Interactive Investor

Baillie Gifford shuts underperforming fund

12th July 2023 10:24

by Sam Benstead from interactive investor

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The fund was flagged as not delivering value to investors after a long period of poor returns. 

Baillie Gifford logo 600 x 400

Fund manager Baillie Gifford has closed its £141 million British Smaller Companies fund after a sustained period of poor performance.

The strategy has lost investors 5.4% on average a year for five years, compared with a 0.6% annual gain for the Numis Smaller Companies (ex Investment Trusts) index. This equates to a 24.1% loss over five years, according to the fund group.

Before it closed, the top stocks were Burford Capital, Alpha FX, 4imprint and Aston Martin Lagonda.

It was hit by the collapse of Wandisco after shares were suspended in March following suspected fraud. At the time, it was a 5.7% position in the portfolio, according to media firm Citywire.

The fund was the only strategy flagged by Baillie Gifford last year as “not providing value” after it underperformed over five years relative to its benchmark and target.

In its 2022 Value Assessment Report, the fund group said: “Recent market headwinds have resulted in underperformance, but the team is hesitant to overact to recent news flow and remains confident about the prospects for the businesses, which are on average growing significantly faster than the benchmark index.

“The investment team sees this as exactly the wrong time to change investment approach and we support this conclusion, so no further action has been taken for now.”

But now a decision has been made to close the fund. It ceased trading on 27 June and all shareholders will receive cash to the value of their holdings within 30 days.

Baillie Gifford said the fund was closed because investment performance had not met clients’ expectations over the long term and investor demand for the sector and the fund itself has been weak for a number of years.

It added that the group has increasingly adopted a global perspective to research around smaller companies, rather than just focusing on UK names.

Baillie Gifford is under pressure at the moment as investors turn against the expensive “growth” shares that it specialises in buying.

Assets under management at Baillie Gifford fell more than £100 billion in 2022 as investors took money out of funds and its portfolios dropped in value.

Its flagship investment trust, Scottish Mortgage, has fallen nearly 60% in value from its peak in November 2021, taking its market cap to below £10 billion.

A couple of years ago, the financial regulator introduced a requirement for asset managers to demonstrate how each of their funds provides investors with value for money. These annual Assessment of Value reports outline whether value is being provided to the end-investor across a number of metrics such as fees, costs and performance.

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