If it were easy to pick winners consistently, then gambling companies would be much less profitable than they are (Greig Cameron writes). Similarly, in investing it’s not always clear which companies will go on to be Amazon or Apple and which will fall into obscurity. Managers at many of the funds run by Baillie Gifford, the Edinburgh-based asset manager, appear to have a knack of finding winners and backing them.
Its Scottish Mortgage is the largest investment trust in Britain, with a market value of more than £16 billion and a place in the FTSE 100, thanks to long-term holdings in the likes of Amazon and Tesla, the electric car and battery company. It has done well, too, by backing private groups before they float on stock markets. Several of its other funds follow similar strategies. The ethos can be thought of broadly as thinking global, staying in for the long term and getting behind companies that have the chance to grow rapidly.
Given the returns it has been delivering, the firm has been picking up other mandates from investment trust boards keen to reinvigorate performance or change direction. In 2019 the European Investment Trust jettisoned Edinburgh Partners to go after some of the Baillie Gifford secret sauce. The fund was renamed Baillie Gifford European Growth and the portfolio was overhauled, with only one holding, Ryanair, retained.
With many other Baillie Gifford funds benefiting from the performance of technology companies in North American and Asia, there were some who questioned whether the same types of high-growth businesses could be found in Europe. The trust can hold between 30 and 60 investments, with no company allowed to be greater than 10 per cent of the overall portfolio.
Anyone considering its recent interim results may have been a little underwhelmed. The total return of 8.7 per cent in the six months to the end of March was some way adrift of the 12.2 per cent for the FTSE Europe excluding UK index. Yet that period doesn’t tell the whole story. Over the 16 months Baillie Gifford has been running the portfolio, the total return is 47.8 per cent, against 11.9 per cent for the benchmark. The trust’s shares are up more than 61 per cent over the period and have risen further during April and May. They have not been below 140p since early April and in recent days have been changing hands for around 144p.
The biggest holding is Prosus, a Dutch group whose myriad online products are said to be used by more than 1.5 billion people globally. Other technology companies such as Adyen, a payments platform, Zalando, an online retailer, and Spotify, the music streaming service, are also in the top ten. There are some more traditional holdings, with Ryanair, the budget airline, still there alongside adidas, the sportswear group, IMCD, a chemicals distributor, and Atlas Copco, an industrial tools and equipment manufacturer.
In the most recent six months the managers exited positions in Novozymes, a biopharmaceuticals group, and u-blox, a wireless semiconductor maker. Seven new companies were added, including Avanza and Fineco, the banks, Wizz Air, the airline, and Hello Fresh, the food delivery service.
The trust’s maiden investment in an unlisted company was made last year as part of a $600 million fundraising for Northvolt, a Swedish vehicle battery maker that is aiming to build the largest and greenest lithium ion production plants in Europe. It has been tipped as Europe’s answer to Tesla and could be another strong pick for the Baillie Gifford team.
ADVICE Buy WHY Europe’s technology sector appears poised to grow strongly and the trust should benefit from any subsequent rise in valuations
Trainline
Renationalising the national network and rebranding it Great British Railways — “great” rhymes with “late”, so a bit of a hostage to fortune when it comes to trains — is what Sir Humphrey might call “a bold move, minister” (Robert Lea writes).
The transport secretary might argue that it is not nationalisation, but then truth is the first victim in a culture war. So let’s call it taking back control by a Conservative government curiously blending policies of nationalism and socialism.
In the well-flagged foreshadowing of the Williams-Schapps Review, we knew the private sector train companies would still be involved, but on micro-managed, low-margin contracts. No one, it appears, had thought what might happen to other private sector stakeholders such as Trainline, which has spent two decades developing its app and selling train tickets on the internet for commission.
The government wants to take control of ticket-selling, too, and so, in the worst kind of Latin American-style interventionism, Trainline has not been bought out but has had its business model taken over. That explains why its shares have slumped by 30 per cent since last week.
Yet that leaves a company still valued at £1.5 billion on the stock market, which suggests some believe there is a way back for Trainline. On the one hand, whatever Great British Railways is, it doesn’t have much knowledge of how to run a 21st-century digital ticketing business. And if track and trace has taught us anything, it is that we shouldn’t rely on ministers to run an app. On the other, Trainline runs several train companies’ ticketing apps for them under white-label arrangements. So the bull case for Trainline investors is that it will be a no-brainer for government to invite the experts (Trainline) to run its ticketing on a white-label basis.
There are, however, no guarantees that this will happen for a company whose profits of only £24 million pre-pandemic make it look like a risky start-up. And renationalisation, with the train companies on a short leash, would be strange if the government was then to allow Trainline to be a licence to print money.
ADVICE Avoid WHY Why invest in a business reliant on ministerial whims?
