BAILLIE GIFFORD Global Core Quarterly Update 31 March 2021
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BAILLIE GIFFORD Global Core Quarterly Update 31 March 2021
Contents
02 Executive Summary Persons resident or domiciled outwith the UK should
03 Commentary consult with their professional advisers as to whether they
require any governmental or other consents in order to enable
05 Performance them to invest, and with their tax advisers for advice relevant to
11 Portfolio Overview their own particular circumstances.
This document contains information on investments which
12 Governance Summary does not constitute independent research. Accordingly, it is not
15 Governance Engagement subject to the protections afforded to independent research and
Baillie Gifford and its staff may have dealt in the investments
19 Voting concerned.
20 Transaction Notes All information is based on a representative portfolio, new
client portfolios may not mirror the representative portfolio
22 Legal Notices exactly. As at 31 March 2021, in US dollars and sourced from
Baillie Gifford & Co unless otherwise stated.
This document is solely for the use of professional Canada
investors and should not be relied upon by any other
person. It is not intended for use by retail clients.
Baillie Gifford International LLC is wholly owned by Baillie
Gifford Overseas Limited; it was formed in Delaware in 2005
Important Information and Risk Factors and is registered with the SEC. It is the legal entity through
which Baillie Gifford Overseas Limited provides client service
Baillie Gifford Overseas Limited provides investment
and marketing functions in North America. Baillie Gifford
management and advisory services to non-UK
Overseas Limited is registered with the SEC in the United
Professional/Institutional clients only. Baillie Gifford Overseas
States of America.
Limited is wholly owned by Baillie Gifford & Co. Baillie
The Manager is not resident in Canada, its head office and
Gifford & Co and Baillie Gifford Overseas Limited are
principal place of business is in Edinburgh, Scotland. Baillie
authorised and regulated by the Financial Conduct Authority.
Gifford Overseas Limited is regulated in Canada as a portfolio
Baillie Gifford Asia (Hong Kong) Limited
manager and exempt market dealer with the Ontario Securities
柏基亞洲(香港)有限公司 is wholly owned by Baillie Gifford
Commission ('OSC'). Its portfolio manager licence is currently
Overseas Limited and holds a Type 1 and Type 2 licence from
passported into Alberta, Quebec, Saskatchewan, Manitoba and
the Securities & Futures Commission of Hong Kong to market
Newfoundland & Labrador whereas the exempt market dealer
and distribute Baillie Gifford’s range of collective investment
licence is passported across all Canadian provinces and
schemes to professional investors in Hong Kong. Baillie
territories. Baillie Gifford International LLC is regulated by the
Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司
OSC as an exempt market and its licence is passported across
can be contacted at Suites 2713-2715, Two International
all Canadian provinces and territories. Baillie Gifford
Finance Centre, 8 Finance Street, Central, Hong Kong,
Investment Management (Europe) Limited (‘BGE’) relies on
Telephone +852 3756 5700.
the International Investment Fund Manager Exemption in the
Baillie Gifford Investment Management (Europe) Limited
provinces of Ontario and Quebec.
provides investment management and advisory services to
European (excluding UK) clients. It was incorporated in South Africa
Ireland in May 2018 and is authorised by the Central Bank of
Ireland. Through its MiFID passport, it has established Baillie Baillie Gifford Overseas Limited is registered as a Foreign
Gifford Investment Management (Europe) Limited (Frankfurt Financial Services Provider with the Financial Sector Conduct
Branch) to market its investment management and advisory Authority in South Africa.
services and distribute Baillie Gifford Worldwide Funds plc in
Germany. Japan
Baillie Gifford Investment Management (Europe) Limited
also has a representative office in Zurich, Switzerland pursuant Mitsubishi UFJ Baillie Gifford Asset Management Limited
to Art. 58 of the Federal Act on Financial Institutions (‘MUBGAM’) is a joint venture company between Mitsubishi
("FinIA"). It does not constitute a branch and therefore does UFJ Trust & Banking Corporation and Baillie Gifford
not have authority to commit Baillie Gifford Investment Overseas Limited. MUBGAM is authorised and regulated by
Management (Europe) Limited. It is the intention to ask for the the Financial Conduct Authority.
authorisation by the Swiss Financial Market Supervisory
Authority (FINMA) to maintain this representative office of a South Korea
foreign asset manager of collective assets in Switzerland
pursuant to the applicable transitional provisions of FinIA. Baillie Gifford Overseas Limited is licensed with the Financial
Baillie Gifford Investment Management (Europe) Limited Services Commission in South Korea as a cross border
is a wholly owned subsidiary of Baillie Gifford Overseas Discretionary Investment Manager and Non-Discretionary
Limited, which is wholly owned by Baillie Gifford & Co. Investment Adviser.
Calton Square, 1 Greenside Row, Edinburgh EH1 3AN
Telephone +44 (0)131 275 2000 bailliegifford.com
Copyright © Baillie Gifford & Co 2009. Ref: 51805 INS QR 0039
Australia
Past Performance
Baillie Gifford Overseas Limited (ARBN 118 567 178) is
registered as a foreign company under the Corporations Act Past performance is not a guide to future returns. Changes in
2001 (Cth). It is exempt from the requirement to hold an investment strategies, contributions or withdrawals may
Australian Financial Services License under the Corporations materially alter the performance and results of the portfolio.
Act 2001 (Cth) in respect of these financial services provided
to Australian wholesale clients. Potential for Profit and Loss
Qatar All investment strategies have the potential for profit and loss.
This strategy is only being offered to a limited number of Stock Examples
investors who are willing and able to conduct an independent
Any stock examples, or images, used in this paper are not
investigation of the risks involved. This does not constitute an
intended to represent recommendations to buy or sell, neither is
offer to the public and is for the use only of the named
it implied that they will prove profitable in the future. It is not
addressee and should not be given or shown to any other
known whether they will feature in any future portfolio
person (other than employees, agents, or consultants in
produced by us. Any individual examples will represent only a
connection with the addressee’s consideration thereof). Baillie
small part of the overall portfolio and are inserted purely to
Gifford Overseas Limited has not been and will not be
help illustrate our investment style. A full list of portfolio
registered with Qatar Central Bank or under any laws of the
holdings is available on request.
