Global Stewardship Quarterly Update 30 September 2021 - BAILLIE GIFFORD - Baillie ...
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BAILLIE GIFFORD Global Stewardship Quarterly Update 30 September 2021
Contents
02 Executive Summary Baillie Gifford Investment Management (Europe) Limited
03 Commentary also has a representative office in Zurich, Switzerland pursuant
to Art. 58 of the Federal Act on Financial Institutions
07 Performance ("FinIA"). It does not constitute a branch and therefore does
13 Portfolio Overview not have authority to commit Baillie Gifford Investment
Management (Europe) Limited. It is the intention to ask for the
14 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
21 Voting pursuant to the applicable transitional provisions of FinIA.
22 Transaction Notes Baillie Gifford Investment Management (Europe) Limited
is a wholly owned subsidiary of Baillie Gifford Overseas
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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.
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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.
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Qatar. distribution and Baillie Gifford takes no responsibility for the
reliance on this document by any other person who did not
Oman
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this document represents that it is a financial institution or a
sophisticated investor (as described in Article 139 of theExecutive Summary 02 Product Overview Global Stewardship is an actively-managed, global growth equity strategy, combining established regional stock picking with a disciplined portfolio construction process and innovative approach to stewardship. Risk Analysis Key Statistics Number of Holdings 71 Typical Number of Holdings 70-100 Active Share 90%* Rolling One Year Turnover 18% *Relative to MSCI ACWI Index. Source: Baillie Gifford & Co, MSCI. The Sixth Assessment Report of the IPCC shows that human-induced climate change is unequivocal and getting worse Global Stewardship addresses climate change on a detailed, company-specific basis, with an emphasis on seeking out the opportunities presented by the shift to Net Zero This mirrors our broader investment approach, where we seek to understand the recent volatility in performance by re-examining the long-term growth case for holdings which have been weaker over the short term 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 03 The job of editing a document with many different Climate change is, of course, a global problem but the authors can be a thankless task. As anyone who’s ever ‘lived experience’ of it happens locally. Why is tackling found themselves lost in a sea of tracked changes will it so hard? It is both a glaringly urgent emergency and know, reaching agreement on the final version usually something that requires action over decades. Its causes requires both compromise and tenacity. Thus, we should and effects are unevenly distributed through time and spare a thought for the 721 authors from 90 countries geography, with those most responsible often the least asked by the Intergovernmental Panel on Climate Change exposed to its physical and economic impacts. It requires (IPCC) to finalise its Sixth Assessment Report. For them, international agreements among nations to address, yet it 9 August was a momentous day. The full 3,949 pages of also needs innovation and entrepreneurship from Working Group I’s contribution was published for the businesses to solve. And even understanding the science world to see, representing the most significant update to of it, as we have seen, needs the diligent work of our global understanding of the physical science of thousands of researchers. Navigating the challenges of climate change. It has taken a full eight years to climate change is complex and at times confounding, to complete. say the least. We are no strangers to long-term, diligent research Currently, the focus of much of the climate regulatory and analysis ourselves. We certainly try to avoid reaching intervention is on risk. The Taskforce for Climate-related hasty conclusions based on limited inputs or unreliable Financial Disclosures (TCFD) has raised the bar for data. So, the fact that this report – itself based on corporate climate risk disclosure. The framework seeks to thousands of separate scientific studies – should present drive better disclosure of the potential financial costs of such clear and unambiguous insight on the change climate change and the energy transition. These are society is causing to our planet is pause for thought. The factors that even the world’s best financial data modellers IPCC is certainly not prone to kneejerk reactions. These struggle to comprehend, let alone calculate. are careful and considered conclusions and they tell us that human-induced climate change is unequivocal and getting worse. © Esther HorvathAWIZUMA Wire/Shutterstock.
Commentary 04
Conventional economic modelling can find it hard to So, what businesses do we believe can both help
incorporate the type of unprecedented impacts that address climate change and create value for the Global
climate change might bring – such as large-scale crop Stewardship portfolio over the longer term? Well, we
failure, global sea level rise and collapse of ecosystems. need much more efficient methods of home heating and
Conversely, losses to fossil fuel-based business models in cooling which account for around 14 per cent of
a decarbonising world are much easier to calculate. And greenhouse gas emissions here in the UK. This helps
so, as we incorporate climate scenario analysis into our explain the holding in NIBE, with its ground source heat
Global Stewardship portfolio analysis, there are no short pumps that are twice as efficient as gas boilers. We will
cuts. We think about this company by company. The also need to convert a good portion of our road-based
conversations that we have on the subject with the Indian transportation to electricity where Tesla is clearly making
insurer and relative laggard HDFC Life focus on physical great strides with its cars and innovation in trucks and
risk and vary considerably from those with Netflix on other commercial vehicles.
