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Baillie Gifford: too much of a good thing?

I’ll come straight out and say it: are you holding too much Baillie Gifford? It's an unusual question, given the sheer strength of returns generated by the asset manager. An investor would need more than two hands to count the Baillie Gifford-managed investment trusts and funds with a total return of at least 50 per cent for 2020, as of 9 December. Yet big gains might prompt some soul searching after yet another blockbuster year for the firm.

Baillie Gifford's success has made it a common sight in portfolios. Scottish Mortgage Investment Trust (SMT) is just one of its widely held global equity portfolios, while the firm has leading funds in the US, Asia, Europe and corporate bond space.

What's more, the company is extending its reach. The board at Keystone (KIT), a value-oriented UK equity trust, recently proposed the appointment of Baillie Gifford to run its assets in line with the firm's Positive Change global equity approach. Earlier this year the asset manager took over the trust once called Witan Pacific, having taken the reins at what is now Baillie Gifford European Growth (BGEU) in 2019.

Too much of a good thing is a real risk, but one that remains difficult to measure. If 'growth' trends continue, a Baillie Gifford-heavy portfolio would still work well. More cyclical exposure did pay off nicely in the November rally, but Baillie Gifford would stress its focus on longer-term developments. What seems more concerning is the overlap between its most popular funds – and the risk that investors double up.

Let’s first look at Scottish Mortgage. Yes, its 10.8 per cent position in Tesla (US:TSLA) raises eyebrows, but the carmaker is a prominent feature in other Baillie Gifford funds, too. Positive Change (GB00BYVGKV59) had an 8.6 per cent allocation at the end of October, with Baillie Gifford American (GB00BD9MNS66) invested to the tune of 7.9 per cent. Even Monks Investment Trust (MNKS), a more sedate offering, has some exposure.

Amazon (US:AMZN) features prominently in both Scottish Mortgage and the firm’s US funds, while China’s Meituan Dianping (HK:3690), a Scottish Mortgage holding praised in the trust’s latest results, is a big position for Pacific Horizon Investment Trust (PHI).

Companies that already occupy an important position in one fund might also rise to prominence in another. Wayfair (US:W), a top 10 holding in the firm’s US equity funds, occupies a small place in Scottish Mortgage and has come in for plaudits from the team. Monks and Baillie Gifford Japan Trust (BGFD) each list Softbank Group as a top 10 holding. Edinburgh Worldwide Investment Trust (EWI) is a backer of Chegg (US:CHGG) alongside Baillie Gifford American.

All of this reinforces the case for watching overlap, as well as remembering how Baillie Gifford funds actually differ. While Scottish Mortgage is a growth-hungry portfolio, Monks invests in different themes, some less high-octane than others. The Monks team recently moved into recovery names, with Ryanair (RYA) among its recent top 10 holdings. Some of the firm's trusts, including Scottish Mortgage and Edinburgh Worldwide, are more likely to dabble in the unlisted equity space.

Ultimately, running many of the stock market’s current winners – via Baillie Gifford or otherwise – could prove a wise strategy. But don’t forget the stocks – and risks – that your favourite funds have in common.