Baillie Gifford high flying funds back down to earth

Baillie Gifford

A number of high flying funds and investment trusts managed by Edinburgh investment giant Baillie Gifford came back down to earth with a bang in the first quarter of 2022, according to research by Salford-based investment platform AJ Bell.

AJ Bell said gold and Latin American funds topped its performance tables in Q1 2022, with Russian funds bringing up the rear.

It said that after tremendous gains in 2021, UK smaller companies funds and trusts found themselves near the bottom of the performance tables in the early stages of 2022.

The Salford firm said Baillie Gifford’s flagship fund Scottish Mortgage saw a fifth of its value wiped out in the first quarter but that “the trust’s long-term performance is still exceptional.”

AJ Bell said the Baillie Gifford funds that took a hit in the first quarter included Baillie Gifford British Smaller Companies (-21.3%), Baillie Gifford American (-22.9%), Baillie Gifford European (23.2%), Scottish Mortgage Ord (-21.6%) and Baillie Gifford European Growth Ord (-25.9%).

Some funds managed by Edinburgh’s other investment giant Abrdn enjoyed a better first quarter with Abrdn Latin American Equity up 27.3% and Abrdn Latin American Income Fund Ord up 27.1%.

Laith Khalaf, head of investment analysis at AJ Bell, wrote: “After seeing some tremendous gains in 2021, UK Smaller Companies funds and trusts find themselves languishing near the bottom of the performance tables in 2022 so far.

“Inevitably after a period of such strong performance there will have been some profit taking, and combined with a weaker economic outlook and a rotation away from growth, that has left smaller companies funds deep in the red in the first quarter of the year.

“Baillie Gifford also finds an uncharacteristically large number of its fund range populating the bottom of the performance tables.

“These hitherto high flyers have been laid low by a sell-off in technology and growth stocks, which feature heavily in Baillie Gifford portfolios.

“This includes the largest UK investment trust, Scottish Mortgage, which saw a fifth of its value wiped out in the first quarter.

“That’s actually after a rally in the last month or so, before which, the investment trust was nursing year to date losses of around 35%.

“The trust has a very risk hungry approach to investing, so big drawdowns are part and parcel of what investors can expect from Scottish Mortgage.

“The trust’s long-term performance is still exceptional, though it has been riding on a tailwind of stellar growth from tech stocks, and could face more challenging times if that goes into reverse.”

Khalaf added:”Clearly the first quarter of 2022 has been dominated by the Ukraine crisis, and in the investment markets, that’s probably been most keenly felt by investors in Russian funds, with the JPM Russian investment trust losing 94% of its value over the course of the quarter.

“Only a handful of extremely adventurous investors will have meaningful exposure to such investments, but the performance figures do highlight the risk of choosing funds which target the shares of only one emerging market country.

“There have of course been second order effects of the conflict, such as the rise in the oil price and other commodities, which have helped boost the share prices of energy, commodity and Latin American investment funds.

“Latin American funds have also benefited from strong performance from financials in the first quarter, after interest rate rises in Mexico and Brazil.

“Gold funds have also had a strong quarter, with the gold price rising from $1,800 at the start of the year to over $1,900 now.

“The Ukraine crisis has heightened uncertainty for the global economic outlook, and with inflation posing a serious threat to cash and bonds, investors have clearly looked to gold as a safe haven …

“Looking forward, inflation and geopolitics look set to dominate proceedings for the foreseeable future, and both have an unsettling effect on markets.

“However that doesn’t rule our further advances for markets, seeing as they offer investors a chance of beating inflation in the long term, unlike cash and bonds.

“As ever investors shouldn’t base their decisions on calling unpredictable macroeconomic events, and should instead look to put money to work in the market at regular intervals, which helps to smooth the ups and downs.

“And with the end of the tax year now in sight, they should of course try to make their portfolios as tax-efficient as possible using their SIPP and ISA allowances.”