transition risk, or the Japanese industrial holdings such as Alongside energy innovators, we will need a big
Fanuc, and the semiconductor manufacturer TSMC. contribution from the companies that enable more
TSMC’s products are at the heart of the digital economy efficient deployment of technologies, goods and services
and the company has been a longstanding pioneer in at scale. This leads us to companies such as TSMC and
sustainability management and reporting. However, the Samsung SDI in semiconductors and batteries, but also
transition to a lower carbon way of operating is businesses such as Bridgestone, which is focused on
challenging – the new generation of chips are yet more making tyres – which even electric cars can’t do without
efficient in use but more electricity intensive to produce, – cleaner and literally more circular in terms of
and the decarbonisation of the Taiwanese grid is recyclability.
hampered by the sheer pace at which renewables and
We need influencers like Zalando and its drive for
carbon capture can replace a heavy bias to coal and gas.
more sustainable clothing, adidas in shoes, and platforms
Given Global Stewardship’s long-term, future-focused like Shopify adding carbon-related tools for merchants
investment approach, there is a danger that the and providing capital to innovative new businesses
opportunities presented by the shift to net-zero emissions tackling climate challenges via its Sustainability Fund.
may also be underestimated. We have a responsibility to
And to tie all this together and support a quantum
our clients to find these opportunities. At present we – the
change in industrial and supply chain efficiency, we will
world’s population – emit around 50 billion tonnes of
need better data analytics. The cloud systems of Amazon
greenhouse gases into the atmosphere each year. If we
Web Services, Alibaba and Tencent have the potential to
are to avoid the worst effects of the climate crisis, we
be critical enablers of the transition in this regard.
need to be at net-zero emissions by 2050. Consider that in
the year 2020, when activity across much of our planet While an approach such as TCFD has its merits, we
ground to a halt, emissions fell by just seven per cent. To think risk as a theory of change has its limitations: it will
reach net zero we will need to achieve this reduction not drive the scale of capital the world needs into climate
annually for the next 28 years! This shift from 50 billion solutions fast enough. The financial industry must do far
to zero will create rewards for innovators in, and enablers more than simply insulate itself from risk and exclude the
of, a lower carbon world. ‘bad’ companies in climate terms. It must seek to achieve
better climate outcomes, and by extension, better
In the words of Mark Carney: “Climate change is an
outcomes for all of us. There are companies pushing the
existential threat. We all recognise that, and there’s
boundaries. Take for example the private Swiss company
increasing urgency around it. But the converse is, if you
Climeworks, not held in Global Stewardship, which in
are making investments, coming up with new
September began operations at Orca, the world’s largest
technologies, changing the way you do business, all in
carbon-capture plant. This is designed to suck carbon out
service of reducing and eliminating that threat, you are
of the air and turn it into rock. Though impressive in its
creating value.” Looking forward to a net zero 2050 there
technology and scale, in aiming to extract around 4,000
are some things we can be relatively certain about –
tonnes of carbon dioxide a year, this is equivalent to the
properly priced carbon, electrification of transport,
emissions of a mere 870 cars! Renewable electricity
sustainable agriculture and increased city living all look
generation and batteries have been the foundational
likely to be part of the solution. These are fertile hunting
drivers of the energy transition. Might we experience the
grounds for stock pickers focused on sustainability.
start of a new wave in the capacity of carbon-capture
solutions?Commentary 05
Which brings us to our other core responsibility, merchants and consumers in its mission to offer simple,
which is to be supportive and constructive long-term honest and transparent financial products. Such services
owners of companies as they navigate the transition are available via online merchants, that today include
towards net zero. All companies will need to get there Amazon, Peloton and those on the Shopify platform to
eventually. For some it presents a near-term liability or name but a few. We believe innovation is good for the
opportunity, or both, while for others it is less material to long-term health of the financial services industry and are
their core business, though still a feature of regulatory keen to support those business with the potential to lower
requirements and the customer environment they operate frictional costs for stakeholders. The company’s most
in. We try to ensure that our engagement with companies recent results very clearly highlight the success the
on climate-related issues is based on material risks and company is having in appealing to a greater array of
opportunities but is also supportive through significant merchants and consumers, while slowly expanding its
periods of change. offering beyond its core lending product. For example,
For companies to drive this transition effectively, the Affirm has attracted US$300m of deposits in its savings
role of governments in helping to set the goalposts and products this year with absolutely no promotional
rules of the game is vital. The Paris Agreement of 2015 spending.