State of Qatar. No transactions will be concluded in the
jurisdiction and any inquiries regarding the strategy should be
made to Baillie Gifford.
Oman
Baillie Gifford Overseas Limited (“BGO”) neither has a
registered business presence nor a representative office in
Oman and does not undertake banking business or provide
financial services in Oman. Consequently, BGO is not
regulated by either the Central Bank of Oman or Oman’s
Capital Market Authority. No authorization, licence or
approval has been received from the Capital Market Authority
of Oman or any other regulatory authority in Oman, to provide
such advice or service within Oman. BGO does not solicit
business in Oman and does not market, offer, sell or distribute
any financial or investment products or services in Oman and
no subscription to any securities, products or financial services
may or will be consummated within Oman. The recipient of
this document represents that it is a financial institution or a
sophisticated investor (as described in Article 139 of the
Executive Regulations of the Capital Market Law) and that its
officers/employees have such experience in business and
financial matters that they are capable of evaluating the merits
and risks of investments.
Israel
Baillie Gifford Overseas is not licensed under Israel’s
Regulation of Investment Advising, Investment Marketing and
Portfolio Management Law, 5755-1995 (the Advice Law) and
does not carry insurance pursuant to the Advice Law. This
document is only intended for those categories of Israeli
residents who are qualified clients listed on the First
Addendum to the Advice Law.
Calton Square, 1 Greenside Row, Edinburgh EH1 3AN
Telephone +44 (0)131 275 2000 bailliegifford.com
Copyright © Baillie Gifford & Co 2009. Ref: 51805 INS QR 0039Executive Summary 02 Product Overview Global Core is a long-term, global equity strategy that invests in a selection of the most attractive growth companies from around the world. It combines the specialised knowledge of Baillie Gifford’s regional equity teams with the experience of some of our most senior investors. Risk Analysis Key Statistics Number of Holdings 140 Typical Number of Holdings 100-150 Active Share 81%* Rolling One Year Turnover 25% * Relative to MSCI World Index. 2020 served as a reminder of the difficulty in making predictions. All we can say with any certainty is that there are momentous challenges ahead However, there are also exceptional opportunities arising as a result of the pace of technological change We invest in a portfolio of exceptional growth businesses that we believe are well-placed to deliver good long-term returns, despite inevitable short-term volatility Baillie Gifford Key Facts Assets under management and advice US$446.9bn Number of clients 727 Number of employees 1442 Number of investment professionals 300
Commentary 03
Stock market prices moved significantly at times in For example, ecommerce may be leaving infancy but
the first three months of 2021 as headlines abounded it’s still in pre-school. Many more business models will
with news of reactions to rising bond yields, the continue to appear and prosper; delivering greater
tantalising prospect of the return of some form of convenience, choice and personalisation to consumers.
normality and a rotation to ‘value’ stocks in US Social networks and venues for leisure time are still being
equities. The Global Core portfolio was buffeted by built online. In the enterprise, a new infrastructure is
the same winds and, in aggregate, finished the starting to take shape in the cloud and with it several
quarter in negative territory in both absolute and innovative businesses are appearing to serve previously
relative terms.
unmet needs. Elsewhere, healthcare is approaching a new
We view share price outcomes over periods as short paradigm, supported by technology and gene sequencing,
as three months as largely random and of little value in which could see the emphasis shift towards keeping us
predicting the outcomes for businesses over the next healthy rather than treating us when we exhibit
five years. We’re always wary of paying much symptoms. And an energy revolution is underway – what
attention to headlines, which often seek to attach a
would the world look like if energy was abundant and
single narrative to share price moves when the reality is
much more complex. Market participants are, after all, close to free? It’s likely that connections among these
a disparate group of individuals who are all investing disruptive forces will generate yet more change.
from different contexts, for different reasons and with In the immediate future some companies driving
different time horizons. While elements of the news these changes may well see their pace of growth slow
may well be relevant to some investors, we hesitate to as this, hopefully anomalous, period of restricted
assign cause to any of them. That doesn’t exactly make movement comes to an end. We don’t think that this
for an attention-grabbing article the morning after a should come as a shock. We have not assumed
change in share prices though. lockdowns in perpetuity in any of our investment
Instead, our focus remains on comparing the cases, but we have considered the longer lasting
prospects for businesses over the next five years and impact of changes to customer and business attitudes
beyond with their current share prices. We believe that as well as redrawn competitive environments. Many of
a relatively small number of exceptional businesses will the companies in the portfolio are in far stronger
continue to dominate the investment returns produced positions and with larger growth opportunities than we
by stock markets. These businesses will be innovative, had previously predicted. Zoom is one example. Most
disruptive and run very differently to anything of us are probably looking forward to some time away
approaching average.Some will be underappreciated by from the screen after an intense year of remote
investors. communications. We can relate to the concept of
‘Zoom fatigue’. But we also think that the many
Our long-term investment horizon helps us to see benefits video communication has provided means that
value where others don’t. We focus on purpose, it will be part of most people’s routine interactions and
ambition and culture as well as competitive positions. that its applicability is wider now than we had
It’s a creative process with uncertain outcomes and predicted in 2019. Zoom could become the
wide error ranges. It’s different to how most investors infrastructure upon which this increasingly important
approach stock analysis. Because of the unlimited part of day-to-day communication is built. We have
upside for successful stocks, our research prioritises added to the holding in Zoom this year in the belief
understanding the implications of things going right. that the upside potential has advanced more than the
And this rarely has anything to do with bond yields or share price.
market cycles.
At the same time, we have recognised that some
share prices have more than kept pace with our
Real world changes enthusiasm for companies’ future prospects and also
made reductions. Focusing on the US holdings, later
We’re much more excited about ‘real world’ changes; in the quarter, we completed the sale of the channel-
the kinds of structural shifts which see new business based online workspace platform Slack Technologies,
models prosper and new wells of demand created by which is set tobe acquired by Salesforce.
innovation. We believe that we’re still in the early
stages of an era of disruption. This may have been
accelerated by the Covid pandemic, but we certainly
don’t expect it to end with the virus.Commentary 04
In summary, we ask that quarterly performance be
put in the context of the strategy’s much longer
investment time horizon. We are excited about the
growth prospects of innovative and disruptive companies.
