Global Alpha Choice Quarterly Update 30 September 2021 - BAILLIE GIFFORD - Baillie ...
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BAILLIE GIFFORD Global Alpha Choice Quarterly Update 30 September 2021
Contents
01 Executive Summary Baillie Gifford Investment Management (Europe) Limited
02 Commentary also has a representative office in Zurich, Switzerland pursuant
to Art. 58 of the Federal Act on Financial Institutions
05 Performance ("FinIA"). It does not constitute a branch and therefore does
11 Portfolio Overview not have authority to commit Baillie Gifford Investment
Management (Europe) Limited. It is the intention to ask for the
12 Governance Summary authorisation by the Swiss Financial Market Supervisory
15 Governance Engagement Authority (FINMA) to maintain this representative office of a
foreign asset manager of collective assets in Switzerland
18 Voting pursuant to the applicable transitional provisions of FinIA.
19 Transaction Notes Baillie Gifford Investment Management (Europe) Limited
is a wholly owned subsidiary of Baillie Gifford Overseas
20 Legal Notices Limited, which is wholly owned by Baillie Gifford & Co.
Persons resident or domiciled outwith the UK should
consult with their professional advisers as to whether they
This document is solely for the use of professional require any governmental or other consents in order to enable
investors and should not be relied upon by any other them to invest, and with their tax advisers for advice relevant to
person. It is not intended for use by retail clients. their own particular circumstances.
This document contains information on investments which
Important Information and Risk Factors does not constitute independent research. Accordingly, it is not
subject to the protections afforded to independent research and
Baillie Gifford & Co and Baillie Gifford & Co Limited are Baillie Gifford and its staff may have dealt in the investments
authorised and regulated by the Financial Conduct Authority concerned.
(FCA). Baillie Gifford & Co Limited is an Authorised All information is based on a representative portfolio, new
Corporate Director of OEICs. client portfolios may not mirror the representative portfolio
exactly. As at 30 September 2021, in US dollars and sourced
Baillie Gifford Overseas Limited provides investment from Baillie Gifford & Co unless otherwise stated.
management and advisory services to non-UK
Professional/Institutional clients only. Baillie Gifford Overseas Canada
Limited is wholly owned by Baillie Gifford & Co. Baillie
Gifford & Co and Baillie Gifford Overseas Limited are Baillie Gifford International LLC is wholly owned by Baillie
authorised and regulated by the Financial Conduct Authority. Gifford Overseas Limited; it was formed in Delaware in 2005
Baillie Gifford Asia (Hong Kong) Limited and is registered with the SEC. It is the legal entity through
柏基亞洲(香港)有限公司 is wholly owned by Baillie Gifford which Baillie Gifford Overseas Limited provides client service
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the Securities & Futures Commission of Hong Kong to market Overseas Limited is registered with the SEC in the United
and distribute Baillie Gifford’s range of collective investment States of America.
schemes to professional investors in Hong Kong. Baillie The Manager is not resident in Canada, its head office and
Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 principal place of business is in Edinburgh, Scotland. Baillie
can be contacted at Suites 2713-2715, Two International Gifford Overseas Limited is regulated in Canada as a portfolio
Finance Centre, 8 Finance Street, Central, Hong Kong, manager and exempt market dealer with the Ontario Securities
Telephone +852 3756 5700. Commission ('OSC'). Its portfolio manager licence is currently
Baillie Gifford Investment Management (Europe) Limited passported into Alberta, Quebec, Saskatchewan, Manitoba and
provides investment management and advisory services to Newfoundland & Labrador whereas the exempt market dealer
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Ireland. Through its MiFID passport, it has established Baillie OSC as an exempt market and its licence is passported across
Gifford Investment Management (Europe) Limited (Frankfurt all Canadian provinces and territories. Baillie Gifford
Branch) to market its investment management and advisory Investment Management (Europe) Limited (‘BGE’) relies on
services and distribute Baillie Gifford Worldwide Funds plc in the International Investment Fund Manager Exemption in the
Germany. Similarly, it has established Baillie Gifford provinces of Ontario and Quebec.
Investment Management (Europe) Limited (Amsterdam
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services and distribute Baillie Gifford Worldwide Funds plc in
The Netherlands. Baillie Gifford Overseas Limited is registered as a Foreign
Financial Services Provider with the Financial Sector Conduct
Authority in South Africa.
Calton Square, 1 Greenside Row, Edinburgh EH1 3AN
Telephone +44 (0)131 275 2000 bailliegifford.com
Copyright © Baillie Gifford & Co 2009. Ref: 12394 10004266
Japan Executive Regulations of the Capital Market Law) and that its
officers/employees have such experience in business and
Mitsubishi UFJ Baillie Gifford Asset Management Limited financial matters that they are capable of evaluating the merits
(‘MUBGAM’) is a joint venture company between Mitsubishi and risks of investments.
UFJ Trust & Banking Corporation and Baillie Gifford
Overseas Limited. MUBGAM is authorised and regulated by Israel
the Financial Conduct Authority.
Baillie Gifford Overseas is not licensed under Israel’s
South Korea Regulation of Investment Advising, Investment Marketing and
Portfolio Management Law, 5755-1995 (the Advice Law) and
Baillie Gifford Overseas Limited is licensed with the Financial does not carry insurance pursuant to the Advice Law. This
Services Commission in South Korea as a cross border document is only intended for those categories of Israeli
Discretionary Investment Manager and Non-Discretionary residents who are qualified clients listed on the First
Investment Adviser. Addendum to the Advice Law.