was a huge step forward in this respect, but as we look to Relative performance was also boosted by a long-
COP26 in Glasgow in November we need to see more standing holding that is perhaps less familiar to many,
detail emerge on the regulatory and fiscal frameworks IMCD. This is a European specialty chemicals distributor
that are required. Put simply, the sheer speed of change – think of the company as an outsourced sales and
required for us to have any chance of staying within the marketing department for specialty chemicals, and a
1.5-2℃ limits agreed in Paris means significant policy marketplace. IMCD has 55 laboratories around the world
intervention is now needed in many areas like heating, where it meets with customers to work on specific
power, transport and agriculture. formulations. The focus is on understanding its customer
Meanwhile, in Global Stewardship we are working needs and having the requisite commercial and technical
hard to ensure that we, and the investee companies, expertise to deliver on those needs. Its reach is global:
understand the opportunities – as well as the risks – of 2,500 carefully selected suppliers providing over 40,000
climate change in the portfolio to give us the best chance products. What place does such a company have in a
of delivering truly sustainable returns into the future. sustainability portfolio? Well, chemicals form the
backbone of many products used in daily life such as
cleaning products, and IMCD helps to efficiently connect
Performance fragmented customers and suppliers from around the
world. Importantly the company also screens its suppliers
Volatile. This is the word that springs to mind when
from a sustainability perspective and can help guide
considering the performance of the Global Stewardship
customers towards the most sustainable options.
portfolio thus far in 2021. While strategy returns are
comfortably ahead of the benchmark over three and five And what of the detractors over the period? Alibaba
years, the shorter-term numbers have lagged. As markets and Tencent were notable in that regard as the actions of
have fretted about inflation, interest rates, and who might China’s regulators have again come to the fore. We
be the winners and losers as life begins to ‘normalise’ believe that China’s regulators, like many globally, are
following the Covid chaos, the share prices of portfolio trying to balance innovation with the right level of
companies have swung about, often with little evidence oversight to ensure that large businesses are not abusing
of fundamental reasoning. their positions. Such intervention should be in the long-
term interests of building sustainable industries. But
Investment is challenging enough without losing navigating internet regulation is tricky because investors
focus, or pretending we are experts on a wide range of must assess the degree to which regulations are driven by
macroeconomic issues. Our skill lies in finding politics versus a genuine concern for the development of
exceptional, rapidly growing businesses and owning them healthy industries and protecting consumers. The reality
for a sufficiently long-time period that their fundamental is that big tech is under the microscope globally because
progress drives their share price. of its growing influence, and the regulatory framework is
Take Affirm, whose shares have been a notably strong tightening everywhere. For better or for worse, the
performer over the quarter. Affirm offers point of sale difference is that China’s system of government allows it
credit for customers, typically short duration loans for to act faster to meet its dual aims of growth and stability.
purchases of around US$700 on average. It is our In the short term, this has clearly concerned markets but
contention that Affirm is positively aligned with both the retail and web services of Alibaba, and the onlineCommentary 06
community of Tencent, continue to benefit hundreds of
millions of Chinese consumers with the goods, services
and connectivity that they provide.
Other significant detractors included those that have
been stronger performers over longer time periods such
as the education services provider Chegg, and the
communications company Zoom. In the last 18 months
we’ve seen video conferencing move from a ‘nice to
have’ to a ‘must have’ for most organisations. As we shift
from home working to hybrid arrangements this desire
for hyper connectivity is likely to endure, if not increase
further. The market is, however, hard to please and the
shares fell after second quarter results saw revenue
growth of just 54 per cent year-on-year. We remain
enthused on a long-term view with the launch of new
features like built-in apps and a digital event offering, as
well as traction in Zoom Phone. The latter is a unified
app for phone, video, meetings and chat. It allows the
user to seamlessly make and receive phone calls, share
content, participate in video meetings, and send chat
messages from Zoom desktop and mobile apps, which is
proving popular among customers in the hybrid working
transition. All these developments suggest Zoom is closer
to the start than the end of its growth opportunity.
With engagement at the heart of our process, we will
learn a lot from the exceptional founders and
management teams of Global Stewardship’s portfolio
companies as they evolve, improving our understanding
of these industries, and the nature of technology-driven
disruption. We must be even more patient than usual in
ownership as transformation, climate-led or otherwise, is
never easy. The potential for a few innovative businesses
to drive progress as well as stock market returns has
perhaps never been greater. As investors we are in the
privileged position to contribute meaningfully to solving
societies greatest challenges and we believe over the long
term this approach will also deliver sustainable and
superior returns.
The views expressed reflect the personal opinion of the
author and should not be considered as advice or a
recommendation to buy, sell or hold a particular
investment.Performance - US Dollar 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* -6.2 -1.0 -5.3
YTD* 2.4 11.5 -9.0
1 Year* 21.7 28.0 -6.3
3 Years 23.5 13.1 10.4
5 Years 23.5 13.8 9.7
Since Inception 22.3 13.2 9.1
Annualised periods ended 30 September 2021. *Not annualised.
