Fund Focus: the overlooked trap some investors fall into

For those interested in the latest battle between Saba Capital and Baillie Gifford, a curious statistic warrants a mention.

The Edinburgh Worldwide Ord (LSE:EWI) and Baillie Gifford US Growth Ord (LSE:USA)trusts, which want to merge as a way of seeing off the US activist, have pointed to “high commonality” between their portfolios. Strikingly, this accounts for an overlap of 31% across eight investments.

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

Overlap is certainly something we look for if two funds are to merge: it means less disruption for investors, for one. But this particular overlap reminds us of an issue that can have a real bearing on your portfolio.

Too much of a good thing?

Baillie Gifford remains a big player in the investment trust space. It has more than 10 trusts, and eight with a market capitalisation of more than £600 million. Some global funds, from Scottish Mortgage Ord (LSE:SMT) to Monks Ord (LSE:MNKS), are a mainstay for many a portfolio.

But funds offered by the same provider can, in some cases, have plenty in common when it comes to investment style but also sometimes when it comes to holdings.

If the asset manager is doing well across multiple funds, investors can end up buying a handful of them, doubling up on exposure and taking a less diversified approach than they think. This can be the case with Baillie Gifford, while another fund firm on a good run is also worth assessing.

The Baillie Gifford case

Scottish Mortgage, Monks, Baillie Gifford US Growth and Edinburgh Worldwide can have overlap, although when it comes to top holdings this centres on just a few names.

While Tesla Inc (NASDAQ:TSLA) was a big holding for some of these a few years back, it’s another Elon Musk vehicle, SpaceX, that crops up prominently now. It’s the top holding for EWI (on an 8.4% weight), SMT (7.6%) and USA (5.9%).

To a lesser extent there are others: Amazon.com Inc (NASDAQ:AMZN) accounts for 5.1% of USA, 4.6% of SMT and 4.2% of MNKS. Fellow Magnificent Seven members NVIDIA Corp (NASDAQ:NVDA) and Meta Platforms Inc Class A (NASDAQ:META) also sit in the top 10 holdings list for those three.

These are clearly different investment trusts in important ways: Scottish Mortgage is quite racy, has a good level of unlisted exposure and exposure to regions such as China, while Monks offers a more sedate version of a global Baillie Gifford fund.

USA is naturally more restricted by geography, while EWI is especially high-octane with a smaller company focus. But the trusts target similar themes and have a pronounced growth style.

• Is Scottish Mortgage too reliant on the AI boom?
• Ian Cowie: my take on Saba’s latest attack on Edinburgh Worldwide

I would suggest more generally that investors examine the funds offered by the same firm carefully for similarity, and diversify by provider.

This is sometimes a style issue, given that certain providers can lean more into a given approach. But there can be serious overlap as we see, for example, with WS Lindsell Train UK Equity Acc and Lindsell Train Global Equity A GBP Inc.

The latter has an 27.5% weighting to the UK, while the funds both have big allocations to RELX (LSE:REL), London Stock Exchange Group (LSE:LSEG) and Diageo (LSE:DGE).

Fortunately, the latest fund house to really be on the rise doesn’t suffer hugely obvious overlap between its funds, although one issue is worth noting.

The Artemis effect

Artemis is having a good run. It has four UK funds that have done especially well versus the market over three years, as shown in the table. Meanwhile, Artemis UK Smaller Companies I Acc has done well versus peers, even if its sub-sector of choice remains under pressure.

Source: FE Analytics, 03/12/2025. Past performance is not a guide to future performance.

And it’s having plenty of success elsewhere.

Artemis Global Income I Inc , a regular bestseller among ii customers with a value approach and a low allocation to the US market, is performing strongly.

And the firm’s SmartGARP franchise is cleaning up: as we noted a few weeks ago, to give one example, Artemis SmartGARP European Eq I Acc GBP has beaten its (rallying) market with an impressive level of consistency.

Such success has paid off. Artemis UK Select and Artemis Income have developed substantial scale and the firm has won investment trust mandates in the form of Artemis UK Future Leaders Ord (LSE:AFL) (for the smaller companies team) and Murray Income Trust Ord (LSE:MUT) (for the income team).

Fortunately, there’s a decent level of difference between the funds. Artemis UK Select has a flexible remit but has backed lots of large caps and perceived value plays lately, while the income fund has more of a quality mandate.

Artemis UK Special Situations I Acc is more focused on the likes of mid caps, while the SmartGARP fund has a very specific process.

Otherwise, unlike Baillie Gifford, Artemis doesn’t have a bunch of different global teams with similar approaches.

But I would point to one common trait for many of the funds. Several have big allocations to the financials sector, as the table shows.

Source: fund factsheets.

That has allowed the funds to ride a wave of strong performance but does leave them exposed if things take a turn. And if you have loaded up on such funds, that could prove painful.

It’s finally worth noting that investment trust changes can sometimes leave you backing a manager with a popular style – and discarding more out-of-favour approaches which might be due a comeback.

• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

A big example of this again relates to Baillie Gifford, whose Positive Change team took over the Keystone investment trust (whose UK value approach had been struggling) back in 2021. This worked out poorly, given that the Positive Change approach started to struggle and UK value funds would ultimately recover.

That’s a lesson itself. No matter how well one manager or region is doing, don’t forget to diversify.