Investment trends for the year: A view from Baillie Gifford

Published on 15/05/2002 01:00

ROSS Lidstone, a partner with Baillie Gifford, points out that - for the UK in particular - the trend in these difficult economic times, is for institutional investors to appoint both an index fund manager, and specialist niche managers whose brief is to bring in higher rates of return by deploying their expertise within their particular niche sector.

"We have won substantial amounts of new business in the UK on niche mandates - with the provision of, for example, our UK Equity High Alpha products, which is a concentrated version of our UK Equity core product.

"These are 30 stocks picked on the basis of the conviction of their board leadership, where clients are committing a risk budget in the expectation of above average returns."

He underlines the fact that in investment circles, achieving above average returns when corporate profits are not yet showing any concrete signs of strengthening, takes deep skill.

"Our strategy is to hold companies where the earnings stream is highly visible and where we have a lot of confidence in the group’s management.

"There are a lot of issues in the telecommunication and technology sectors at the present that we do not see clearing themselves in the near future.

"They were the big engine of market growth throughout the 1990s. Now that they have definitely hit a brick wall, it is not clear where the next big engine of growth will come from.

"Nevertheless, even in a weak sector, one can find stocks that are worth holding. Our own technology fund, for example, has produced a slight positive return over the last 12 months, whereas the market in general is down.

"There is a definite trend in the US towards investors viewing emerging markets with greater favour. The re-rise of these markets can be justified on the basis of noticeably better performance over the last few years than has been achieved by developed economy stocks.

"Baillie Gifford has won more than US$500 million [340,760,000] of new money by winning EAFE [Europe, Australasia and the Far East] mandates from US funds who are interested in putting money back into these emerging market stocks."

Institutional investors, he observes, tend to have calmer nerves, which stems from the adoption of a longer-term perspective on their investments.

"Emerging markets may give them a more volatile ride, but they have generated a higher rate of return, and look set to continue to do so through the rest of 2002," Lidstone concludes.