Inception date: 31 December 2015.
Figures may not sum due to rounding.
Benchmark is MSCI ACWI Index.
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 (%) 28.3 18.7 -7.3 66.9 21.7
Benchmark (%) 19.3 10.3 1.9 11.0 28.0
Benchmark is MSCI ACWI Index.
Source: StatPro, MSCI.
US dollarsPerformance - Euro 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* -4.0 1.4 -5.4
YTD* 8.2 17.7 -9.6
1 Year* 23.2 29.5 -6.3
3 Years 23.6 13.2 10.4
5 Years 22.7 13.1 9.6
Since Inception 21.0 11.9 9.0
Annualised periods ended 30 September 2021. *Not annualised.
Inception date: 31 December 2015.
Figures may not sum due to rounding.
Benchmark is MSCI ACWI Index.
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 (%) 22.0 20.8 -1.2 55.2 23.2
Benchmark (%) 13.4 12.3 8.6 3.2 29.5
Benchmark is MSCI ACWI Index.
Source: StatPro, MSCI.
euroPerformance - Sterling 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* -3.9 1.5 -5.4
YTD* 3.9 13.0 -9.2
1 Year* 16.7 22.7 -6.0
3 Years 22.1 11.9 10.3
5 Years 22.5 12.9 9.6
Since Inception 24.2 15.0 9.3
Annualised periods ended 30 September 2021. *Not annualised.
Inception date: 31 December 2015.
Figures may not sum due to rounding.
Benchmark is MSCI ACWI Index.
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 (%) 24.2 22.1 -1.9 59.1 16.7
Benchmark (%) 15.5 13.5 7.9 5.8 22.7
Benchmark is MSCI ACWI Index.
Source: StatPro, MSCI.
sterlingPerformance – Canadian Dollar 10
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* -4.1 1.3 -5.4
YTD* 1.9 10.9 -9.0
1 Year* 15.4 21.4 -5.9
3 Years 22.7 12.4 10.3
5 Years 22.6 12.9 9.6
Since Inception 20.4 11.4 9.0
Annualised periods ended 30 September 2021. *Not annualised.
Inception date: 31 December 2015.
Figures may not sum due to rounding.
Benchmark is MSCI ACWI Index.
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 (%) 22.1 22.7 -5.0 68.4 15.4
Benchmark (%) 13.5 14.1 4.4 12.0 21.4
Benchmark is MSCI ACWI Index.
Source: StatPro, MSCI.
Canadian dollarsPerformance – Australian Dollar 11
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* -2.5 2.9 -5.5
YTD* 9.4 19.1 -9.7
1 Year* 20.8 27.0 -6.2
3 Years 23.6 13.2 10.4
5 Years 24.9 15.1 9.8
Since Inception 22.5 13.4 9.1
Annualised periods ended 30 September 2021. *Not annualised.
Inception date: 31 December 2015.
Figures may not sum due to rounding.
Benchmark is MSCI ACWI Index.
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 (%) 25.1 28.7 -0.5 57.0 20.8
Benchmark (%) 16.3 19.7 9.4 4.4 27.0
Benchmark is MSCI ACWI Index.
Source: StatPro, MSCI.
Australian dollarsPerformance – Attribution 12 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 (%) Affirm 0.6 Tesla Inc 2.1 IMCD Group 0.4 Staar Surgical 0.9 Tesla Inc 0.4 Upwork 0.8 Netflix 0.3 Affirm Holdings 0.6 Misumi 0.3 First Republic Bank 0.5 Sartorius Stedim Biotech 0.2 IMCD Group 0.5 Nibe Industrier 0.2 Nibe Industrier 0.4 Sumitomo Mitsui Trust 0.1 Shopify 0.4 Beijer 0.1 Samsung 0.4 Prudential 0.1 Sartorius Stedim Biotech 0.3 Denali Therapeutics -0.7 Zoom -1.4 Upwork -0.6 MarketAxess -1.0 Zoom -0.5 LendingTree -0.9 Chegg -0.5 Alibaba -0.9 Alibaba -0.4 Chegg -0.8 Wayfair -0.4 Wayfair -0.7 Staar Surgical -0.4 Exact Sciences -0.4 Twilio -0.4 Pacira BioSciences -0.4 Redfin -0.3 Tencent -0.4 Zalando -0.3 Spotify Technology -0.4 Source: StatPro, MSCI. Global Stewardship composite relative to MSCI ACWI Index. Some stocks may have only been held for part of the period.