Australia
Baillie Gifford Overseas Limited (ARBN 118 567 178) is Past Performance
registered as a foreign company under the Corporations Act
Past performance is not a guide to future returns. Changes in
2001 (Cth) and holds Foreign Australian Financial Services
investment strategies, contributions or withdrawals may
Licence No 528911. This material is provided to you on the
materially alter the performance and results of the portfolio.
basis that you are a “wholesale client” within the meaning of
section 761G of the Corporations Act 2001 (Cth) Potential for Profit and Loss
(“Corporations Act”). Please advise Baillie Gifford Overseas
Limited immediately if you are not a wholesale client. In no All investment strategies have the potential for profit and loss.
circumstances may this document be made available to a “retail Stock Examples
client” within the meaning of section 761G of the Corporations
Act. This material contains general information only. It does Any stock examples, or images, used in this paper are not
not take into account any person’s objectives, financial intended to represent recommendations to buy or sell, neither is
situation or needs. it implied that they will prove profitable in the future. It is not
known whether they will feature in any future portfolio
Qatar
produced by us. Any individual examples will represent only a
The materials contained herein are not intended to constitute an small part of the overall portfolio and are inserted purely to
offer or provision of investment management, investment and help illustrate our investment style. A full list of portfolio
advisory services or other financial services under the laws of holdings is available on request.
Qatar. The services have not been and will not be authorised by Financial Intermediaries
the Qatar Financial Markets Authority, the Qatar Financial
Centre Regulatory Authority or the Qatar Central Bank in This document is suitable for use of financial intermediaries.
accordance with their regulations or any other regulations in Financial intermediaries are solely responsible for any further
Qatar. distribution and Baillie Gifford takes no responsibility for the
reliance on this document by any other person who did not
Oman
receive this document directly from Baillie Gifford.
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
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business in Oman and does not market, offer, sell or distribute
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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 Summary 01 Product Overview Global Alpha Choice is a long-term, diversified, global equity strategy that excludes fossil fuels and companies that do not meet ethical and environmental, social and governance (ESG) criteria. The strategy selects growth stocks on a bottom-up basis with a focus on fundamental analysis combining the specialised knowledge of Baillie Gifford’s investment teams with the experience of some of our most senior investors. Risk Analysis Key Statistics Number of Holdings 99 Typical Number of Holdings 70-120 Active Share 85%* Rolling One Year Turnover 15% *Relative to MSCI ACWI. Source: Baillie Gifford & Co, MSCI. In biology the concept of `punctuated equilibrium' suggests that most of the time, change happens only incrementally, but occasionally, external factors collide to create the conditions which force more radical change Rather than representing a homogeneous set of risks, companies within the Rapid Growth profile contain a broad spectrum of opportunities. They operate in different countries, different industries, and serve different customers Over half the portfolio is invested outside of Rapid Growth, in our Stalwart, Cyclical and Latent profiles. This gives us the ability to invest in different companies where growth will manifest in different ways Baillie Gifford Key Facts Assets under management and advice US$466.8bn Number of clients 870 Number of employees 1576 Number of investment professionals 319
Commentary 02
In Ernest Hemingway’s novel The Sun Also Rises, the changing nature of the opportunities which have
Scotsman Mike Campbell is asked how he went bankrupt. helped to drive this increase. Ten years ago, our clients’
“Two ways,” he answers, “Gradually, then suddenly”. exposures in the Rapid Growth profile were concentrated
Dramatic change often happens in this manner. Pressure in what we called ‘digital disruptors’ (primarily capital-
builds slowly, gradually, imperceptibly. Life continues light, online businesses in social media and advertising),
as normal. Then, suddenly, a tipping point is reached. Emerging Market banks and retailers, and oil. We’ve
Pressure is released, change accelerates, and old certainties been saying for a while that we believe the impact of
are swept away. The landscape is transformed. technology is broadening out into much wider areas of
In biology, this process is called a ‘punctuated the economy. Reflecting this belief, today, the Rapid
equilibrium’. The idea that most of the time, change Growth profile contains a far broader representation of
happens only incrementally, but sometimes, external the real economy including entertainment, automobile
factors collide to create the conditions which force more and transportation, real estate, education, payments,
radical change. There are many parallels between natural telecommunications, retail, enterprise software, and last
ecosystems and our global economy. One can think of the mile logistics. This explosion of the opportunity set also
economy as a complex system and thinking about it in serves as a challenge to the perception that the increased
this way has crucial implications for how we should think exposure to Rapid Growth holdings over recent years
about forecasting change going forward, particularly in represents a concentration of risk within the portfolio.
the aftermath of the pandemic. Many people consider These companies share little in common besides a high
the pandemic as an exogenous cyclical shock to the growth rate. They operate in different countries, different
economy. It is a temporary aberration from the norm. industries, and serve different customers. As a result, they
At some point it will pass, the economy will recover, and do not represent a singular risk or exposure, but rather a
everything will go back to normal. But what if we view group of very diverse companies that share only a vast
the economy as a complex system? Could the pandemic opportunity and the potential to disrupt the equilibrium in
be the equivalent of a rise in sea levels or the arrival of a their industries. In fact, we would argue that we are now
new predator, which forces adaptation and disrupts the in the opposite situation where companies that are not
equilibrium? Isn’t it more likely that some behaviours digital may share a common risk factor.
and industries will be permanently altered? The pandemic has accelerated this broadening out of
The last 10 years has seen very visible disruption in a change. Rather than thinking of this period as having
number of areas which impact our daily lives. In the year pulled forward some portion of a finite amount of
2000, a typical adult’s life in the western world was demand, it would be more accurate to think of it as a
probably not that different to 1950. We would wake up to catalyst which has provided the nudge required to tip a
an alarm clock, maybe listen to the radio while we got range of industries out of their previous equilibria. To use
ready for the day, go down to the kitchen to read the some specific examples, take Moderna, one of the
newspaper before driving to work. Maybe we would pick companies which has been at the forefront of leading the
up some groceries from the store on our way home. In response to the pandemic. Before Covid-19, the potential
2021, that daily routine is significantly altered. We wake for Moderna’s mRNA technology was unproven, it had
up to our mobile phones. The first thing we do is check never had a single drug approved, or even made it as far
our emails. We read the news, but it’s not local as a phase three trial. Over the last 18 months Covid-19
newspaper we’re reading, it’s Twitter, or Facebook, again has fundamentally transformed Moderna as a company
on our phones. We might listen to Spotify or a podcast and thrust it into the mainstream. It has gone from
while we have our breakfast. And rather than driving to needing to raise capital to validate its technology, to
work, we simply walk into our home office for the day’s looking to build on their phenomenal success by bringing
first video call. And for dinner, maybe we won’t go to the a range of new vaccines and other treatments to market.
