Equity investors cling excessively to certainties and undervalue innovations, leading to particularly strong return prospects for certain growth stocks, asserts Tim Garratt, an investment specialist at Baillie Gifford.
Baillie Gifford, specialising in growth stocks, operates as a partnership, which Garratt highlights as a distinct advantage. “This differentiates us from other asset managers,” he said. “Being partner-owned, we’re not compelled to expand assets under management to appease external shareholders. This autonomy allows us to prioritise client interests and focus entirely on securing strong investment returns.” He added that the partnership model affords them the luxury of a significantly extended investment horizon, spanning several decades.
Garratt credits their strategy of providing ‘patient capital’ to both public and private companies as a key competitive edge. “We have superior access to the managements of the companies we invest in,” he said. Companies recognise Baillie Gifford’s long-term commitment and support for their future vision. Garratt notes that their longstanding investments in companies like Amazon, Tesla, and Nvidia, as well as their positive reputation, often lead private companies seeking capital to approach them directly.
Delayed public listings
Moreover, Garratt observes a trend where companies are increasingly delaying public listings. Baillie Gifford does not always seek an exit upon a company’s IPO, illustrated by their continued investment in Alibaba long after its public debut and their stakes in enterprises like SpaceX, which remains unlisted under their guidance. “What serves the company best ultimately benefits our clients,” Garratt said.
The Long Term Global Growth Investment Fund, managing $30 billion, aims to outperform the global index by at least 2.5% annually after fees over a long-term horizon of five to ten years. “Since its inception, the fund has consistently exceeded this target,” said Garratt.
The fund maintains a focused portfolio of 30 to 40 stocks, targeting companies poised for substantial growth over the next decade. Currently, Garratt sees significant opportunities in firms addressing global challenges such as logistics inefficiencies—exacerbated by rising protectionism, increased trade tariffs, and fuel costs—through innovations that reduce costs. Companies like Samsara, which offers analytics for transport logistics, and Symbotic, an industrial robotics manufacturer, are examples of investments poised for growth.
Garratt also points to sectors like healthcare, where rising costs demand innovative solutions. Investments include Dexcom, with its diabetes management technology, and Moderna, noted for its rapid drug development capabilities.
Bottom-up stock picking
Furthermore, the fund invests in cybersecurity firm Cloudfare and pioneers in simplifying online payments like Adyen and MercadoLibre. “We’re not thematic investors; we’re bottom-up stock pickers,” Garratt said. “The stocks we select often align with structural megatrends.”
Despite the market’s rallying prices for prominent growth stocks like Nvidia, Amazon, and ASML, Garratt remains highly optimistic about their future returns. “We’re witnessing once-in-a-generation buying opportunities,” he enthuses. He believes patient investors could see returns comparable to post-crash periods of 2000 and 2008, driven by underappreciated innovations.
Highlighting ‘anomalies’ in market valuations, Garratt points out that despite Moderna’s leading drug development technology, the market undervalues its potential, fixated instead on declining vaccine sales. Similarly, he sees the valuation discrepancies in SpaceX and Adyen as anomalies that savvy investors will recognize as bargains in years to come.
This article was originally published in Dutch on InvestmentOfficer.nl.