The range of opportunities available to us is broadening
in areas such as ecommerce, social networking and
enterprise software. Areas which have until recently
resisted the digitisation wave, such as insurance,
consumer finance, used cars sales and education are all
seeing the effects of disruption and there will be many
more to come. These businesses are improving standards
for individuals, driving down costs for businesses and in
many cases levelling the playing field for entrepreneurs.
Swings in sentiment that are less favourable to our
portfolio are inevitable, but we’ll continue to rely on our
patient and committed approach to look through those
and to keep our focus on the long-term returns that
exceptional business can generate for the portfolio.
The views expressed are those of David Henderson.
They reflect personal opinion and should not be
considered as advice or a recommendation to buy, sell
or hold a particular investment.Performance - US Dollar 05
Performance Objective
+1-2% p.a. over rolling 3 year periods vs benchmark.
The performance objective stated is in no way guaranteed. The performance target is aspirational and is
not used for the purpose of determining or constraining the composition of the portfolio. Performance
may vary between segregated accounts and pooled funds in different jurisdictions as each structure will
bear a different set of costs. A single performance target may not be appropriate for all vehicles in all
jurisdictions and for this reason our portfolio specific materials will often refer to ‘material’ outperformance
of a benchmark.
Periodic Performance
Composite Net (%) Benchmark (%) Difference (%)
3 Months* 2.4 5.0 -2.6
1 Year* 80.3 54.8 25.5
3 Years 22.2 13.4 8.8
5 Years 21.5 14.0 7.5
Since Inception 16.5 11.6 5.0
Annualised periods ended 31 March 2021. *Not annualised.
Inception date: 31 August 2013.
Figures may not sum due to rounding.
Benchmark is MSCI World Index.
Source: Baillie Gifford & Co, MSCI.
US dollars
Discrete Performance
31/03/16- 31/03/17- 31/03/18- 31/03/19- 31/03/20-
31/03/17 31/03/18 31/03/19 31/03/20 31/03/21
Composite Net (%) 16.6 24.3 3.8 -2.5 80.3
Benchmark (%) 15.4 14.2 4.6 -9.9 54.8
Benchmark is MSCI World Index.
Source: Baillie Gifford & Co, MSCI
US dollarsPerformance - Euro 06
Performance Objective
+1-2% p.a. over rolling 3 year periods vs benchmark.
The performance objective stated is in no way guaranteed. The performance target is aspirational and is
not used for the purpose of determining or constraining the composition of the portfolio. Performance
may vary between segregated accounts and pooled funds in different jurisdictions as each structure will
bear a different set of costs. A single performance target may not be appropriate for all vehicles in all
jurisdictions and for this reason our portfolio specific materials will often refer to ‘material’ outperformance
of a benchmark.
Periodic Performance
Composite Net (%) Benchmark (%) Difference (%)
3 Months* 6.6 9.4 -2.8
1 Year* 68.3 44.5 23.8
3 Years 24.0 15.2 8.9
5 Years 20.7 13.3 7.4
Since Inception 18.3 13.3 5.0
Annualised periods ended 31 March 2021. *Not annualised.
Inception date: 31 August 2013.
Figures may not sum due to rounding.
Benchmark is MSCI World Index.
Source: Baillie Gifford & Co, MSCI.
euro
Discrete Performance
31/03/16- 31/03/17- 31/03/18- 31/03/19- 31/03/20-
31/03/17 31/03/18 31/03/19 31/03/20 31/03/21
Composite Net (%) 24.3 8.1 13.7 -0.2 68.3
Benchmark (%) 23.0 -0.7 14.6 -7.8 44.5
Benchmark is MSCI World Index.
Source: Baillie Gifford & Co, MSCI.
euroPerformance - Sterling 07
Performance Objective
+1-2% p.a. over rolling 3 year periods vs benchmark.
The performance objective stated is in no way guaranteed. The performance target is aspirational and is
not used for the purpose of determining or constraining the composition of the portfolio. Performance
may vary between segregated accounts and pooled funds in different jurisdictions as each structure will
bear a different set of costs. A single performance target may not be appropriate for all vehicles in all
jurisdictions and for this reason our portfolio specific materials will often refer to ‘material’ outperformance
of a benchmark.
Periodic Performance
Composite Net (%) Benchmark (%) Difference (%)
3 Months* 1.5 4.1 -2.6
1 Year* 62.0 39.1 23.0
3 Years 22.9 14.1 8.8
5 Years 22.5 14.9 7.5
Since Inception 18.3 13.3 5.0
Annualised periods ended 31 March 2021. *Not annualised.
Inception date: 31 August 2013.
Figures may not sum due to rounding.
Benchmark is MSCI World Index.
Source: Baillie Gifford & Co, MSCI
sterling
Discrete Performance
31/03/16- 31/03/17- 31/03/18- 31/03/19- 31/03/20-
31/03/17 31/03/18 31/03/19 31/03/20 31/03/21
Composite Net (%) 34.1 10.8 11.7 2.4 62.0
Benchmark (%) 32.7 1.8 12.6 -5.3 39.1
Benchmark is MSCI World Index.
Source: Baillie Gifford & Co, MSCI
sterlingPerformance - Canadian Dollar 08
Performance Objective
+1-2% p.a. over rolling 3 year periods vs benchmark.
The performance objective stated is in no way guaranteed. The performance target is aspirational and is
not used for the purpose of determining or constraining the composition of the portfolio. Performance
may vary between segregated accounts and pooled funds in different jurisdictions as each structure will
bear a different set of costs. A single performance target may not be appropriate for all vehicles in all
jurisdictions and for this reason our portfolio specific materials will often refer to ‘material’ outperformance
of a benchmark.