Portfolio Overview 13
Top Ten Largest Holdings
Stock Name Description of Business % of Portfolio
Shopify Cloud-based commerce platform provider 4.7
Tesla Inc Electric vehicles, autonomous driving and solar energy 3.6
Netflix Subscription service for TV shows and movies 2.7
TSMC Semiconductor manufacturer 2.6
MarketAxess Electronic bond trading platform 2.5
Amazon.com Online retail and computing infrastructure 2.4
Chegg Online educational company 2.3
NVIDIA Visual computing technology 2.3
First Republic Bank US retail bank 2.2
Upwork Online freelancing and recruitment services platform 2.2
Total 27.6
Sector Weights (%)
1 Consumer Discretionary 21.9
6
1 2 Information Technology 21.3
3 Industrials 15.4
4 Financials 14.1
5
5 Health Care 13.3
6 Communication Services 10.3
7 Real Estate 1.3
8 Consumer Staples 0.4
2
4 9 Cash 1.9
3
Regional Weights (%)
5
1 North America 53.5
4 2 Developed Asia Pacific 15.0
3 Europe (ex UK) 12.6
4 Emerging Markets 12.6
5 UK 4.3
3 6 Cash 1.9
1
2
Figures may not sum due to rounding.List of Holdings 14
List of Holdings
Asset Name Fund % Asset Name Fund %
Shopify 4.7 HDFC Life Insurance 1.1
Tesla Inc 3.6 MercadoLibre 1.1
Netflix 2.7 Spotify 1.1
TSMC 2.6 Adevinta 1.1
MarketAxess 2.5 DENSO 1.0
Amazon.com 2.4 Watsco 1.0
Chegg 2.3 Bridgestone 1.0
NVIDIA 2.3 Zalando 1.0
First Republic Bank 2.2 Beijer, G & L AB 1.0
Upwork 2.2 Fastenal 0.9
STAAR Surgical 2.2 Dassault Systemes 0.9
IMCD 2.1 Hong Kong Exchanges & Clearing 0.9
Twilio 1.9 Exact Sciences 0.9
Samsung SDI 1.9 Waters 0.9
Workday 1.9 Nintendo 0.9
Illumina 1.8 Peloton 0.8
Wayfair 1.8 10x Genomics 0.8
FANUC 1.8 Mastercard 0.8
The Trade Desk 1.7 Rakuten 0.8
SoftBank Group 1.7 Codexis 0.8
AIA 1.7 Just Group 0.7
JD.com 1.6 iRobot 0.6
Kubota 1.5 Cosmo Pharmaceuticals 0.5
Prudential 1.5 Hargreaves Lansdown 0.5
Sartorius Stedim Biotech 1.5 LendingTree 0.5
Tencent 1.4 Ocado 0.4
Affirm 1.4 Baidu.com 0.3
Misumi 1.4 Glaukos Corporation 0.3
Redfin 1.3 Jackson Financial 0.1
Meituan 1.3 Cash 1.9
Alibaba 1.3 Total 100.0
Zoom Video Communications 1.3
Total may not sum due to rounding.
Denali Therapeutics 1.3 Based on a representative portfolio, new client portfolios may not
Abiomed 1.2 mirror the representative portfolio exactly.
DMG Mori 1.2
Alphabet 1.2
NIBE 1.2
Sumitomo Mitsui Trust 1.2
St. James's Place 1.2
Atlas Copco 1.1
Pacira BioSciences 1.1
adidas 1.1Governance Summary 15
Voting Activity
Votes Cast in Favour Votes Cast Against Votes Abstained/Withheld
Companies 5 Companies 1 Companies None
Resolutions 20 Resolutions 1 Resolutions None
We engage with portfolio holdings to understand, support and, where
relevant, challenge approaches to a range of sustainable growth
opportunities
Recent engagement with the freelance platform Upwork sought to
better understand the wider social impact of the trend towards more
flexible, informal working patterns
Climate was the focus of discussions with a diverse range of
businesses including Zoom, Spotify, Nibe and Peloton
Company Engagement
Engagement Type Company
Corporate Governance Amazon.com, Inc., Taiwan
Semiconductor Manufacturing Company
Limited
Environmental/Social Amazon.com, Inc., NIBE Industrier AB
(publ), Ocado Group plc, Peloton
Interactive, Inc., Upwork Inc., Zoom
Video Communications, Inc.
AGM or EGM Proposals Abiomed, Inc.