grocery store, we’ll order takeout on Just Eat, or make a What we’ve seen here is not just an acceleration of
tasty Hello Fresh meal delivered earlier that day. The gradual, incremental change, but a transformational
daily rhythm of life has changed more in the last 10 years validation of potential as the company delivers new ways
than it had over the previous 50. to address previously unmet or unrealised demand. Or
consider some of the enterprise software companies in
Companies which have helped to drive many of the
the portfolio, such as Twilio or Cloudflare, which
changes mentioned above are well represented within the
experienced unprecedented growth as the pandemic hit.
Rapid Growth portion of the portfolio and the increase in
Annual results have now lapped that initial period and
the allocation towards companies which sit within this
rather than return to a pre-pandemic baseline, growth
profile has been one of the most visible changes to the
continues to be exceptionally strong. Not all of this
portfolio over recent years. However, more interesting isCommentary 03
© Peloton Interactive Inc.
growth is driven by the pandemic – the forces of change continues to lower hardware prices and attract more users
have been building for well over a decade – but it would with further software and content innovation, the total
be an oversimplification to say that the pandemic is a market could be many times larger than it is today. We
mere acceleration. Existing customers are spending more, have funded this addition from a reduction to the holding
and new customers continue to sign on. What changed in Shopify, the ecommerce enabler. The company has
during the pandemic was not just a pulling forward of continued to enjoy significant share price strength and
demand but breaking down some of the institutional while our conviction has remained unchanged, the position
barriers to change. Now that the barriers have been size had increased and so we have elected to reduce this
broken down, we are starting to see how early we still holding slightly.
are on the adoption of some of these products. Once Another area of increasing enthusiasm is software.
the avalanche has been triggered, there is no return to We believe that software is becoming increasingly
previous status quo. important across a broad range of industries and
Over the course of the most recent quarter, we have opportunities are emerging in new areas. We have,
continued to look for potential beneficiaries of what we for instance, taken a new holding in Certara, a maker
believe to be disrupted equilibria and permanently altered of biosimulation software (the software modelling of
behaviours. One such example would be the new holding biological processes). Certara’s software enables
in maker of home fitness equipment, Peloton. Peloton biotechnology companies to simulate how their drugs
represents a new alternative to the previous habit of will react in different human organs and to model the
gym memberships for those who want to participate in impact of different doses or how the impact may vary
exercise classes. The company combines desirable fitness with the presence of different gene types. This has the
hardware such as spin-bikes, with integrated software potential to save significant time and cost in physical
offering live and on-demand classes led by world-class human trials and thus offers an excellent return on
instructors and the ability to connect with friends. This investment for Certara’s customers.
union of physical and digital excellence represents a
compelling proposition for customers and a deep and
lasting competitive advantage as result. As the companyCommentary 04
While this letter has thus far focused on the The views expressed reflect the personal opinion of
basis of our enthusiasm for the holdings in the Rapid the author and should not be considered as advice or a
Growth profile, it is worth stating that over half of the recommendation to buy, sell or hold a particular
portfolio is invested elsewhere. Building the portfolio investment.
across our other growth profiles, Stalwart, Cyclical and
Latent, gives us the ability to invest in different sorts of
companies where growth will manifest in different ways.
An example of this would be the new holding in Japanese
car parts supplier, Denso. Historically tied to the Toyota
group, Denso has recently started to broaden its customer
base to find new opportunities and the company’s long-
term plans are well aligned with the accelerating global
shift to electric vehicles. Denso is likely to be a
beneficiary of the rising proportion of a car’s value being
attributed to electronics. Growth here is likely to be more
cyclical in nature, but perhaps much less appreciated by
the market as a result.
In the Stalwart Growth profile, we have made a
small addition to the holding in funeral care provider
Service Corp International (SCI). The stalwart
characteristics of reliable, economically insensitive
growth are underpinned by demographics, market share
gains which are locked-in by the forward (‘pre-need’)
sale of funerals, and meaningful acquisition opportunities
in a highly fragmented industry. SCI’s size and scale
provide significant competitive advantages in purchasing
power, shared resources and back office efficiencies and
we expect this operational gearing to lead to an expansion
of margins as revenues grow.
This letter has discussed our belief in the nature of
change and how, rather than a gravity-like effect which
can pull growth back to a baseline, change can happen
suddenly, snowballing forward as old habits and structures
are swept away. As discussed, many of the companies in
the portfolio are beneficiaries of such changes in their
industries. These have not been entirely underappreciated
by the market and our focus is on ensuring that our view
remains differentiated from the broader market. Where it
is not, we will move on from those holdings. However, at
a portfolio level, an allocation away from growth at this
point may be at least an implicit bet on life returning to
normal. A belief in such a reversion to the mean may
prove to be a fallacy. We believe that the pandemic has
triggered an avalanche of change and there will be
structural consequences that we don’t yet fully understand
or appreciate. We believe that innovation is speeding up
and spreading out and we are closer to the beginning than
the end. The opportunities that result are both diverse and
exciting.Performance - US Dollar 05
Performance Objective
+2% to 3% p.a. over rolling 5 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* -3.2 -1.0 -2.2
YTD* 7.0 11.5 -4.5
1 Year* 25.5 28.0 -2.5
3 Years 18.6 13.1 5.4
5 Years 18.6 13.8 4.8
10 Years 15.9 12.5 3.4
Since Inception 15.6 12.2 3.5
Annualised periods ended 30 September 2021. *Not annualised.
