‘God made the world round so we would never be able to see too far down the road.’ So says Karen von Blixen-Finecke – or at least Meryl Streep’s cinematic version of her in Out of Africa – when contemplating her future.
It is a sentiment echoed by Citywire AA-rated manager Iain McCombie (pictured below) to convey the philosophy of the Baillie Gifford Managed fund, which he runs with + rated manager Steven Hay.
‘It’s that inability to see what lies ahead,’ he says. ‘We know that and we don’t try to pretend to our investors or potential investors that we do know.’
Instead, McCombie takes a long-term (three-to-five-year) view on investments, for stocks looking for companies with growth potential.
The Managed fund, which started in 1987, costs 40 basis points a year. It is ranked 10th out of 192 funds in Citywire’s Aggressive GBP sector over five years to 28 February 2019, delivering 54.1% returns over that timeframe, compared with the average fund in the sector’s 32%.
McCombie says, because of his outlook, some of the fund’s worst performing stocks at the end of 2018 were some of the better ones over the full 12-month period. These include US online takeaway company Grubhub, which the fund holds at 0.9%; Abiomed, also at 0.9%, which manufactures the world’s smallest heart pump; and Netflix, at 1.1%.
‘The market didn’t like Netflix over the last quarter of 2018. But our view is it is investing in the future – building content and making sure it is attractive for new subscribers,’ McCombie says.
The reliance on technology in these three companies will have contributed to the fund’s lower performance during that period when technology stocks were hit. But McCombie is not fazed.
‘We’re not a technology portfolio but what we’re seeing at the moment is disruption. We like companies that are attacking that market. That’s why we have very little exposure to traditional retail for example.’
US online furniture retailer Wayfair is another ‘market attacker’, according to the manager. ‘We have been out to visit its depots and it is investing in improving its delivery, which will serve it well in the future as it expands into Europe,’ he says.
This year McCombie added a new company to the fund: German computer services business Bechtle. He also added to the fund’s positions in UK cattle breeding company Genus, UK engineering company Renishaw and life company Prudential.
‘It’s not rocket science,’ says McCombie. ‘We look at the companies, ask: “have the fundamentals changed? No, well why don’t we add to it then,” and that’s what we did.’
On the flipside he sold Spanish supermarket chain Dia. ‘That’s an investment that hasn’t worked for us so we decided to reinvest our money elsewhere,’ McCombie says.
The back-to-basics supermarket has been struggling to attract customers. Last week its biggest shareholder, LetterOne, won the support of other shareholders for its bid to take over and turn around the company.
US building materials company Martin Marietta has performed well for the fund, but McCombie thinks its run is over. ‘It has actually performed very well but we think most of the upside is not in the share price. It’s been a successful investment so it’s time to sell and move on,’ he says.
‘You will get more decisions wrong than you will get right,’ McCombie says. ‘But you can still do a very good job for your clients because there’s unlimited upside if you get a growth investment right.’