Periodic Performance
Composite Net (%) Benchmark (%) Difference (%)
3 Months* 1.0 3.6 -2.6
1 Year* 59.2 36.7 22.6
3 Years 21.2 12.5 8.7
5 Years 20.8 13.3 7.4
Since Inception 19.2 14.2 5.1
Annualised periods ended 31 March 2021. *Not annualised.
Inception date: 31 August 2013.
Figures may not sum due to rounding.
Benchmark is MSCI World Index.
Source: Baillie Gifford & Co, MSCI.
Canadian dollars
Discrete Performance
31/03/16- 31/03/17- 31/03/18- 31/03/19- 31/03/20-
31/03/17 31/03/18 31/03/19 31/03/20 31/03/21
Composite Net (%) 20.3 20.1 7.5 3.9 59.2
Benchmark (%) 19.0 10.4 8.4 -4.0 36.7
Benchmark is MSCI World Index.
Source: Baillie Gifford & Co, MSCI.
Canadian dollarsPerformance - Australian Dollar 09
Performance Objective
+1-2% p.a. over rolling 3 year periods vs benchmark.
The performance objective stated is in no way guaranteed. The performance target is aspirational and is
not used for the purpose of determining or constraining the composition of the portfolio. Performance
may vary between segregated accounts and pooled funds in different jurisdictions as each structure will
bear a different set of costs. A single performance target may not be appropriate for all vehicles in all
jurisdictions and for this reason our portfolio specific materials will often refer to ‘material’ outperformance
of a benchmark.
Periodic Performance
Composite Net (%) Benchmark (%) Difference (%)
3 Months* 3.7 6.4 -2.7
1 Year* 44.9 24.4 20.5
3 Years 22.5 13.7 8.8
5 Years 21.7 14.2 7.5
Since Inception 19.0 13.9 5.1
Annualised periods ended 31 March 2021. *Not annualised.
Inception date: 31 August 2013.
Figures may not sum due to rounding.
Benchmark is MSCI World Index.
Source: Baillie Gifford & Co, MSCI
Australian dollars
Discrete Performance
31/03/16- 31/03/17- 31/03/18- 31/03/19- 31/03/20-
31/03/17 31/03/18 31/03/19 31/03/20 31/03/21
Composite Net (%) 17.6 23.6 12.1 13.1 44.9
Benchmark (%) 16.4 13.6 13.0 4.6 24.4
Benchmark is MSCI World Index.
Source: Baillie Gifford & Co, MSCI.
Australian dollarsAttribution 10 Stock Level Attribution Top and Bottom Ten Contributors to Relative Performance Quarter to 31 March 2021 One Year to 31 March 2021 Asset Name Contribution (%) Asset Name Contribution (%) Apple 0.5 Tesla Inc 5.1 Cbre Group Inc 0.3 Shopify 2.4 First Republic Bank 0.2 Zillow 1.3 Tesla Inc 0.2 First Republic Bank 0.6 EOG Resources 0.1 Avanza Bank Holding 0.6 Watsco Inc 0.1 Cbre Group Inc 0.5 Alphabet 0.1 MarketAxess Holdings 0.4 Interactive Brokers Group 0.1 Align Technology Inc 0.4 Wayfair Inc 0.1 Zalando SE 0.4 M&T Bank 0.1 Workday Inc 0.3 MarketAxess Holdings -0.3 Apple -0.8 Amazon.com -0.2 Markel -0.3 Shopify -0.2 Zoom -0.2 Zillow -0.2 Paypal Holdings Inc -0.2 The Trade Desk -0.2 McGraw-Hill -0.2 Twilio Inc -0.1 Alnylam Pharmaceuticals -0.2 Mastercard -0.1 Shiseido -0.2 CoStar Group -0.1 Illumina -0.1 Zoom -0.1 TJX Companies -0.1 Zalando SE -0.1 Pigeon -0.1 Source: StatPro, MSCI. Global Core composite relative to MSCI World. Some stocks may have only been held for part of the period.
Portfolio Overview 11
Top Ten Largest Holdings
Stock Name Description of Business % of Portfolio
Amazon.com Online retail and computing infrastructure 4.9
Microsoft Software company 4.0
Alphabet Online search engine 3.7
Mastercard Global electronic payments network and related services 3.1
Shopify Cloud-based commerce platform provider 2.8
First Republic Bank US retail bank 2.6
Estee Lauder Manufacturer of beauty and skin care products 2.4
Zillow US online real estate services 2.2
Tesla Inc Electric vehicles, autonomous driving and solar energy 2.1
Twilio Communication platform as a Service 1.9
Total 29.8
Sector Weights (%)
1 Information Technology 23.8
7
1 2 Health Care 14.5
3 Consumer Discretionary 13.6
6
4 Financials 13.0
5 Industrials 12.4
6 Communication Services 11.9
7 Consumer Staples 4.7
5
2 8 Materials 3.4
9 Real Estate 1.7
10 Energy 0.4
4 11 Cash 0.5
3
Regional Weights (%)
4
1 North America 70.4
3 2 Europe (ex UK) 13.0
3 Developed Asia Pacific 11.0
4 UK 5.2
5 Cash 0.5
2
1
Figures may not sum due to rounding.Governance Summary 12
Voting Activity
Votes Cast in Favour Votes Cast Against Votes Abstained/Withheld
Companies 16 Companies 2 Companies None
Resolutions 181 Resolutions 4 Resolutions None
With the advent of 5G, how companies collate, monitor, moderate,
protect and utilise the data from billions of devices will be of profound
societal importance
Of equal importance to the risks is the opportunity ahead for humanity
if we can find our collective way through the data governance
challenge
Our aspiration is that our data governance research will help us to be
good long-term stewards of data economy holdings on behalf of our
clients and investors
Company Engagement
Engagement Type Company
Corporate Governance Adyen N.V., Burberry Group plc, Genus
plc, Prudential plc, RATIONAL
Aktiengesellschaft, St. James's Place plc
Environmental/Social Amazon.com, Inc., Atlas Copco AB, BHP
Group, First Republic Bank, Just Eat
Takeaway.com N.V., Kering SA, Recruit
Holdings Co., Ltd., Tesla, Inc., Ubisoft
Entertainment SA
AGM or EGM Proposals Beijer Ref AB (publ), HEICO Corporation,
Hoshizaki Corporation, Kering SA,
L'Oreal S.A., Shiseido Company,
Limited, Thai Beverage Public Company
Limited
Executive Remuneration FDM Group (Holdings) plc, Kinnevik AB,
Rightmove plc, Zalando SE
Notes on company engagements highlighted in blue can be found in this report. Notes on other company
engagements are available on request.Governance Summary 13
Data governance and data governance. Recognising the importance of
these topics over the next decade and beyond we have
“90 per cent of all data in the world today established collaborative working groups within the
Baillie Gifford investment department to further develop
has been created in the last two years our understanding. Climate change requires no
alone.” introduction, and the potential financial materiality of
IBM, BRINGING DATA TO THE ENTERPRISE (2012)
both physical impacts and changing regulation on many
areas of the economy is very significant. Baillie Gifford’s
recently published TCFD Report provides further details
of how we are approaching this profoundly important
In our ever-expanding work on environmental, social and issue.