Inception date: 31 December 2008.
Figures may not sum due to rounding.
Benchmark is MSCI ACWI.
Source: StatPro, MSCI.
US dollars
Discrete Performance
30/09/16- 30/09/17- 30/09/18- 30/09/19- 30/09/20-
30/09/17 30/09/18 30/09/19 30/09/20 30/09/21
Composite Net (%) 25.6 11.9 0.6 32.1 25.5
Benchmark (%) 19.3 10.3 1.9 11.0 28.0
Benchmark is MSCI ACWI.
Source: StatPro, MSCI.
US dollarsPerformance – Euro 06
Performance Objective
+2% to 3% p.a. over rolling 5 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* -0.9 1.4 -2.3
YTD* 13.0 17.7 -4.7
1 Year* 27.0 29.5 -2.5
3 Years 18.6 13.2 5.4
5 Years 17.8 13.1 4.7
10 Years 17.6 14.2 3.4
Since Inception 17.3 13.8 3.5
Annualised periods ended 30 September 2021. *Not annualised.
Inception date: 31 December 2008.
Figures may not sum due to rounding.
Benchmark is MSCI ACWI.
Source: StatPro, MSCI.
euro
Discrete Performance
30/09/16- 30/09/17- 30/09/18- 30/09/19- 30/09/20-
30/09/17 30/09/18 30/09/19 30/09/20 30/09/21
Composite Net (%) 19.4 13.9 7.2 22.8 27.0
Benchmark (%) 13.4 12.3 8.6 3.2 29.5
Benchmark is MSCI ACWI.
Source: StatPro, MSCI.
euroPerformance - Sterling 07
Performance Objective
+2% to 3% p.a. over rolling 5 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* -0.8 1.5 -2.3
YTD* 8.5 13.0 -4.6
1 Year* 20.3 22.7 -2.4
3 Years 17.2 11.9 5.4
5 Years 17.7 12.9 4.7
10 Years 17.6 14.1 3.4
Since Inception 16.2 12.7 3.5
Annualised periods ended 30 September 2021. *Not annualised.
Inception date: 31 December 2008.
Figures may not sum due to rounding.
Benchmark is MSCI ACWI.
Source: StatPro, MSCI.
sterling
Discrete Performance
30/09/16- 30/09/17- 30/09/18- 30/09/19- 30/09/20-
30/09/17 30/09/18 30/09/19 30/09/20 30/09/21
Composite Net (%) 21.6 15.1 6.4 25.9 20.3
Benchmark (%) 15.5 13.5 7.9 5.8 22.7
Benchmark is MSCI ACWI.
Source: StatPro, MSCI.
sterlingPerformance – Canadian Dollar 08
Performance Objective
+2% to 3% p.a. over rolling 5 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 1.3 -2.3
YTD* 6.4 10.9 -4.5
1 Year* 19.0 21.4 -2.4
3 Years 17.8 12.4 5.4
5 Years 17.7 12.9 4.7
10 Years 18.2 14.7 3.4
Since Inception 15.9 12.4 3.5
Annualised periods ended 30 September 2021. *Not annualised.
Inception date: 31 December 2008.
Figures may not sum due to rounding.
Benchmark is MSCI ACWI.
Source: StatPro, MSCI.
Canadian dollars
Discrete Performance
30/09/16- 30/09/17- 30/09/18- 30/09/19- 30/09/20-
30/09/17 30/09/18 30/09/19 30/09/20 30/09/21
Composite Net (%) 19.5 15.6 3.0 33.2 19.0
Benchmark (%) 13.5 14.1 4.4 12.0 21.4
Benchmark is MSCI ACWI.
Source: StatPro, MSCI.
Canadian dollarsPerformance – Australian Dollar 09
Performance Objective
+2% to 3% p.a. over rolling 5 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* 0.6 2.9 -2.3
YTD* 14.3 19.1 -4.8
1 Year* 24.5 27.0 -2.5
3 Years 18.6 13.2 5.4
5 Years 19.9 15.1 4.8
10 Years 19.4 15.9 3.5
Since Inception 15.3 11.8 3.5
Annualised periods ended 30 September 2021. *Not annualised.
Inception date: 31 December 2008.
Figures may not sum due to rounding.
Benchmark is MSCI ACWI.
Source: StatPro, MSCI.
Australian dollars
Discrete Performance
30/09/16- 30/09/17- 30/09/18- 30/09/19- 30/09/20-
30/09/17 30/09/18 30/09/19 30/09/20 30/09/21
Composite Net (%) 22.5 21.3 7.9 24.3 24.5
Benchmark (%) 16.3 19.7 9.4 4.4 27.0
Benchmark is MSCI ACWI.
Source: StatPro, MSCI.