Notes on company engagements highlighted in blue can be found in this report. Notes on other company
engagements are available on request.Governance Summary 16
Engagement: conversations with companies In Upwork’s case, we put several of the positive
inclusion factor questions directly to the management
This section of the quarterly report summarises our team to address, and we discussed the work they were
progress in the ‘engine room’ of a good stewardship doing to improve their reporting to stakeholders and their
portfolio – engagement with portfolio holdings to external engagement with regulators and policy makers
understand, support or challenge (as appropriate) their on such topics.
approach to a range of sustainable growth opportunities. By looking at companies through the wider lens of
The whole asset management industry is currently ‘adding value for society’, our process goes beyond the
attempting to step up its commitment to company narrower question of whether Upwork’s freelancing
engagement, driven by increasing client expectations platform provides fair work opportunities for its users,
and the rising bar of regulation. However, in our and opens up a more holistic and long-term discussion
experience, there isn’t nearly enough thought given to about the changing nature of work and the workplace.
why and how to engage. At Ballie Gifford, we are often This of course matters as a responsible investment issue,
in the privileged position of enjoying good access to but importantly for Upwork and for our clients, societal
management teams. We try to use this thoughtfully and perceptions of whether the growth of freelancing is a net
wisely, typically engaging after rather than before we positive in the economy over the next decade matter
have done our own initial research, and with a clear enormously and will determine whether this exciting
purpose in mind. Casting an eye over the stewardship business has a regulatory tailwind or a headwind as it
reports of other industry players and taking account of the seeks to rapidly scale its platform. The integration of
feedback we get from holdings; the vast majority of these considerations alongside the analysis of the more
company engagement appears to fall into two categories. conventional and fundamental aspects of a company help
The first is conventional, narrow ‘quarterly earnings’– us to determine whether holdings have the potential to be
driven financial discussions, where sustainable growth true sustainable growth stocks over many years to come.
themes rarely get more than a cameo role. The second Another notable engagement this quarter was our
is and Environmental, Social and Governance (ESG) meeting with Harley Finkelstein, Shopify’s president.
risk-themed discussions led by ESG analysts armed with One of the defining characteristics of Shopify to date has
third-party assessment reports. been its willingness to grow in a way that shares the
As a firm, and more specifically in Global benefits of its success with its stakeholders. We discussed
Stewardship, one of the best bits of feedback we can get how the company is confronting the age-old reality that
from management teams is that we are the first investor size and dominance attract scrutiny and challenge.
to ask questions on an emerging theme. A great example Shopify isn’t completely immune to the external
of this was our recent conversation with Upwork, the constraints that come with scale, but its approach does
market leader in the freelancing industry. Upwork’s seem to be well thought through. The platform’s defining
platform enables freelance professionals across many characteristic and most significant positive social
countries to connect with quality corporate work attribute is the way in which it allows entrepreneurs to
opportunities. While most investors seemingly focus start up and build online businesses with minimal upfront
on questions such as whether there are any proposed costs. It is levelling the playing field between large
increases to the comparatively low ‘take-rate’ (the share companies and small ones, something which supports
of the freelancer revenue that is retained by Upwork) our new business formation, bringing with it greater choice,
recent discussion with the company focused exclusively more competition and, as a result, innovation.
on the wider social impact of the trend towards more Furthermore, it doesn’t compete with its merchants and
flexible, informal working patterns. We find our Positive there is a direct correlation between merchant success
Inclusion Factors (PIFs) particularly helpful as a way into and how much money the company makes. Last year
these discussions, and in this case, question one is Shopify’s partners (a network of affiliated service
insightful: will the company add value for society in the providers who support Shopify merchants) generated
long run? $4 of revenue for every $1 that Shopify generated. For
merchants, the ratio was more than 40:1. We believe that
this stakeholder-centric approach is part of the reason
why Shopify has grown so quickly over the last five
years and has been able to postpone the onset of the
inevitable ‘bias-against-big’ phenomenon for longer than
other technology competitors.Governance Summary 17
This focus on user experience and fair value is part
of what we consider to be ‘product stewardship’, a theme
that you may not be familiar but which you will hear
more about in our work in the future. In addition to
product stewardship, we pay a lot of attention to
employee practices at our holdings and are increasingly
able to leverage the growing focus across our firm on
climate change, with a number or engagements on these
high priority issues reported below.
Finally, part of our commitment to good stewardship
is challenging our holdings on governance practices when
required. To this end, Baillie Gifford engaged with our
long-standing investment Abiomed on compensation
practices. We were concerned by the compensation
committee’s decision to grant Covid-19 recovery grants
during the most recent performance year, believing that
these awards undermined the integrity of the standard
compensation policy. We disagreed with the rationale for
granting these special payments and engaged with the
company to explain why we did not consider them to be
appropriate, communicating our intention to oppose the
executive compensation resolution. At the annual general
meeting, the pay proposal narrowly passed with 51 per
cent support. We hope that this strong oppose vote will
clearly demonstrate to the company the importance of
engaging with shareholders, and we look forward to
helping to shape better long-term pay practices in the
future.
