How Baillie Gifford American became a star fund

TL;DR

Baillie Gifford American became a star fund by concentrating on exceptional North American growth companies and holding them for the long term. Its objective is to outperform the S&P 500 index by at least one and a half percent after costs over any rolling five-year period. Investments such as Shopify and Tesla benefited as established trends accelerated, while disciplined stress-testing helped the team remain calm during volatility. Read on for its strategy, performance drivers, and recent additions.

Transcript

hello with me today i have dave bishnowski portfolio manager at the bailey gifford american fund dave the fund has been around for over 20 years but can you please tell us about its objectives and how you go about getting a good outcome for shareholders the objective of the fund uh the american fund is to produce long-term capital growth specifical... Read More

Key Insights

• 🫰 Bailey Gifford American Fund aims for long-term capital growth and has a track record of outperforming the S&P 500 index.
• 🥹 The fund's strategy focuses on finding exceptional growth companies, investing in them at scale, and holding them for a very long time.
• 💪 Recent success can be attributed to investments in companies like Shopify and Tesla, which experienced strong fundamentals and progress in their industries.
• 😘 During market volatility, the fund focused on stress-testing holdings and assessing potential threats posed by COVID-19, rather than making new purchases at the March lows.
• 😶‍🌫️ Recent stock purchases include disruptors in the used car buying process (Carvana and Vroom), innovative insurance models (Lemonade), and cloud software companies (Cloudflare, Datadog, and Twilio).
• 💆 The fund believes in staying true to their philosophy, process, and fundamental analysis, rather than getting distracted by short-term market movements.

Questions & Answers

Q: What is the objective of the Baillie Gifford American Fund?

The fund seeks long-term capital growth by outperforming the S&P 500 index by at least one and a half percent after costs over any rolling five-year period. The portfolio manager says this target reflects the fund’s philosophy, process, and long-term investment horizon.

Q: How does Baillie Gifford American select and manage investments?

The fund identifies exceptional growth companies in North America, invests in them at scale through a concentrated portfolio, and holds them for a long time. It looks for businesses with an enduring edge that are still early in disrupting large markets.

Q: Why does the fund use a concentrated, long-term strategy?

Its approach is based on asymmetrical equity returns, meaning that relatively few stocks generate a large share of market wealth over long periods. The fund therefore aims to identify potential outliers, back them meaningfully, and retain them for the long term.

Q: Why did Baillie Gifford American perform so well?

The portfolio benefited from an acceleration of trends it was already investing behind. Shopify and Tesla were two larger positions whose fundamentals had strengthened, while the pandemic further supported investment cases involving innovations, evolving business models, and disruption.

Q: What supported the investment cases for Shopify and Tesla?

Shopify was becoming infrastructure for more merchants seeking to sell online. Tesla made progress in automobile production, the competitive landscape, and profitability, including opening its Shanghai factory ahead of plan.

Q: Did the fund buy heavily during the March market lows?

No, the team traded very little and did not make incremental purchases at the bottom. It instead stress-tested each holding’s balance-sheet and cash-flow resilience and reassessed its forward-looking investment case against potential COVID-related threats.

Q: Which stocks did Baillie Gifford American add more recently?

Recent additions included Carvana and Vroom, which use online models to disrupt used-car buying, and Lemonade, which applies an AI-driven model to insurance. The fund also added Cloudflare, Datadog, and Twilio because it viewed them as well positioned for enterprises shifting to the cloud.

Q: How did the fund respond to pandemic-driven market volatility?

The team maintained a measured, calm mindset and continued following its normal process. Its resilience reviews encouraged it to retain holdings through volatile conditions, which helped as markets recovered.

Summary & Key Takeaways

• Bailey Gifford American Fund's objective is long-term capital growth and to outperform the S&P 500 index over five-year periods.

• The fund achieves its goals by investing in exceptional growth companies in North America and holding them for a long time.

• The fund has an impressive history of outperforming its benchmark, with recent success attributed to investments in companies like Shopify and Tesla.