Australian dollarsPerformance – Attribution 10 Stock Level Attribution Top and Bottom Ten Contributors to Relative Performance Quarter to 30 September 2021 One Year to 30 September 2021 Stock Name Contribution (%) Stock Name Contribution (%) Moderna 0.9 Moderna 1.6 SEA 0.4 SEA 1.1 Albemarle 0.3 Cloudflare 0.7 Cbre Group 0.2 Tesla Inc 0.7 Datadog 0.2 Albemarle 0.6 SiteOne Landscape Supply 0.2 Alphabet Class C 0.5 Doordash 0.2 Cbre Group 0.4 Olympus 0.2 Advantest 0.4 Prudential 0.1 Doordash 0.3 Snowflake 0.1 Axon Enterprise 0.3 Novocure -0.5 Alibaba -1.1 Naspers -0.5 Naspers -0.8 Meituan -0.4 Teladoc -0.7 Alibaba -0.4 Ping An Insurance -0.6 Ping An Insurance -0.3 Alphabet Class A -0.4 Zillow -0.2 Mastercard -0.4 Farfetch -0.2 SAP -0.4 Tencent Music Entertainment -0.2 Meituan -0.3 Teradyne -0.2 Seagen -0.3 Twilio -0.2 Zillow -0.3 Source: StatPro, MSCI. Global Alpha Choice composite relative to MSCI ACWI. 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
SEA Limited Online content, e-commerce and payments 2.9
Moody's Credit rating agency 2.8
Alphabet Online search engine 2.6
Microsoft Software company 2.6
Moderna A clinical stage biotechnology company 2.4
Prosus Media and e-commerce company 2.3
Amazon.com Online retail and computing infrastructure 2.1
Anthem Healthcare insurer 2.1
Ryanair Low cost European airline 2.0
TSMC Semiconductor manufacturer 2.0
Total 23.7
Sector Weights (%)
1 Consumer Discretionary 19.7
7 1
2 Information Technology 16.8
6 3 Health Care 15.5
4 Financials 15.0
5 Communication Services 12.6
6 Industrials 9.3
5 7 Materials 5.9
2
8 Real Estate 1.9
9 Consumer Staples 1.3
10 Cash 2.1
4
3
Regional Weights (%)
5
1 North America 59.1
4 2 Europe (ex UK) 12.7
3 Developed Asia Pacific 10.7
4 Emerging Markets 10.6
3 5 UK 4.7
6 Cash 2.1
1
2
Figures may not sum due to rounding.Governance Summary 12
Voting Activity
Votes Cast in Favour Votes Cast Against Votes Abstained/Withheld
Companies 10 Companies 1 Companies None
Resolutions 159 Resolutions 1 Resolutions None
Solving climate change will require both international agreements
among nations, and the innovation and entrepreneurship of
businesses
As responsible stewards of long-term capital, it is increasingly
important we understand the risks and opportunities of climate
change on our clients' behalf
We try to ensure that our engagement with companies on climate-
related issues is based on material risks and opportunities, but is also
supportive through significant periods of change
Company Engagement
Engagement Type Company
Corporate Governance Amazon.com, Inc., Brilliance China
Automotive Holdings Limited, Taiwan
Semiconductor Manufacturing Company
Limited, Teladoc Health, Inc.
Environmental/Social Amazon.com, Inc., CRH plc, Carvana
Co., Cloudflare, Inc., Moderna, Inc.,
Peloton Interactive, Inc., Ryanair
Holdings plc, Wizz Air Holdings Plc
AGM or EGM Proposals Abiomed, Inc., Naspers Limited, Prosus
N.V., Rio Tinto Group
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
© Esther Horvath/AWI/ZUMA Wire/Shutterstock.
Navigating the challenge of climate change we are now causing to our planet should give everyone
reason for concern. The IPCC is certainly not prone to
The job of editing a document with many different kneejerk reactions. These are careful and considered
authors can be a thankless task. As anyone who’s ever conclusions and they tell us that human-induced climate
found themselves lost in a sea of tracked changes and change is unequivocal and getting worse.
comments will know, reaching agreement on the final Barely a month earlier, the small village of Lytton in
version usually requires both compromise and tenacity. southern British Columbia, home to roughly 250 people,
So we should spare a thought for the 721 authors from measured the highest temperature ever recorded in Canada.
90 countries asked by the Intergovernmental Panel on Temperature records are normally broken by fractions of
Climate Change (IPCC) to finalise its Sixth Assessment a degree but this time it was smashed by 4.6°C, reaching
Report. For them, 9 August was a very big day indeed. nearly 50°C. The next day, 90 per cent of the village’s
The full 3,949 pages of Working Group I’s (WGI) homes and businesses were destroyed by fire. Stories like
contribution was published for the world to see, this are being repeated around the world on an increasingly
representing the most significant update to global frequent basis, providing a very human reality to the
understanding of the physical science of climate change. thousands of pages of IPCC research and analysis.
It has taken a full eight years to complete.
Climate change is, of course, a global problem but
We’re no strangers to long-term, diligent research and the ‘lived experience’ of it happens locally. It is both a
analysis ourselves. We certainly try to avoid reaching hasty glaringly urgent emergency and something that requires
conclusions based on limited inputs or unreliable data. action over decades. Its causes and effects are unevenly
So the fact that this report – itself based on thousands of distributed through time and geography, with those most
separate scientific studies – should use such clear and responsible often the least exposed to its physical and
unambiguous language in its descriptions of the changes economic impacts. It requires international agreementsGovernance Summary 14
among nations to address, yet it also needs innovation The financial industry must do far more than simply
and entrepreneurship from businesses to solve. And even insulate itself from risk: it must seek to achieve better
understanding the science of it, as we have seen, needs outcomes for the climate, and by extension all of us.
the diligent work of thousands of researchers. It is Which brings us to our other core responsibility,
complex and at times confounding, to say the least. which is to be supportive and constructive long-term
Our responsibility as stewards of long-term capital is, owners of companies as they navigate the transition
we think, twofold. First, we need to understand how towards net zero. All companies will need to get there
climate change can affect returns for our clients. For now, eventually; for some it presents a near-term liability or
the focus of much of the regulatory intervention we are opportunity, or both, while for others it is less material to
seeing in this area is on risk, including the recent their core business, though still a feature of the regulatory
announcements by the UK’s Department for Work space and customer environment they operate in. We try
and Pensions (DWP) and Financial Conduct Authority. to ensure that our engagement with companies on
The Taskforce for Climate-related Financial Disclosures climate-related issues is based on material risks and
(TCFD) – which forms the bedrock of this sort of opportunities but is also supportive through significant
regulation – has been hugely influential here and has periods of change.