The joining thread that runs through all our
engagements is our desire to be thoughtful and
constructive stewards of the businesses that we hold
on behalf of our clients. For Global Stewardship, this
naturally includes a commitment to helping them
anticipate and navigate sustainability challenges and
opportunities over the decades ahead, and it is our firm
conviction that this will support better performance for
our clients over the long term.Governance Summary 18
Engaging for understanding
The following are examples of our engagement activities during the quarter which have enhanced our understanding of the
investment and sustainability case for the holding in question. The table highlights interactions over the past quarter while some
issues noted in past reports remain on our targeted and ongoing engagement list.
Company Issue Update
Shopify Stakeholder relations We met with Harley Finkelstein, Shopify’s president. We discussed the growing scale and
scope of the business and the potential implications of this, focusing on the steps that the
business has been taking to ensure that it maintains the support and goodwill of
customers and regulators as it becomes increasingly prominent in the ecommerce
ecosystem.
Upwork Social Impact We met with chief legal officer Brian Levey and several of his colleagues to continue our
discussions about the impact of Upwork’s platform on both the broader labour market
and on the work proposition and wellbeing of freelancers in particular. Upwork genuinely
seems to welcome engagement on these topics even though they are not yet on the
agenda of its other shareholders. The management team believe that focus on the
societal impact of the trend towards freelancing and flexible working patterns will only
become more prominent over time as regulators and other stakeholders take more
interest.
Importantly, Upwork believe that it has a very positive story to tell, both in terms of
creating value for companies and freelancers alike by matching up supply and demand,
and through the inclusion of millions of workers in the economy who might otherwise be
excluded for a range of reasons. Upwork is now providing more information on
environmental, social and governance issues, but it has limited data on the wider impact
of the platform, with the focus to date being predominantly on the firm’s core operations
and diversity and inclusion initiatives.
We offered to engage further on the topic of additional reporting content and metrics that
would help to frame the wider social and economic impact of the Upwork platform, an
offer that was enthusiastically taken up.
Spotify Climate Baillie Gifford colleagues met with Hanna Grahn, Spotify’s environmental and
sustainability lead, alongside members of the investor relations team to explore the
group’s increasingly ambitious plans for climate action and engagement. While the
company has had a pro-climate narrative for some time, actual disclosure has been
somewhat opaque. Work over the last year has changed that, and in early 2021 Spotify
released full direct and value-chain emissions data alongside a commitment to offset all
future emissions from 2020. Hanna understands that this is only a first step, and the aim
is to align actual emissions reduction to net zero, within the Science-based Targets
framework, by this year end.
Like Netflix, Spotify recognises that its most material influence is probably through the
ecosystem and information. There is a climate-specific resource hub for listeners linking
to science and action podcasts which they highlight across the app. Spotify has also
teamed up with Microsoft to fund academic work on the overall carbon footprint of
streaming, to learn more about upstream optimisation and potential improvements to
devices. The increase in pace at Spotify on climate is great news, and we will catch up
with the company again once the new targets are released.
Amazon Labour Practices Baillie Gifford holders had a call with Senior Independent Director Jon Rubinstein.
The focus of the discussion was the recent transition of the chief executive role from
Jeff Bezos to Andy Jassy. This has been a carefully managed process, to which the board
has dedicated significant time and resources 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
the company’s disclosure of health and safety data. Amazon is committed to improving
its 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.Governance Summary 19
Company Issue Update
Tesla Impact Reporting This quarter Baillie Gifford met with Investor Relations twice to discuss Tesla’s impact
report. From its reporting over the past two years, we have seen Tesla make
improvements with regards to both ESG disclosure and impact reporting and these
meetings demonstrated to us that the company has the intention to continue to develop
and become better. Work in the pipeline on lifecycle analyses and operational footprints is
evidence of this. Moreover, these meetings helped us to gain comfort that Tesla
continues to have a wider impact within the motor industry by challenging incumbents,
not just by its presence, but now more actively in policy and industry circles and through
its disclosures.
Ocado Stakeholder A member of the Baillie Gifford ESG team attended Ocado’s most recent ‘materiality
engagement consultation’, a process which is undertaken by businesses to understand stakeholder
priorities. Last year, Ocado conducted its first materiality consultation, so this exercise
was building on its previous approach. Ocado’s Head of Corporate Responsibility is keen
for the company to keep innovating in its approach to sustainable business and was
eager to hear our thoughts on how it can improve. Despite some negative publicity on
some specific community issues over the last few years, Ocado seems genuinely
committed to engaging constructively with stakeholders to put sustainability at the heart
of the firm’s growth strategy.
Zoom Climate Baillie Gifford ESG colleagues engaged with the company to deepen our understanding
of Zoom in the context of climate change. Zoom is still only at an early stage in
calculating its own emissions footprint, though it has appointed an environmental
consultancy to conduct analysis and intends to share results in the coming months.
