Watsco 3.2
TripAdvisor 3.1
Life Technologies 3.0
Google 2.8
Exxon Mobil 2.6
Xilinx 2.6
CarMax 2.5
Analog Devices 2.5
Stock Name Weight (%)
Apache 2.2
Fairfax Financial 2.0
Waters 1.9
Beam 1.7
Linear Technology 1.7
O'Reilly Automotive 1.6
Altera 1.5
Home Depot 1.5
Markel 1.4
Danaher 1.4
Bristol Myers Squibb 1.4
Rockwell Automation 1.3
Omnicom 1.3
Seattle Genetics 1.2
Martin Marietta Materials 0.9
Idexx Laboratories 0.9
F5 Networks 0.8
EOG Resources 0.7
Teradata 0.6
Cash 3.7
100.0
Sector Analysis
Source: Baillie Gifford & Co, as at 31st March 2013.Total may not sum due to rounding.
Health Care14.8%
Information Technology 16.4%
Consumer Staples9.2%
Financials 22.8%
Consumer Discretionary
13.2%
Industrials 9.4%
Energy 5.5%
Materials 5.1%Cash 3.6%
12
Baillie Gifford Baillie Gifford American Fund April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361
Outlook
Two key points for a low growth world economy — America has advantages that mean it should do relatively well
— Innovation, enterprise culture, efficiency, demographics, functioning banking system, deep capital markets, reserve currency, energy resource
— Quality growth stocks with idiosyncratic, sustainable growth drivers should do well
— Exceptional management and competitive advantages lead to market share gains. Selective secular growth opportunities
13
Baillie Gifford Baillie Gifford American Fund April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361
Top Ten Holdings – Growth Drivers
Progressive Innovative Snapshot usage based technology disrupting the auto insurance market
Monsanto Unmatched seed and biotech advantages in young growth industry. Large Latin American opportunity
eBay Major beneficiary of e-commerce growth, including transition to mobile
First Republic Bank Undiscovered gem with unique customer service offering in high growth niche
US Bancorp Market share gains from weaker banks. A cheap housing play
Colgate-Palmolive Emerging market consumer play with best-in-class developed market management
Berkshire Hathaway Strong business franchises with domestic bias, and growth helped by re-investment of prodigious cashflow
Brown-Forman Iconic Jack Daniel’s brand in reinvigorated bourbon category
UPS Finally starting to benefit from competitive strengths and e-commerce trends
Johnson & Johnson Improving drug pipeline in sector with improving prospects
April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361 14
Baillie Gifford Baillie Gifford American Fund
Globalisation Creates American Opportunities
Examples of companies with world leading competitive positions
Information Technology Health Care Industrials Energy
Google Life Technologies Danaher Exxon Mobil
F5 Networks Waters Rockwell Automation EOG Resources
Xilinx Johnson & Johnson United Parcel Service
eBay Pfizer
TripAdvisor Seattle Genetics
Analog Devices
Agriculture Consumer Insurance Advertising
Monsanto Colgate-Palmolive Berkshire Hathaway Omnicom
Brown-Forman
Harley-Davidson
Beam
Source: Baillie Gifford & Co.
Winning in global markets through innovation, technological edge, service, market position and brand strength
April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361 15
Baillie Gifford Baillie Gifford American Fund
Baillie Gifford American Fund
Source: FE, Baillie Gifford American Fund (B Inc), annualised periods to 31st March 2013, in sterling, total return.*Inception date: 31st July 1997.
19.1
11.9
10.9
8.3
5.1
15.1
12.512.1
9.2
7.0
1 year 3 years 5 years 10 years Since inception0
5
10
15
20
BG American B Inc S&P 500 Composite Index
% p
.a.
Annualised Performance
April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361 16
Baillie Gifford Baillie Gifford American Fund
Frequency of Outperformance
1 Year Periods 3 Year Periods 5 Year Periods
Periods Outperformed 124 145 124
Total Periods 187 151 127
% Outperformed 66 96 98
All 1, 3 and 5 year rolling periods measured monthly between 30th September 1997 and 31st March 2013.Source: FE, BG American B Inc compared to S&P 500, total return in sterling.
April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361 17
Baillie Gifford Baillie Gifford American Fund
Conclusion
Reasons to choose Baillie Gifford for US equities — Good long-term performance — Long-term, stock picking, quality growth approach works well in US — Committed US equity investors with growing client base — Partnership structure supports long-term perspective for effective decision making
— Culture of debate in global investment firm provides shared insights — Flexible approach to sectors – search for underappreciated future growth — Balanced portfolio means lower performance volatility — US stocks attractive in a global context — A great time for quality growth stocks — Focused selection of world class companies
Appendix
April 2013
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Baillie Gifford Baillie Gifford American Fund
What Makes Baillie Gifford Different?