changed the game on corporate climate risk disclosure. For companies to drive this transition effectively, the
The TCFD’s emphasis was, and continues to be, role of governments in helping to set the goalposts and
primarily on driving better disclosure of potential rules of the game is vital. The Paris Agreement of 2015
financial costs of climate change and the transition. was a huge step forward in this respect, but as we look to
Financial costs don’t, of course, tend to include the COP26 in Glasgow in November we are hopeful that we
human cost of lives uprooted or even sadly lost. Even so, will see more detail emerge on the regulatory and fiscal
the bill for rebuilding the little village of Lytton, B.C., frameworks that are required. Put simply, the sheer speed
currently stands at CAD$78m and rising. Costs like this of change now required to have much hope of staying
multiplied across the globe quickly become systemic. within the 1.5–2°C limits agreed in Paris means
This is something that even the world’s best financial significant policy intervention is now needed in many
data modellers currently find difficult to comprehend, areas like heating, power, transport and agriculture.
let alone calculate. Our view is that this intervention should be aimed at
Conventional economic modelling can struggle to ensuring rapid adoption of solutions that can make a
incorporate the type of unprecedented impacts that transformational difference now, on top of whatever
climate change might bring – like large-scale crop failure, economy-wide changes need to be made in the longer
global sea level rise and collapse of ecosystems. term. Clean technologies need to reach cost parity with
Conversely, losses to fossil fuel-based business models fossil fuels as quickly as possible, meaning that targeted
in a decarbonising world are much easier to calculate. sector-specific policies and innovation are vital. Norway
And so as we begin incorporating climate scenario provides a good example, where pure electric vehicles
analysis into our own portfolio analysis, we are mindful now make up over two-thirds of new car sales, thanks to
that some model outputs have a tendency to show the incentives that made them attractive to buyers and
financial downsides of the transition apparently outweighing ensured the required infrastructure was built out too.
the financial downsides of catastrophic climate change. Countries where adoption is left purely to market forces
This instinctively feels wrong, and it probably is. may eventually get to the same place, but it will take a lot
But even more importantly for the type of long-term, longer – too long for the kinds of emissions reductions
future-focused investment strategies we run at Baillie we need to see to be on track for the Paris Agreement.
Gifford, there is a danger that the opportunities presented Putting more detail on the speed of those emissions
by the shift to net-zero emissions may also be reductions will be keeping the 721 IPCC authors busy
underestimated. Our responsibility to our clients is over the coming year as they prepare two further
to find these opportunities. Some of our investments Working Group reports on the mitigation and impacts of
into companies like Northvolt and CATL (battery climate change. They are then due to publish a synthesis
manufacturers), Beyond Meat (plant-based protein), report around this time next year. Meanwhile, it will
Vestas and Ørsted (renewable power) and, of course, become increasingly important for investors and
Tesla and Nio (electric mobility) are in clear pursuit companies alike to ensure they both understand the risks
of this. Ultimately, we think risk as a theory of change – and importantly the opportunities – of climate change
has its limitations and will not drive the scale of capital to give us the best chance of avoiding lots more Lyttons
the world needs into climate solutions fast enough. in the future.Governance Engagement 15
Company Engagement Report
Abiomed, Inc. We had a call with the CFO and General Counsel of Abiomed to discuss recent changes to
the compensation plan. We were concerned by the compensation committee's decision to
grant recovery grants during the year. We believed these awards undermined the integrity
of the standard compensation policy and misaligned the experience of the senior
management team and shareholders. We disagreed with the rationale for granting these
special payments, outlining our strong belief that we did not consider them to be
appropriate and our intention to oppose the executive compensation resolution. At the
AGM, the pay proposal narrowly passed with 51 per cent support. Given this strong
oppose vote, we think it is important for the company to engage with shareholders and we
look forward to encouraging better pay practices in the future.
Amazon.com, Inc. We had a call with Senior Independent Director Jon Rubinstein. The focus of our
discussion was the recent transition of CEO position from Jeff Bezos to Andy Jassy. This
has been a carefully managed process, which the board has dedicated significant
resource to over several years. Rubinstein explained his belief that Amazon has a deep
succession plan down through the executive and management teams. We also
encouraged Rubinstein and the Amazon board to improve its disclosure of health and
safety data. The company has dedicated significant time and resource to improving
financial and working conditions for its staff. However, its reporting of health and safety
information is currently lacking, preventing shareholders from assessing the success of
these investments and policies.
Brilliance China Automotive Brilliance is a Chinese automotive company. Earlier this year its shares were suspended
Holdings Limited from trading following some financial irregularities. As one of the company's largest
shareholders, we tried on several occasions to engage with management and the board to
learn more about the suspension and to offer our support. Unfortunately, we were
disappointed by the company's unwillingness to reciprocate. Consequently, we decided to
write to the board to outline our frustrations and to provide some clear feedback as to
actions we think the company should take. These included a commitment to pay out the
majority of cash received from the pending sale of BMW Brilliance Automotive to BMW as
a special dividend, to provide the market with a clear timeline for the internal investigation
and to make the findings public, to commit to resolve all issues in an expedient and open
manner and to enact significantly enhanced controls and governance measures. The
company's response was limited and did not provide the assurances that we sought.
However, the independent inquiry has now been completed and we are awaiting its
publication, along with the board's action plan to meet all Hong Kong listing requirements.
We intend to re-engage with the company soon, to offer our support for the relisting of its
shares.