governance (ESG) issues we continually aim to identify However, our particular interest and focus on ‘data
and understand key themes which are likely to have a governance’ may require a little more explanation.
profound impact on society over the decades ahead. This Despite growing societal angst about the impact of
in turn enables us to think about how such developments technology, data privacy and machine learning, the
will impact on the business environment and the world population is continuing to vote with its thumbs
investment outlook for our clients’ holdings, as well as with respect to connectivity and data sharing. Almost
informing our engagement priorities. 4.7 billion people were active internet users in 2020,
For many topics, we can readily have a go at approximately 60 per cent of the global population.
estimating how material an issue is likely to be for a Strikingly, mobile internet users now account for
given company or sector, such as, for example, the 91 per cent of total internet users, many of whom are
impact of a change in expectations regarding independent accessing the web for the first time, making a good case
director requirements in a particular market. There are for the smartphone to be regarded as the most important
however some developments which are of a scale, technological breakthrough of the past fifty years with
speed and order of complexity that require us to do respect to social and economic inclusion.
considerably more homework of our own to help us
understand the future. Two such areas are climate changeGovernance Summary 14
The sheer volume of data already being generated and Questions such as whether the widespread utilisation
stored online is difficult to fathom: 90 per cent of all data of algorithmic decision making will reinforce existing
held in the world was generated in the last two years inequalities or improve social inclusion will become
alone. Yet despite the rapid proliferation of a range of increasingly important. Insurers and banks will need
interconnected technologies and applications, it is also to be very sure of the difference between appropriate
increasingly apparent that we are actually just at the risk-based pricing driven by better data on one hand, and
beginning of a data and connectivity revolution. With the automated, industrialised bias on the other. Concerns
advent of 5G mobile phone networks and services, such over the ever more personalised and effective nature of
as SpaceX’s Starlink broadband service, the technology targeted advertising will also only grow over time as the
will soon exist to connect billions more devices to the technology improves unless both advertisers and
internet, generating more data in a day than could ever platforms can explain the positive impact of their
have been imagined even a decade ago. Forty per cent of services.
internet data in 2020 was also machine generated, before However, of equal importance to the risks is the
the ‘internet of things’ has even fully taken hold. This opportunity ahead for humanity if we can find our
means that as well as the now familiar data privacy collective way through the data governance challenge –
considerations we encounter when browsing the internet, think of much more effective personalised healthcare
we also need to think about the data our smart energy for example and vastly improved data-driven resource
meter is continuously uploading to the cloud, the personal efficiency across the economy. A considerable number
health and wellbeing data from our fitness tracker, or the of the holdings are focusing on these important areas of
voluminous data that connected cars will collate on our innovation and growing opportunity.
driving habits and patterns.
For all of the above reasons, Baillie Gifford’s
The vast majority of this new data is held by private investors and governance and sustainability team are
companies. This has already created a range of data undertaking further research on the theme of data
security and privacy expectations, with accompanying governance, building on a number of years of
regulations, but data governance is ultimately much more engagement with our holdings on issues such as data
than this. How companies decide to collate, monitor, privacy and security. To support and shape this work we
moderate, protect and utilise this data is of profound will be drawing on several external and academic
societal importance, and for this reason data governance partnerships that we have in place, such as our
is also of central relevance to the financial prospects of sponsorship of the Baillie Gifford Chair in the Ethics of
data economy companies: long-term growth prospects Data and Artificial Intelligence at the Edinburgh Futures
will hinge upon maintaining their ‘social licence to Institute (EFI). Our aspiration is that this work will help
operate’, and this may be trickier to achieve in practice us to be good long-term stewards of data economy
even for well-intentioned companies. The pace of holdings on behalf of our clients and investors, ensuring
innovation and the inter-disciplinary nature of ‘good data that we can understand and engage on the most material
governance’ has meant that the relevant skills and societal issues relating to data governance. While we may
experience are currently in very short supply. Companies not have the answers, we can start by asking the right
and board directors alike will need sound external questions and encouraging board directors to do the same
counsel and stakeholder input in this highly complicated with their executive teams.
and rapidly evolving area.
It is also important to note that data governance is of
central relevance well beyond the traditional technology
companies, with banks, insurance companies and
healthcare providers all firmly in the next wave of
businesses having to overcome a number of ESG
challenges as they seek to ramp up their use of customer
data and artificial intelligence.Governance Engagement 15
Company Engagement Report
Adyen N.V. Co-founder CEO Pieter van der Does and CFO Ingo Uytdehaage assured us that they are
in no rush to meet the company's long-term profit margin target. Indeed, there is no
specified timeline for doing so and they will still invest in worthwhile projects that could
dilute margins in the short-term. This long-term culture is admirable, particularly as the
company is experiencing rapid growth and rising profitability. According to Van der Does,
the relevant trade-off facing Adyen is not between growth and near-term margins, but
instead between growth and the quality of both product and people. He does not think it
makes sense to sacrifice the latter. For example, he is thinking carefully about the
manageable pace of hiring engineers and sales personnel such that they can be
comfortably absorbed into Adyen's teams.