Stability and consistency Continuity of partnership, people, philosophy and process
Long-term investment horizon
Best ideas, actively managed portfolios
Global investment firm with single location and culture of debate
The market is increasingly short term
Portfolios differentiated from benchmarks
Global perspective and shared insights
April 2013
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Baillie Gifford Baillie Gifford American Fund
Portfolio Guidelines
Portfolio Guidelines — Style: Growth — 40–50 holdings — Max stock weighting + 7% vs S&P 500 Composite Index — Max/min sector weightings +/- 12% vs S&P 500 Composite Index — Market Cap >$1.5bn — Time horizon: 3–5 years — Active Money c.80% — Tracking Error Range (indicative) 4–8%
April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361 21
Baillie Gifford Baillie Gifford American Fund
Stock Research
Our primary research goal is to identify attractive growth companies with sustainable returns on capital
Industry backgroundCompetitive advantage
Potential(to achieve above average returns)
Financial strengthManagement attitudes
Delivery(capitalising on the opportunity)
Is it in the price?Valuation
Fundamental research covering qualitative factors and accounts analysis
April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361 22
Baillie Gifford Baillie Gifford American Fund
Industry Background: — Benificiary of cyclical upturn in consumer discretionary spending in the US. Under exploited opportunities internationally
Competitive Advantage: — Iconic brand with passionate and loyal customers
Management: — New CEO is dramatically improving the efficiency of manufacturing operations. Took tough but necessary decision to reduce dealer inventories to sensible levels
Financial Characteristics: — High return on equity. Rising operating margins mean substantial earnings growth should be possible as revenues recover
Valuation: Multiple fails to capture the significant scope for recovery in earnings, and the high quality nature of the underlying business
Harley-Davidson – Motorcycle Manufacturer
April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361 23
Baillie Gifford Baillie Gifford American Fund
Harley-Davidson – Motorcycle Manufacturer
Price and Price Relative Chart
Source: Thomson Datastream, March 2003 – March 2013.
80
70
50
30
10
02012
60
40
20
201120102009200820072006200520042003
Price relative to S&P 500 Composite – Price IndexPrice
Original Purchase Additions
April 2013
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Baillie Gifford Baillie Gifford American Fund
Industry Background: — Immature industry with substantial growth potential. One out of every two dollars spent online is in the travel sector
Competitive Advantage: — Leading player in the online travel review space and true ‘network effect’ business
Management: — CEO and founder Steve Kaufer manages the business for the long term
Financial Characteristics: — Low capital intensity drives very high margins and returns
TripAdvisor – Online Travel Website
Valuation: modest earnings multiple for a business with huge, underappreciated, long-term growth potential
April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361 25
Baillie Gifford Baillie Gifford American Fund
Size Analysis
Size Split – as at 31st March 2013
Source: Baillie Gifford & Co and UBS.
April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361 26
Baillie Gifford Baillie Gifford American Fund
Sell Discipline
Industry Background
Competitive Position
Management Financial Characteristics
Valuation
Q1 2012 Edwards Lifesciences ü ü
Intuitive Surgical ü
Pepsico ü ü
Q2 2012 Johnson Controls ü ü
Oracle ü ü
Schlumberger ü ü
Walgreen ü ü
Q3 2012 Ritchie Brothers Auctioneers
ü ü ü
Q4 2012 Praxair ü ü
Q1 2013 Apple ü ü ü ü
Techne ü
National Oilwell Varco ü ü ü
Cenovus ü ü
Bed, Bath & Beyond ü ü
Source: Baillie Gifford & Co. Does not include complete sales as a result of spin offs or takeovers.
April 2013
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Baillie Gifford Baillie Gifford American Fund
Portfolio Risk Monitoring Process
Baillie Gifford Risk Team North American Team
North American Portfolio
— Monthly active share and tracking error review
— Semi-annual Risk Review — Report to the Investment Risk Committee
— Monthly peer review by North American Team
— Portfolio presentation to Baillie Gifford investors and product specialists
A rigorous and consistent monitoring process
April 2013
BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361 28
Baillie Gifford Baillie Gifford American Fund
Baillie Gifford American Fund
Source: FE, Baillie Gifford American Fund (B Inc), cumulative performance to 31st March 2013, in sterling, total return.*Inception date: 31 July 1997.
19.1
40.2
67.9
121.9117.6
15.1
42.2
76.6
141.8
187.8
1 year 3 years 5 years 10 years Since inception0
50
100
150
200
BG American B Inc S&P 500 Composite Index
%
Cumulative Performance