Carvana Co. In the wake of our Q2 discussions with the founder, we met with Mike Levin of the IR team
to begin a more direct conversation around Carvana's climate-related thinking and
reporting. As a disruptor of the US second-hand car market, Carvana's interaction with the
trends of the energy transition are multi-faceted, but, so far, it has no public disclosure or
commentary on the issues. There is opportunity in the extension of vehicle lives and,
potentially, in acting as a sales channel for original equipment (automotive component)
manufacturers (OEMs) retreating from the dealership footprint. But there is also risk if old
combustion engine cars see sudden value loss due to dislocating policy or technology
change. We'd like to see Carvana understand and report its carbon footprint (direct
emissions and those inherent in the cars it trades), but also explore its handprint - its
options for system influence. This could be as simple as the provision of fuel efficiency
data for buyers, or as complex as the academic research we need on life-cycle efficiency:
is it more carbon efficient to scrap early and go electric, or better to wring the last drop of
life from the current fleet before building new? There are many interesting issues to debate
here as Carvana shakes this old-fashioned market, and we look forward to continuing the
discussions.Governance Engagement 16
Company Engagement Report
Cloudflare, Inc. We had two separate engagements with Cloudflare in the last quarter. The objective of our
first meeting was to gain insight into Cloudflare's thinking and activities relating to energy
sources and carbon footprint. Our discussions addressed: Cloudflare's considerations for
expanding low-carbon power for its data centres internationally, whether the company
could offer customers the choice to route their data according to type of electricity source
(optimising for renewables), and carbon emissions disclosures. Subsequent to our
meeting, Cloudflare released its scope 1 and 2 emissions data and set out its aspiration to
be carbon neutral across its network from 2022. The company also committed to
accelerate deployment of ARM energy-efficient chips, allowing developers to choose the
most energy-efficient data centres, and commenced a project with search and indexing
companies to eliminate redundant web crawl that could generate carbon savings
equivalent to planting 30 million trees. While we cannot point to causality between our
engagement and these announcements, there is a clear correlation and the direction of
travel is positive. We will continue to monitor progress. Our second call focused on the
company's activities in Myanmar and it reinforced our belief that Cloudflare takes a
thoughtful approach to operating in controversial regions. In particular, the company's
technology is a critical communication tool for Burmese people as well as important
institutions, such as their health services. CEO Matthew Prince detailed the investment the
company has made in public policy and its interactions with stakeholders. This
conversation also reaffirmed our view that third-party ESG research providers are limited in
their ability to provide insight on important ESG issues. Our ability to speak directly with
management has been crucial to understanding the realities of Cloudflare's activities in
Myanmar and how it is aligning its treatment of stakeholders with its long-term strategy.
CRH plc CRH manufactures a range of building materials, including cement. We had a call with the
CEO to discuss the company's progress on decarbonisation. The call reaffirmed the
ambition that the company wants to lead on carbon reduction within the cement industry
and a revised carbon strategy is being published at the beginning of next year. The cement
industry is among one of the most carbon-intensive sectors with technology to provide a
scalable and cost-effective solution to zero carbon emissions in development. We were
really encouraged by the commitment to lead and look forward to seeing the revised
strategy next year, which we have already agreed to discuss with management once it is
published.
Moderna, Inc. We continued our conversation with Moderna on its approach to maximising access to its
Covid-19 vaccine in a call with IR. We are very supportive of Moderna's tiered pricing
model and its reinvestment in an expanding pipeline of vaccines and treatments but
continue to encourage efforts to ensure universal vaccine access. This was a helpful call to
explore some of the steps Moderna is taking and some of the challenges it has faced. It
was also encouraging to hear how the company is facilitating vaccine donations from
countries with excess supply.
Peloton Interactive, Inc. We continued our dialogue with the company by speaking to members of Peloton's ESG
team. The focus of our discussion was planned enhancements to its supply chain and how
it thinks about climate change. Peloton's investment in a production facility in Ohio will
deliver several benefits for the business. These include improving the stability of its supply
chain by reducing geopolitical risk and lowering its carbon footprint by manufacturing
equipment closer to its core end markets. We also provided some guidance with regards
to Peloton's upcoming inaugural ESG report. We encouraged the company to focus on the
material environmental, social and governance issues and how these align with the long-
term strategy. Furthermore, we repeated our support for Peloton to be innovative and
different and aim to produce a document which outlines the real impact the business has
on its customers and other key stakeholders. We look forward to reading the report and
continuing our engagement with the business.Governance Engagement 17
Company Engagement Report
Prosus N.V. Prosus N.V. engages in ecommerce and internet businesses. It operates internet
platforms, such as classifieds, payments and fintech, food delivery, travel, education, e-
tail, health, social, and other internet platforms. We have been shareholders in the
business since it was spun-off from Naspers in September 2019, and continue to be long-
term holders of Naspers' shares. We were invited by the company to present our views on
governance and sustainability at its global finance summit, which consisted of
approximately 300 finance leaders based across the world. Sustainability has become a
strategic priority for the group and as a long-term, trusted partner we were asked to
provide some guidance on how we view sustainability, why we believe it is important and
where we think the company should focus. Our message focused on prioritising long-term
value creation, preserving what is unique about the company's culture and ignoring short-
term pressures, including conforming to generic ESG standards. We were very
appreciative of the opportunity to connect directly with a broad range of the company's
finance team, happy to return the favour for the privileged access and conversations we
have had with management and the board. We remain committed long-term investors in
Prosus and look forward to further developing our relationship into the future.
Rio Tinto Group We engaged with Rio Tinto's principal advisor on climate change. Our discussion focused
on the company's intention to submit a say-on-climate proposal at its next AGM. We
repeated our belief that climate is a material consideration for the company. Accordingly,
we believe the board has responsibility for ensuring successful implementation of the
climate strategy. We outlined some concerns with the proposed resolution, specifically
that it is advisory, it will hand significant influence to proxy advisors and consultants, and
may reduce accountability from the board. We outlined our belief that an annual vote is not
necessary as we want to avoid an endless cycle of shareholder engagement and short-
term progress assessments. We see concerning parallels with the say-on-pay resolutions,
which have disappointed in their ability to improve pay-for-performance and alignment. We
encouraged the company to take a long-term, forward-looking approach, which explains
how the climate strategy relates to the broader business plan, how they intend to meet
targets and where they see bottlenecks and opportunities. However, we are apprehensive
about the practicalities of a new advisory vote on a specific ESG topic and its
effectiveness in supporting long-term value creation. We remain committed to being a
constructive steward of the business in its efforts to address climate change.
