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Baillie Gifford to publish portfolio turnover on fund factsheets

Baillie Gifford will disclose portfolio turnover ratios on the fact sheet for all its trusts and funds from next month
November 24, 2016

Investment company Baillie Gifford will start publishing portfolio turnover ratios (PTRs) for all its retail funds from December. The PTR shows how frequently assets within a fund are bought and sold, by measuring the percentage of the portfolio the fund manager replaces on an annual basis. A low annual turnover figure is indicative of a long-term investment approach, and can mean lower trading costs, which will eat less into the fund's returns.

"These numbers are important because they provide evidence that we take a credible long-term approach to investing in an increasingly short-term environment," said James Budden, director of retail marketing and distribution at Baillie Gifford. "Low turnover also points to lower trading costs, which is good for investors, who in turn need this kind of transparency if they are going to be able to separate the genuinely active from the index huggers and high turnover traders.

"Well-documented research shows that managers with a high active share, low portfolio turnover and long investment horizon, and who engage with company managements, are more likely to outperform indices after fees."

As of 31 October, the PTR for Baillie Gifford funds and trusts ranged between 5 per cent for Baillie Gifford Global Discovery Fund (GB0006059330) and 33 per cent for Baillie Gifford American Fund (GB0006061963).

An annual turnover figure of below 30 per cent shows a fund manager is taking a long-term investment approach, according to Darius McDermott, managing director of FundCalibre. "If a fund manager claims to be a long-term investor, but has a PTR that's 100 per cent, that's evidence that they are not a long-term investor," he said.

But he added that having a low portfolio turnover is not necessarily an indication of good performance.

"Some people believe [a low PTR] does add to total return, but we would argue that some managers who are very good will have a higher turnover," he explained. "For example, if a manager buys a stock expecting it to go up 50 per cent in six months' time and it goes up that amount in six weeks, they've hit their price target, made a profit and have a case for selling it. Or if a fund manager buys a stock and it performs poorly, you wouldn't want them to be afraid to sell it because they're worried about trying to keep a low PTR.

"Although a low turnover is evidence of a long-term investment approach, it doesn't mean it's the only way to run money."

Jason Hollands, managing director at Tilney Bestinvest, said the publishing of PTRs may help investors get a better understanding of a fund's overall investment approach, but agreed that it is not the only thing to consider.

"There are many examples of very successful asset managers with low turnover approaches - Fundsmith, Lindsell Train and Woodford Investment Management spring to mind," he said. "However, there are many ways to skin a cat in fund management and a more active approach to trading might work for some fund managers.

"Where a manager has a pedestrian track record and a high turnover rate, it might suggest indecision and lack of conviction, as they chop and change too much, generating unnecessary cost drag. But at the end of the day, most investors will be interested in one overriding factor: whether the investment process of a fund has delivered superior returns after costs."

 

Baillie Gifford funds' PTRs

FundPortfolio turnover ratio (%)
American Fund33.1
British Smaller Companies Fund9.4
Developed Asia Pacific Fund22.5
Emerging Markets Growth Fund18.2
Emerging Markets Leading Companies Fund9.9
European Fund9.8
Global Alpha Growth Fund15.6
Global Discovery Fund5.2
Global Income Growth Fund12.5
Greater China Fund14.3
International Fund16.5
Japanese Fund9.4
Japanese Smaller Companies Fund15.2
Long Term Global Growth12.7
Pacific Fund15.4
UK Equity Alpha Fund26.6

Source Baillie Gifford, as at 31 October 2016

 

Baillie Gifford investment trusts' PTRs

TrustPortfolio turnover ratio (%)
Edinburgh Worldwide Investment Trust10.8
Baillie Gifford Japan Trust7
Monks Investment Trust16.2
Pacific Horizon Investment Trust15.5
Scottish American Investment Company14.6
Scottish Mortgage Investment Trust12.8
Baillie Gifford Shin Nippon7.4

Source: Baillie Gifford