Amazon.com, Inc. We engaged with the company's head of ESG Engagement to discuss the unionisation
vote at Amazon's fulfilment centre in Bessemer, Alabama. We discussed the technical
components of the vote, how the company communicated with employees and
encouraged the company to move forward in a constructive, positive manner. We also
repeated our message for better disclosures on social practices, including health and
safety statistics. We are optimistic that our conversations will bear fruit. We also welcomed
an offer to engage later in the year on broader ESG themes. We maintain an open dialogue
with Amazon on its approach to matters of governance and sustainability and are
reassured by their focus on the long term.
Atlas Copco AB Atlas Copco is a leading manufacturer of industrial equipment. We engaged with the head
of sustainability to discuss how the company's technology enables its customers to
reduce their environmental impact; many of whom operate in high-emitting industries. A
primary benefit of using Atlas Copco equipment is energy efficiency, which enables more
work to be completed at less cost and with lower emissions. This results in a material
financial saving for customers with 70-75 per cent of ownership cost attributed to energy
during use. Unfortunately, we were not able to gain much insight into how the
environmental characteristics of the company's equipment compares relative to peers.
This will be an aim for future work. However, we did learn more about how the company
coordinates its sustainability strategy across a decentralised business. The central
sustainability role sets the overall direction for Atlas, then empowers leaders within
individual business segments to set targets and drive innovation to meet the group-level
ambitions. This approach is embedded in company's culture. We remain supportive, long-
term shareholders in Atlas Copco and intend to continue to dialogue with the company as
part of better understanding how the business is supporting the transition to a low-carbon
society.
BHP Group We joined an engagement with the Vice President of Sustainability & Climate Change to
discuss the group's carbon reduction targets and their linkage to capital allocation
decisions and executive pay. She provided a high-level breakdown of the group's
operational emissions (Scope 1 and 2) and emissions in its value chain (Scope 3). There
was discussion of the initiatives and challenges in relation to BHP's drive to decarbonise
and the need to combine company specific effort with industry collaboration and support
to customers. Water risk to communities and engagement with traditional owners of land
were also discussed.
First Republic Bank We took the opportunity to speak with the CFO of First Republic Bank, Mike Roffler, along
with several members of Investor Relations, as part of a general governance update, but
also to discuss various questions we had regarding corporate responsibility, culture and
the ongoing pursuit of exceptional client service. Regrading governance, Mike conveyed
his confidence that the company is well-prepared for the transition process, as the founder
and CEO James Herbert, steps down into an active role as Chair. Notably, as stability is a
core output of the culture, and a key element of ensuring successful client outcomes, we
explored the measures taken to preserve this in light of the Covid-19 pandemic. We were
impressed at the initiatives taken to maintain and improve both the company culture and
indeed the client service offerings. We continue to be supportive as long-term holders.Governance Engagement 16
Company Engagement Report
Genus plc Genus is a leading provider of bovine and porcine genetics and reproductive services. We
had an introductory call with Iain Ferguson who joined the board in July last year and was
recently appointed Chair. We discussed the board, strategy development, the company's
partnership in China and its approach to ESG/climate change. On a subsequent call with
Stephen Wilson, CEO and Alison Henriksen, CFO, we discussed regional growth
opportunities, investment projects being considered and the global regulatory
environment. In both engagements, we encouraged the board to keep investing to widen
the gap with competitors and drive long-term growth.
Just Eat Takeaway.com N.V. Conscious that the management has been focusing on the integration of Just Eat and
Takeaway.com since April 2020, we wrote to the company to encourage focus on the
disclosure of the businesses carbon emissions. We believe it is important that these are
being monitored, managed and publicly disclosed to enable shareholders to be able to
assess materiality and the company's progress. We were very encouraged by the
response we received from JET. It has appointed a new sustainability team and is focused
on capturing carbon data across its operations, setting targets and publicly reporting on
these. The holistic approach it is adopting in thinking about the emissions across its value
chain came across, which we welcomed and we offered to provide feedback if helpful at
any stage.
Kering SA Our latest discussion with CEO François-Henri Pinault provided an opportunity to review
the company's progress on ESG. Pinault remarked that Kering started more than a decade
ago to appoint creative directors for whom sustainability was a natural part of the process.
In the ensuing years, the company's ESG focus broadened into how it thinks about its
supply chain, materials and distribution. He thinks the luxury industry will be transformed
by such considerations over the next couple of decades and some will not survive the
maelstrom. Kering has not yet used its ESG credentials as a basis for communication with
its customers, but Pinault acknowledged it is close to doing so and believes it could
become a competitive differentiator for the company.
Kinnevik AB The Remuneration Committee Chair led a consultation with shareholders on a revised
remuneration policy for management and employees. We engaged directly with the
Remuneration Committee Chair and as part of a group on a call with other shareholders.
The driver for the consultation was to ensure the policy remained competitive enough to
retain and attract talent and the committee took the opportunity to get shareholder views
on the appropriateness of the metrics. We are completely supportive of these drivers -
remuneration policies offer the board an opportunity to incentivise behaviours over the
long term which can result in superior outcomes. Our feedback centred on whether the
plan proposed was stretching enough, whether it sufficiently incentivised the potential
long-term opportunity and whether it could have a longer time frame to incentivise and
motivate management and employees. After the consultation with shareholders, the
Remuneration Committee Chair decided to put the changes to the policy on hold as there
are about to be several changes in key positions on the Board. This enables the new board
to make sure the policy is reflective of Kinnevik's long-term strategy. We subsequently had
a call with the outgoing Chair of Kinnevik who was reflective on her 10 years at the
company and, as the previous Remuneration Committee Chair, thanked us for our input on
remuneration in the most recent and previous consultations.Governance Engagement 17
Company Engagement Report
L'Oreal S.A. A member of the Governance and Sustainability Team had a pre-AGM call with L'Oréal's
Head of Investor Relations to discuss the draft meeting resolutions. We covered the recent
board changes, strong performance against the outgoing sustainability targets and
remuneration. The current deputy CEO, Nicolas Hieronimus, will succeed Jean-Paul Agon
as CEO. Jean-Paul Agon will stay on as Chairman, which means there will be a separation
of Chairman and CEO roles. Mr Agon chose to forfeit the financial portion (60 per cent) of
his 2020 annual variable remuneration but evaluation still took place against the non-
financial and qualitative criteria (40 per cent), with an overall achievement rate of 97.71 per
cent of the maximum. 2020 was the conclusion of the company's ambitious 'Sharing
Beauty With All' sustainability targets. There is detailed disclosure for each of the criteria
and we discussed the company's strong performance against these. We added that we
would welcome further disclosure on the level of achievement in remuneration terms for
each component of the non-financial targets. Only an aggregate achievement figure is
disclosed currently. This means that although the company met or exceeded most of its
sustainability targets, it is not clear from disclosures how the targets that it missed (e.g.
environmental and social product profile, water and waste targets) impacted the overall
remuneration achievement level.
