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Baillie Gifford's fund managers sometimes try to avoid commenting on their holdings. This can be a challenge when you are one of the biggest owners of You're hereactions.
When Tom Slater, head of US stocks Baillie Gifford, visited Barron At the beginning of September, following Elon Musk's "becoming private" serial, he refused to discuss the company. His colleague James Anderson later told Reuters that the firm had spoken with the US securities authorities about the episode and admitted he had suggested to Musk that the CEO refreshes his tweet, among others .
Baillie Gifford, a 109-year-old company in Edinburgh, Scotland, which targets long-term opportunities in public and private companies, has recently held nearly 8% of Tesla (symbol: TSLA), according to FactSet.
Slater and Anderson co-manage $ 8.23 billion Scottish Mortgage Investment Trust(SMT.UK). Slater also co-manages the US equity growth portfolios, including the US Equity Growth Fund (BGGKX), whose goal is to identify outstanding growth activities in the US. America and to hold them sufficiently the strength of their cultures becomes the dominant driver of their stock prices. "
The fund, launched in December 2016, reported 47.7% for the 12 months ended August 31, according to the company's data, compared to 19.7% for the S & P 500. Its expense ratio is 0, 65%. As of June 30, its main holdings were Amazon.com(AMZN) Netflix(NFLX) and Tesla (see box).
Slater refused to expand Anderson's comments. "Our goal remains to be solidary shareholders and discuss long-term results," he said by e-mail. "Electric vehicles would not have progressed to the traditional automotive industry without the vision and execution of Elon Musk and Tesla."
Slater, 40, shared his views on Baillie Gifford's investment style, market outlook and other holdings of funds during his visit.
Barron: What are your prospects for the market, especially in the short term?
Roofer: I am incredibly excited and optimistic about the prospects. This is not a top-down view of the US economy or a particular view of economic policies. In the corporate sector, we simply find phenomenal companies that can grow incredibly quickly with incredibly modest capital requirements.
What are some of these companies?
We own some of the big Internet companies, now giant and over-analyzed. I still think that they have phenomenal prospects.
Over the past five years, we've looked at these companies and asked them, "What will happen when the next generation of platforms is implemented?" Twitter(TWTR), or Break(SNAP), or TripAdvisor(TRIP) – of which we have invested a lot and with which we have not been particularly successful. [But] it's just the capacity of these [larger] companies to aspire to economic activity, not just the Internet, but from everywhere else. Their benefits continue to grow.
Clearly, there are political challenges and diverse product issues, but none of this weakens their underlying prospects as businesses at this stage.
* Data as of June 30, 2018
Source: Baillie Gifford
The food is really interesting. In the United States, we have a position in GrubHub(GRUB), but there are others interesting elsewhere – Delivery hero(DHER.Germany) and Just eat(JE.UK). We hold a private stake in Meituan, which, in the opinion of all, will be listed in the very near future.
On the other side, I would say health care. This is an area that has not seen anything like the rapid pace of change we've seen on the Internet for a variety of reasons, from the tough incentives you have in the US system to regulatory challenges, but I think that's changing. . I think sequencing is the key to this technology as a technology …
Sequencing of genes?
Yeah. It absolutely depends on reducing costs and improving scope and applicability as costs go down.
Illumina(ILMN), the world's largest maker of gene sequencing machines, has an astounding cumulative market share. Ninety percent of all the genes that were sequenced were made on Illumina devices. This is not an advantage of this downward trend in costs as much as the engine.
How do you find what it's worth?
If you adopt our US equity strategy, the turnover is about 13%, for an average duration of seven or eight years.
Back to Illumina: We bought it in May 2011. It was around $ 70 at the time. It was then the sequestration period in the United States, so that research and development budgets had been reduced. By the end of this year, it had dropped to around $ 30. So you say "wow" – but then, as in most of our large holdings, we have lost at least half of our money.
Roche Holding(ROG.Switzerland) made an opportunistic offer for this. We, along with another holder, played a very important role in their fight. It's not about "the stock increase is 30% in a very short time because someone has bet on it, sell it and move on", but let's try to think at the best for the development of this technology. We have owned it until now.
This technology is moving from a clinic residing in university research and development laboratories to clinics. I think it's very plausible in five years that every diagnosis of cancer is accompanied by sequencing the genome of healthy tissue, but also by sequencing the genome of the cancerous tissue, probably several times. The use of sequencing and sequencing use cases simply seem to be getting bigger and bigger.
We believe that we have no advantage in predicting what a company will win this year or next year. We are talking about the situation in five years. We know from having this conversation that everything we say will probably not be accurate. But trying to move a little further in this direction and predicting what the company might do allows you to better understand what other people are not looking for.
The second element is that we are optimistic. It is therefore not a question of what could go wrong over the next five years. it is about what could go well. If you could develop a blood test for cancer in asymptomatic people, is that a $ 200 billion opportunity? Probably.
We try to think about what might go well and then try to discuss the likelihood of it.
What does this discussion involve?
If you own a business for five or ten years, I think you have to start with culture. What is unusual in the way the business is run?
We bought Amazon in 2004. We bought eBay(EBAY) at the same time. We were probably more optimistic about eBay at the time. So why over the next 14 years has Amazon been as successful as eBay?
I would say that there were not many products and services in 2004 that you could have analyzed that would have predicted such a divergence in performance. Instead, I think you are returning to the influence of Jeff Bezos and his determination to invest heavily in opportunities and forego short-term profits.
If you own a business for the next year or 18 months, you do not care about the culture because it does not impact on this kind of deadlines. But I would say that for five or ten years, that's all that matters, almost.
It looks like there is not really a screen that you apply.
In the United States, we have a portfolio of 40 stocks and we have a turnover of 10 to 15%. So we need six or eight new stocks a year.
If you tried to find six or eight stocks that you would like to have in the next decade, I think that will completely change the way you approach the task. You do not want a superficial but broad coverage of the market.
Our criteria for our US strategy is: can you earn at least two and a half times your money over the next five years? If you look at 30 years of S & P 500 data, about 20% of stocks over a five-year period increase at least two-and-a-half times. So the question is: can he do at least two and a half times the return? Why do you think it's more likely that the 20% chance I have if I select a random action?
What is useful is that it then allows you to make comparisons between companies. That's how we do 2½ times on Alphabet(GOOGL). That's how we do 2½ times in Facebook(FB).
Thank you.
Write to David Marino-Nachison at [email protected]
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