Next month the longlist for the prestigious Baillie Gifford 2020 non-fiction book prize will be announced.
Other fund managers will peruse the list while wishing that it contained an insider’s guide to the strategies that have made the fund management firm the investment success story of 2020.
This group, formerly considered a fusty outfit run from Edinburgh, is now a global player, topping the performance tables thanks to audacious bets on US and Chinese technology businesses whose ascent has been accelerated by lockdown.
The feats that provoke most envy and awe include acquiring shares in Amazon in 2005 when the price was $39.
This was thought expensive, but the price today is around $3,282. Baillie Gifford bought Tesla in 2012 when the shares were $30. They now stand at more than $2,000.
Tesla is the largest holding at the Global Discovery, Managed and Positive Change funds and at three of Baillie Gifford’s trusts: Edinburgh Worldwide, US Growth and the celebrated Scottish Mortgage, a FTSE 100 member.
Shares in this £13billion investment trust have soared since April, thanks to its portfolio mix of tech titans and unlisted companies. One unlisted stake, Ant – a Chinese payments firm – may be worth $200billion when it floats later this year.
Another investment trust with a venerable name is Monks. It aims to offer long-term capital growth and also has big holdings in US tech.
But the question everyone is asking is: what is the formula and can it continue to deliver?
The group is owned by its partners. Staff are well-paid, encouraged to aspire to the partnership and to think originally.
As James Budden, the director of marketing, comments: ‘We don’t have a house view. Everyone makes up their own mind.’
The managers endeavour to buy the pick of the businesses, exploiting growth of the structural variety – where a market is changing.
Budden says: ‘The pandemic accelerated the trends that we’ve been following in food delivery, computing power and online shopping. Scottish Mortgage gives the purest sense of what we do.’
The trust has stakes not only in Ant, Amazon, Netflix, Zoom, but also in Meituan Dianping, the Chinese food delivery service.
Darius McDermott of research group Fund Calibre says: ‘This is not so-called value investing where you look for low-priced shares; this is about buying high and selling higher. You back some losers, but the money made from winners is hopefully going to wipe out those losses.’
Baillie Gifford says all of its 37 funds charge less than the industry average, although it has more AAA-rated managers than any other group.
This mix of results and charges has raised demand for its funds. Six of them: American, Positive Change, Global Discovery, LongTerm Global Growth, China and Managed were among the top 10 best sellers at the Hargreaves Lansdown platform last month.
These inflows show that investors are thinking like BG managers: backing winners in the conviction they will continue to appreciate.
At present, this is a rewarding course of action: the technology-packed Nasdaq US stock market index continues to hit all-time highs, with forecasts of further increases.
But as a long-term holder of Scottish Mortgage, I am aware of the potential for a sudden reverse. The lockdown advances made by Amazon and its ilk won’t be rolled back.
But their shares could be vulnerable if Joe Biden wins the election and orders higher taxes and the break-up of Big Tech.
Yet Baillie Gifford seems sanguine about the outlook, declining to succumb to herd opinion.
Budden argues: ‘We are not convinced that a break-up would reduce the attractiveness of Amazon. Its constituent parts could be stronger than the whole.’
For now, the firm is rewriting the rules on how to make money in the stock market at a time when things are shifting fast.
But the oldest rule in the book remains that diversification pays. If you want a slice of US action, counterbalance BG’s American fund with a holding such as Legg Mason’s US Smaller Companies.