Ryanair Holdings plc Following the company's AGM, we met with Chairman Stan McCarthy, non-executive
director Louise Phelan and Director of Sustainability, Thomas Fowler. We discussed the
company's recent order of planes from Boeing, the planned ramp up ahead of next
summer as we hopefully return to normal operating environment post Covid and its efforts
to reduce the company's carbon footprint. We have been encouraged by recent
engagements that Ryanair is actively involved in finding solutions to its climate challenges.
We explored its partnership with Trinity College to develop sustainable aviation fuel, its
views on new technology and its long-term net zero ambitions. We also discussed the
company's efforts to build relationships with staff. During the pandemic the board and
management worked hard to maintain open communication with staff and to protect jobs.
We think the company has made significant progress in its approach to sustainability
matters and how it interacts with shareholders. We look forward to continuing our
discussions with management.
Wizz Air Holdings Plc Following on from our discussions on executive remuneration earlier this year, we
continued our discussions on sustainability topics by speaking with the CEO, CFO and
Head of ESG. The company has an ongoing dialogue with the Science-Based Targets
initiative and made its first submission to the Carbon Disclosure Project. We discussed
how the company thinks about decarbonisation of its business and the broader aviation
industry. In the medium-term, sustainable aviation fuel has the potential to contribute,
while longer-term new airplane technology, in the form of electric and hydrogen planes,
will be important. As the greenest airline in Europe, Wizz is confident of maintaining its
industry-leading position. However, they believe the low carbon transition will have
significant impact on the whole industry. We also discussed the company's efforts to
improve diversity and inclusion, as well as maintaining open communication and good
relationships with employees. We think Wizz Air are taking a pragmatic approach to
sustainability, which is supportive of the company's long-term strategy. We welcomed the
opportunity to engage with the company and believe it has helped strengthen our
relationship. We intend to keep talking.Voting 18
Votes Cast in Favour
Companies Voting Rationale
Abiomed, Alibaba, HDFC Corp, Naspers, Prosus N.V., We voted in favour of routine proposals at the aforementioned
Prudential, Richemont, Snowflake Inc, Ubisoft meeting(s).
Entertainment, Wizz Air Holdings Plc
Votes Cast Against
Company Meeting Details Resolution(s) Voting Rationale
Abiomed Annual 2 We opposed executive compensation due to
11/08/21 concerns with one-off equity awards granted
during the year.
Votes Abstained
We did not abstain on any resolutions during the period.
Votes Withheld
We did not withhold on any resolutions during the period.
Votes Not Cast
Companies Voting Rationale
Ryanair We no voted this meeting as the company has restricted the voting
rights of non-EU holders of Ordinary shares and ADRs post-Brexit.Transaction Notes 19
New Purchases
Stock Name Transaction Rationale
Certara Certara is the global leader in biosimulation, the software driven modelling of biological
processes and systems used to predict how drugs will interact with our bodies. Robust
biosimulation helps improve decision making and speed within drug development and Certara's
clients include the major biopharma companies in each of the US, Europe and Japan. Growth is
driven both by a growing use of biosimulation software by smaller biotech companies and
broadening use cases (land and expand) with larger existing customers. Certara has a clear
leadership position in this market, where scale and experience matter and this position is
supported by network effects, where client simulations and data-sharing help to improve the
accuracy and usefulness of the software. The blue-sky investment case is that software
modelling is becoming increasingly central to the drug development cycle and that with
biosimulation at less than 1% of global R&D spend by the biopharmaceutical industry, there is a
huge runway of opportunity.
Denso Denso is a global manufacturer of auto parts headquartered in Japan. The company makes
automobile air conditioners, powertrain control systems and electric control systems.
Approximately 40% of its c.$40bn of sales are to Japan and 20% to North America with the
remainder to the rest of the world. It is one of the leading auto parts suppliers globally and is a
"tier 1" parts suppliers (supplying directly to OEMs) along with its peers Bosch, Continental and
Delphi. Denso is part of the Toyota group (around 50% of its sales are to Toyota) and appears to
be the 'brains' of Toyota with many pieces of proprietary technology. We believe that rising
emissions standards, improvements in fuel efficiency, continued growth in demand in
developing countries and an ageing fleet in developed markets will all help to will drive solid
growth in the end market. In addition, there is scope to develop and expand relationships with
automakers beyond Toyota. As such, we have taken an incubator-sized holding for the portfolio.
Peloton Interactive Inc Peloton's digital distribution of fitness content is a highly scalable model which, together with its
aspirational brand and community-based network effects, places the company in a strong
position to take a large share of a growing but fragmented fitness market. The high price points
of Peloton's connected fitness equipment prompted us to investigate the true size of its market
opportunity. However, the company's accelerating growth and strengthening value proposition
provide substantiation for the hypothesis that Peloton will be able to expand beyond early
adopters. High retention rates also attest to Peloton stimulating ongoing engagement among
existing customers with uncommon efficacy for a fitness product. This is encouraging for
profitability in the long term.
Complete Sales
Stock Name Transaction Rationale
Fairfax Financial Holdings We have sold the investment in Fairfax Financial Holdings after an extended period of
disappointing performance. Whilst the company continues to hold a number of interesting
investments that might yield value over the long-term, our confidence in the overall stewardship
of its investment portfolio has waned. With additional concerns mounting over governance
structures at the company we feel there are more attractive growth investments to be found
elsewhere.
Jackson Financial CDI We received Jackson Financial as a spin-off from Prudential, and did not want to hold this going
forward due to our conviction lying firmly with Prudential and the Asian opportunity that exists.
Wabtec Wabtec was purchased in Global Alpha in 2016. It is a global supplier of highly engineered
components and systems to the rail industry and other selected industrial markets. Our initial
investment case was centred around the belief that the combination of high barriers to entry and
industry consolidation would lead to a favourable backdrop for investment returns. While the
consolidation of the industry has largely played out, the company has proved to be more
cyclical than we had expected, and the macroeconomic environment has been challenging. We
have therefore decided to sell the holding to fund higher conviction ideas.You can also read
