With slowing global growth, one possible way of generating larger returns is to invest in smaller companies globally. The risks may be higher, but the evidence is strong that over the long term smaller companies outperform larger companies. And Baillie Gifford Global Discovery Fund's (GB0006059330) well-resourced team and strong record make it a good option for unearthing international small-cap gems.
- Strong historic performance
- International diversifier
- Growth and small-cap bias
- Good research and management team
- Small-caps increase volatility
The fund is among the top performers in the Investment Association Global sector over a three-year period. Over five years it has delivered a cumulative total return of 88.8 per cent to its shareholders - more than double the Investment Association Global sector return.
The fund invests in companies that offer significant growth prospects, placing an emphasis on finding disruptive and innovative companies. It looks globally for less mature, entrepreneurial companies and aims to hold these potential winners until they are fully grown.
The fund's bias in favour of smaller companies and growth differentiate it from other funds in the global sector. Its ability to exploit niche markets across different countries also make it a good option for investors looking to diversify their portfolio. For example, as a global fund, it offers international diversification to investors seeking protection from potential market volatility if the UK votes to leave the European Union.
The fund also benefits from Baillie Gifford's well-resourced research capabilities, which pool the company's knowledge of different regions. As high-quality small-caps can be overlooked due to a lack of research, this suggests the fund is well placed to discover hidden, international gems.
The fund has been managed since its launch in 2011 by Douglas Brodie. Mr Brodie employs a bottom-up research approach (looks to companies' individual merits rather than sector or geographic considerations) with the aim of generating long-term returns, mainly via capital growth. The fund's largest sector exposures are IT and healthcare, accounting for 31 per cent and 30 per cent of assets respectively.
As a result of its small-cap and growth focus, the fund's performance is likely to be volatile. This is reflected in the fact that it is currently among the worst performing funds in its sector over a one-year period, despite good long-term performance.
Research company FundCalibre, has given Baillie Gifford Global Discovery its Elite Rating, a stamp of approval it bestows on funds it thinks can consistently deliver positive value over time.
FundCalibre analysts say: "This fund lends itself well to Baillie Gifford's strengths, namely rigorous bottom-up research, with a long-term perspective."
They add that although the fund is not for the faint hearted, so far investors have been richly rewarded.
Darius McDermott, managing director at Chelsea Financial Services, acknowledges that investing in smaller companies means the fund will be more volatile, but says it is a matter of balancing risk and reward.
"We would describe it as a high-risk fund, but its performance over the long term has been great. So it's our go-to fund for global smaller companies," he says. "We're not at all worried about the one-year performance - it has underperformed the sector average by a couple of percentage points, but actually that's not a bad outcome in a falling market."
So if you're a higher-risk investor who can invest for the long term, Baillie Gifford Global Discovery Fund's strengths in unearthing small-cap, growth companies may offer rich pickings. Buy.
BAILLE GIFFORD GLOBAL DISCOVERY FUND (GB0006059330) | |||
---|---|---|---|
Price | 819.6p | 3-yr mean return | 12.12% |
IA sector | Global | 3-yr Sharpe ratio | 0.72% |
Fund type | Open Ended Investment Company (OEIC) | 3-yr standard deviation | 15.30% |
Fund size | £234.62m* | Yield | 0% |
No of holdings | 104 | Ongoing charge | 0.77% |
Set-up date | 01-May-11 | More details | https://www.bailliegifford.com/individual-investors/funds/global-discovery-fund/ |
Manager start date | 01-May-11 |
Morningstar as at 15/06/16, *Baillie Gifford as at 30/04/16
Performance
Fund/index | 1-year total return (%) | 3-year cumulative total return (%) | 5-year cumulative total return (%) |
Baillie Gifford Global Discovery | -1.6 | 41.2 | 88.8 |
IA Global sector average | 0.8 | 20.9 | 39.7 |
MSCI World Small Cap NR GBP | 4.9 | 35.4 | 67.2 |
S&P Global Small TR USD | 3.7 | 32.4 | 59.6 |
Source: Morningstar, as at 13 June 2016
Top 10 holdings as at 30/04/16 (%)
MarketAxess | 4.4 |
Alnylam Pharmaceuticals | 3.5 |
4D pharma | 3.1 |
IP Group | 3.0 |
Ocado | 2.4 |
Tesla Motors | 2.2 |
Stamps.com | 1.7 |
EPAM Systems | 1.7 |
Zillow | 1.7 |
MonotaRO | 1.7 |
Source: Baillie Gifford
Sector breakdown, as 30 April 2016 (%)
Information Technology | 31.1 |
Healthcare | 30.0 |
Consumer Discretionary | 14.3 |
Financials | 11.3 |
Industrials | 6.0 |
Materials | 2.3 |
Energy | 0.0 |
Cash | 5.0 |
Source: Baillie Gifford
IC Tip Rating
Tip Style | Growth |
Risk Rating | High |
Timescale | Long term |