The Baillie Gifford American fund is one of the most highly-research funds in the UK, according to Trustnet. That’s really no surprise given its recent spectacular performance. In 2020 alone, the fund returned a stunning 122%!
Unfortunately, this momentum has slowed in 2021 so far. Before speculating whether this a golden opportunity for me to climb on board, let’s look at the fund in a bit more detail.
What is Baillie Gifford American?
Baillie Gifford American’s objective is pretty simple. Outperform the S&P 500 index by at least 1.5% per annum over rolling five-year periods. In their effort to achieve this, its fund managers make a point of paying more attention to company fundamentals than trying to predict where the US economy may go next. As such, they describe themselves as “bottom-up, growth investors with a long-term horizon.“
This strategy helps explains why the fund has an ‘active share’ of 89%. This is the extent to which its holdings differ from the benchmark index, expressed as a percentage. For me, this is a vital thing for any prospective investor to check before buying. After all, why pay a professional to beat the index if they’re not even attempting to do so!
Another big attraction to the fund is the relatively low management fee of 0.51%. This compares favourably to other extremely popular funds, including Terry Smith’s Fundsmith Equity (0.95%). The lower the cost of holding a fund, the more of its gains I get to keep.
Why has it fallen?
A quick look at which stocks Baillie Gifford American holds goes some way to explaining its outperformance last year and why this hasn’t continued into 2021. E-commerce giant Amazon and electric car maker Tesla feature, as does streaming major Netflix and conferencing app Zoom. Thanks, in part, to their frothy valuations, many of these stocks have now fallen out of favour.
This has been compounded by the fact that the Baille Gifford American team (Dave Bujnowski, Tom Slater, Gary Robinson and Kirsty Gibson) believe in running a concentrated portfolio. In other words, they focus on only their best ideas. This is why the fund will only ever own between 30 and 50 stocks at any one time. While this can turbocharge returns in the good times, it can also work the other way when their popularity dims.
So, time to buy?
As a way of getting exposure to some of the best companies the US has to offer, I’d be comfortable buying the Baillie Gifford American fund today. However, there’s are a few caveats.
First, there’s no guarantee we’ve seen an end to the tech sell-off. So long as the coronavirus vaccine rollout proceeds as planned and restrictions are lifted, the switch to ‘value stocks’ (those hammered by the pandemic) may continue. In such a scenario, the biggest beneficiaries won’t be those held by Baillie Gifford American. So, perhaps buying in installments would be prudent.
I’d also ensure I was sufficiently diversified elsewhere. This can be achieved in a variety of ways. One option would be to simply buy a selection of passive exchange-traded funds that track other stock markets around the world.
An alternative is to invest in a group of quality single company stocks with greater dependence on cheaper markets, such as the UK and Europe. A compromise would be to combine both approaches.