Prudential plc We had a call with Shriti Vadera who joined the board last year and was appointed Chair in
January. Our engagement followed the board's decision to demerge rather than IPO the
US business (Jackson), the replacement of Jackson's relatively new management team
and the pre-announcement of a proposed capital raise after the demerger. We discussed
the background to these unexpected announcements and their timing, the rationale for the
proposed fundraising and the importance that we attach to pre-emption rights that protect
our clients' interests when new shares are being issued. Later in the quarter we engaged
with the CEO and CFO; topics discussed included the long-term growth opportunities
available to the group in Asia, investment priorities and the progress of Pulse, the group's
digital health and wellbeing app that is expected to generate more business leads.
RATIONAL Aktiengesellschaft During the second half of 2020 we engaged with Rational management on the continued
combination of the Chief Executive and Chief Financial Officer roles. We set out our
preference that the roles are quite distinct and require different expertise and dedicated
focus. On 12 February 2021, Rational announced it was separating the roles and had
appointed a long-serving member of its finance department, Jörg Walter, as Chief
Financial Officer. We wrote to the company to congratulate Dr Walter on his appointment
and to welcome its strengthened governance framework.
Recruit Holdings Co., Ltd. In a call with investor relations at Recruit, we discussed a range of ESG matters including
the succession of the chief executive officer, how diversity is considered both at the board
and in the wider business, the management of cross shareholdings, data security and
privacy, and the monitoring and disclosure of carbon targets. The meeting was informative
and demonstrated the consideration that the company has given to a range of ESG
factors. We believe data security and privacy should a key consideration for the business
and the company highlighted that this is one of its key risk considerations. We encouraged
the company to further improve disclosure on the steps taken in this area.
St. James's Place plc We had a call with the recently appointed Chair of St James's Place, city veteran Paul
Manduca. Prior to this role, Manduca was Chair of Prudential, following a career where he
has held a wide range of executive and non-executive roles in a number of organisations,
predominantly financial services. While it is very early days for the new Chair, he noted that
there was widespread recognition within the business that there was a need to evolve and
move on from some of the negative publicity received about inappropriate employee
incentives. We discussed a number of issues, from the evolving regulatory environment for
investment advice in the United Kingdom, to ways of sharing the proceeds of growth with
customers and the growing importance of Environmental, Social and Governance (ESG)
investing for its business. The Chair agreed with our assertion that ESG could add
significant value to the St. James's Place customer proposition if approached correctly,
and that the net zero transition and other social factors were rapidly changing the macro-
environment in favour of sustainability-minded investments. We agreed to have a follow up
meeting with the relevant members of the executive team to discuss their thinking and
approach to ESG integration and the company's Net Zero commitment in more detail.Governance Engagement 18
Company Engagement Report
Tesla, Inc. We gained further insight into Tesla's culture of relentless innovation, long-termism and
sustainability during a conversation with Martin Viecha, Head of Investor Relations. He
pointed to the example of Tesla's artificial intelligence (AI) team which is attempting to use
video instead of static images to train its autonomous driving software - a highly complex
task that has barely any academic research and which no other company has attempted
before. Similarly, on hardware, Tesla is charging ahead with plans for a more affordable
and profitable $25,000 vehicle, thanks in part to making its own battery cells that will
require no cobalt or nickel. We also used our meeting to ask Viecha about the company's
recent investment in bitcoin. The company is concerned about potential inflation and
therefore concluded that a gold-like asset with fixed supply was the right place to allocate
a portion of cash reserves (eight per cent at time of purchase). Viecha underlined that the
decision was not taken lightly and board approval was sought.
Ubisoft Entertainment SA Building upon previous discussions, we continued our dialogue with Ubisoft regarding its
ESG practices. We discussed changes to the executive remuneration which will increase
the proportion of awards granted as performance shares, which will have positive effects
for dilution and better alignment with shareholders. New targets will also be introduced to
the annual bonus to support improvements in the company's workplace practices. Focus
on employee engagement, promoting diversity and creating a safe, supportive culture is
aimed at building a competitive advantage for the business. Environmental disclosures will
also improve this year with the publication of carbon emissions and long-term reduction
targets. The company is currently working with the Carbon Disclosure Project to ensure its
climate reporting is aligned with the Task Force on Climate-Related Financial Disclosures
(TCFD) recommendations. This was a constructive engagement. Ubisoft has responded
well to the issues it experienced last year. It is being proactive and demonstrates a
commitment in its approach to ESG practices to support long-term value creation.
Zalando SE The Remuneration Committee are proposing a new remuneration policy for management
at the upcoming Annual General Meeting. Initially the policy will include members of
management excluding the CO-CEO's as their remuneration package runs until 2023. They
will then join the proposed policy. We have been encouraged by the thoroughness of the
engagement process the Remuneration Committee Chair has led, which has provided us
with the opportunity to discuss and share our views on the proposed policy. The plan is
yet to be finalised, but our feedback has centred on striking the right balance between pay
and performance and ensuring the plan sufficiently incentivises ambitious outcomes over
the long term. We had reservations on these two points when we were voting on the
previous plan for the Co-CEOs and therefore welcomed the opportunity to put forward our
views to the Remuneration Committee Chair. Although still to be concluded, we are
encouraged by the iterations of the plan we have discussed and believe it is an improved
structure. The Remuneration Committee have demonstrated taking a thoughtful approach
to: aligning pay outcomes with company performance; introducing environmental and
social metrics into the plan and the targets attached; making sure the proposed plan is
competitive enough to attract international talent within context of acceptable market
practice on total quantum in Germany. The Annual General Meeting is next quarter and we
look forward to reviewing the final plan when approved by the Committee but have been
encouraged by the inclusive approach to seeking shareholder feedback.Voting 19
Votes Cast in Favour
Company Meeting Details Resolution(s) Voting Rationale
DSV AGM 8.5 We voted in favour of a shareholder proposal to
15/03/21 increase disclosure on how the company manages
financially material climate risks and opportunities.
