There’s a lot to worry about in the global economy and jumping into a fund that has Tesla as its largest holding is not for the faint hearted. The media now muses daily on whether a Tesla bubble is about to pop after the stock stunned markets by gaining more than 380 per cent in the year to 24 August.
Focus on social good
Well resourced team
Potential for long-term high growth
Untested through market cycle
Could prove more volatile than peers
But Tesla nerves aside, Baillie Gifford Positive Change (GB00BYVGKV59) looks like an attractive option for investors with a high risk tolerance who want their money in a fund whose managers are investing for the long term while also paying attention to the fund's social impact.
The fund only launched in January 2017 and has amassed more than £1bn of assets already following two years of outstanding performance. While Tesla has been the greatest contributor to performance, its other top holdings have also done very well this year. Dexcom, a company that develops, manufactures, and distributes continuous glucose monitoring systems for diabetes management, has almost doubled in value since the start of the year as has Japanese healthcare company M3, the fund’s third-largest holding.
The managers seek out companies that can deliver positive change in one of four areas: social inclusion and education, environment and resource needs, healthcare and quality of life; and the so-called ‘base of the pyramid’ (addressing the needs of the world’s poorest populations). Ethical intentions aside, the net impact of which are inescapably partly subjective, this impact bias should lead the managers to companies with long-term growth potential.
With just 34 stocks the fund is highly concentrated. Because of this it may prove to be more volatile than other funds in its peer group over the long term, but investors also have the possibility of outstanding performance – as we have seen so far this year. In a world where savings rates are very low and multiple equity sectors either have unattractive growth prospects or look very expensive, Positive Change is exposed to a trend that could continue to deliver strong returns in the long run.
The fund has an ongoing fee of 0.53 per cent, which is more expensive than some other Baillie Gifford funds, but considerably cheaper than many others with a focus on sustainability. The managers are able to draw on the fund firm's extensive research capabilities, and they conduct a separate positive change analysis for each stock before they invest.
Some of the fund’s holding may have grown at an unsustainable rate and it is very unlikely that the fund will continue to produce returns of 30 per cent a year, as it has done for the past three. The risk guidelines for the fund are to have a minimum of six countries, six sectors and no more than 10 per cent of the portfolio in any single stock. Recently the managers have been trimming Tesla in order to keep it within the 10 per cent threshold.
The fund has five named investment managers and two sustainability experts – all bringing different expertise to the investment process. Julia Angeles was the driving force behind the set-up of the fund, and her focus is on healthcare and transformation taking place in the sector. Lee Qian, another co-manager, grew up in China and has a special interest in identifying companies that can help address poverty. Kirsty Gibson is a carbon specialist and Will Sutcliffe has been a member of Baillie Gifford’s emerging markets equities team for the last 19 years. Kate Fox is a member of the firm’s global discovery team, which seeks to identify smaller companies with the greatest growth potential.
Baillie Gifford Positive Change's returns are unlikely to be sustained at their current pace, and this relatively new fund has not been tested through a full market cycle. However, it has an experienced and diverse management team with access to Baillie Gifford’s extensive resources. It provides an interesting option for investors with a high risk tolerance seeking sustainable growth over the long term. Buy. MM