Beyond this, the Zoom product is also estimated to save several megatonnes (Mt) of
carbon dioxide emissions thanks to avoided travel (the company estimated it saved
around 55Mt during the calendar year 2020, which for comparison is close to Amazon’s
total footprint). As ever, there are potential shortcomings to any calculations of avoided
emissions. To complement such analysis, we suggested to the company that users could
be surveyed at random after each Zoom meeting to ask whether the meeting replaced
business travel or commuting. We understand the company is now considering
repurposing a survey feature in Zoom to track this. We will continue to monitor Zoom’s
progress in its carbon accounting and disclosures.
Peloton Climate; Baillie Gifford colleagues spoke to members of Peloton’s ESG team. The focus of the
Impact Reporting 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. Guidance was also provided with regards to Peloton’s
upcoming inaugural ESG report. We encouraged the company to focus on material
environmental, social and governance issues and how these align with the firm’s long-
term strategy, and to aim to produce a document which outlines the real impact the
business has on its customers and other key stakeholders.
NIBE Industrier Climate ESG colleagues engaged with NIBE’s CFO, Hans Backman, to understand more about its
impact reporting practices and encourage improved disclosure on the emissions avoided
from the use of its products. Improved awareness of the benefits of heat pump
technology can also act as a catalyst for wider adoption. Avoided ‘scope three’ emissions
calculations are still a work in progress, made more complicated by NIBE’s decentralised
structure. Subsidiaries receive reporting guidance in the form of environmental and
financial handbooks, but still retain a significant amount of autonomy. The company is not
yet ready to set science-based climate targets, but it is actively considering this next
step. We also explored the proactive role NIBE is playing in the promotion of heat pumps
as climate solutions, its exposure to whole-home heating solutions and forthcoming
innovations in the form of ‘Internet of Things’ connected products. We will continue to
monitor reporting progress.Governance Summary 20
Engaging for action
At the following companies our engagement is targeted to effect a specific change and/or response.
Company Issue Update
Abiomed Remuneration We had a call with the chief financial offer and general counsel of Abiomed to discuss
recent changes to its compensation plan. We were concerned by the compensation
committee’s decision to award Covid-19-related recovery grants during the year, which
boosted compensation to management despite the impact on the business of the
pandemic. 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 annual general meeting,
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.Voting 21
Votes Cast in Favour
Companies Voting Rationale
Abiomed, Alibaba Group Holding, HDFC Life Insurance We voted in favour of routine proposals at the aforementioned
Co Ltd, Just Group, Prudential meeting(s).
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.Transaction Notes 22
New Purchases
Stock Name Transaction Rationale
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 some substantiation for the hypothesis that Peloton will be able to expand beyond early
adopters and add significant value for broader swathes of society by promoting physical
wellbeing. High retention rates also attest to Peloton stimulating ongoing engagement among
existing customers with uncommon efficacy for a fitness product. This is encouraging for both
social utility and profitability in the long term.
Rakuten Rakuten is a Japanese internet conglomerate with particular strengths in ecommerce and online
financial services. The shares have performed relatively poorly in recent years as the main
ecommerce business (Rakuten Ichiba) has not grown as rapidly as some of its competitors. In
addition, there are questions about the founder/chief executive Mr Mikitani's acquisition
strategy, and the company has decided to become a Mobile Network Operator (MNO) in Japan
which will require a significant capital outlay. Nevertheless, Rakuten has also had its successes:
building Japan's largest credit card business, challenging incumbents in banking and brokerage,
and building a very successful domestic travel offering. This portfolio of businesses has a
positive effect on the standard of living in Japan, adding value for society. In addition, Rakuten's
new telecoms network should help drive down prices and increase data capacity, both of which
are good for consumers. We are attracted to the combination of Rakuten's growing core
operations and innovation, alongside its potential to become a profitable player in mobile
telecoms.
Complete Sales
Stock Name Transaction Rationale
Lyft Inc Lyft's stock price has rebounded to pre-pandemic levels as the market anticipates a strong
upswing in the use of ride-hailing and ride-sharing services. However, this remains a small
position for Global Stewardship, prompting the question of whether to add. Although we admire
Lyft's founder-led management team, we have some concerns about the competitive
environment with Uber benefiting from the strength of its food delivery offering at a time when
the core ride-hailing business has suffered. We therefore decided to sell out of Lyft rather than
deploy further capital into the holding.
Markel Markel has been a longstanding holding for Global Stewardship. We remain admirers of its
corporate culture and distinctive approach, but we are now less enthusiastic about its long-term
sustainable growth potential. The insurance markets in which Markel operates have become
more competitive at the same time as the low interest rate environment has impacted upon
likely future returns. We therefore sold to fund higher conviction ideas.You can also read