The board are supportive of this shareholder
proposal and note the company have been working
to improve their reporting in this area and plan to
do more.
Companies Voting Rationale
Adyen Nv, Asahi Group Holdings, Avanza Bank Holding, We voted in favour of routine proposals at the aforementioned
Beijer Ref, Cooper Cos Inc/The, DSV, HEICO 'A', meeting(s).
Hoshizaki Corp, Pigeon, S&P Global Inc, Sartorius Stedim
Biotech, Shimano, Shiseido, Slack Technologies Inc, Thai
Beverage PCL (Singapore), Visa Inc-Class A Shares
Votes Cast Against
Company Meeting Details Resolution(s) Voting Rationale
Visa Inc-Class A Shares Annual 2 We opposed the executive compensation
26/01/21 resolution as we do not consider the length or
stringency of the long-term targets to be
appropriate.
Visa Inc-Class A Shares Annual 6 We opposed a shareholder resolution requesting
26/01/21 the right to act by written consent as we believe
convening a general meeting is the best way to
canvas shareholder opinion and seek their support
for changes the company governance practices.
Visa Inc-Class A Shares Annual 7 We opposed a shareholder resolution requesting
26/01/21 amendments to the executive compensation
program as the proposed changes are not
consistent with our concerns over management's
pay or the manner in which we prefer to effect
change.
Companies Voting Rationale
Thai Beverage PCL (Singapore) We opposed the request to authorise Other Business. We do not
believe this is in the best interests of clients who vote by proxy.
Votes Abstained
We did not abstain on any resolutions during the period.
Votes Withheld
We did not withhold on any resolutions during the period.Transaction Notes 20
New Purchases
Stock Name Transaction Rationale
HelloFresh SE Ordinary HelloFresh sells meal kits in several markets around the world. This is a structurally growing
business operating in a structurally growing market, as people around the world increasingly
look to simplify meal planning and preparation. We believe the growth runway is long, driven by
HelloFresh' willingness to reinvest in the customer proposition, lowering prices and broadening
choice. We think this means 15-20% growth rates for many years to come as HelloFresh
expands into new markets and deepens its penetration in existing ones. Its competitive strength
will allow it to take a disproportionate share of the opportunity ahead, as many of its competitors
have retrenched or disappeared having failed to keep pace with its operational excellence and
willingness to reinvest. Today's valuation doesn't reflect the true potential of this business over
the next 5-10 years, so we have taken a holding.
Unicharm Unicharm is a Japanese manufacturer of personal care products. It has strong positions in
several domestic categories such as baby diapers, adult incontinence and feminine care and
has successfully expanded into fast growing markets in Asia (most notably China, Indonesia
and, more recently, India) where it is rolling out products which are tailored to specific market
requirements and preferences. Unicharm has a strong track record of reinvesting in product
R&D and brand building and we believe it will continue to grow profitably. The company also
benefits from an owner manager which helps foster a strong alignment between management
and minority shareholders. Unicharm is a profitable, cash generative business with good growth
prospects and a track record of good capital allocation.Transaction Notes 21
Complete Sales
Stock Name Transaction Rationale
EOG Resources We continue to believe that EOG Resources remains a premier non-major oil explorer and a
specialist in shale extraction. The shares have recovered considerably from their March lows so
we felt it was a good time to reinvest the proceeds in ideas where we have a higher conviction
of long-term growth.
M&T Bank We continue to believe that M&T is a well run bank with a prudent underlying lending culture.
The company has been a stalwart of the portfolio and we've always been impressed with
management acumen. However, we feel it has relatively modest growth prospects and lacks an
edge in a digital age of banking, therefore we have decided to sell the holding to fund purchases
elsewhere in the portfolio.
Novozymes Novozymes is a biotechnology company focused on the production of industrial enzymes and
other biopharmaceutical ingredients. Although there is much to admire about the business, for
example a scale advantage in terms of research and development, it has struggled to produce
meaningful growth in recent years - even before the impact of Covid, annual revenues in 2019
were down by 1% year-on-year. We do not have confidence that the growth rate will accelerate
in the near term and have decided to sell.
Slack Technologies Inc We sold the holding in Slack to fund other ideas in the portfolio following a definitive agreement
to be acquired by Salesforce.
TPG Telecom TPG is an Australian telecom company. We originally took a holding based on its proven ability
to take share in the corporate market with its competitive broadband data offering. We also
thought that it would be able use new technology to improve the profitability of its retail
broadband offering. Finally, we were encouraged by the presence of the owner David Teoh who
had a track record of significant value creation since he founded TPG. However, in mid 2020
TPG acquired the Australian mobile telecom provider Vodafone. To our minds this diluted the
impact of the parts of TPG we found most attractive. David Teoh moved to the role of chairman
and his ownership stake was reduced with the merger. While we believe TPG has a promising
future ahead of it, we no longer think it has the growth potential to justify its position in the
portfolio. We have therefore sold the holding.
Tuas Ltd Tuas operates a mobile telecom network in Singapore. The portfolio received shares in Tuas as
part of a spinoff from TPG, the Australian telecom business. We do not consider Tuas to be
attractive enough as a standalone business for us to want to make it into an meaningful holding
in the portfolio and we have therefore sold what was received in the spinoff process.
Vontier Vontier is the recent spin-off from our holding in the diversified industrials business, Fortive. We
decided to sell the holding to reinvest the proceeds where we have a higher conviction for
growth.Legal Notices 22
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