BAILLIE GIFFORD US Equity Growth Quarterly Update 31 March 2022
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BAILLIE GIFFORD US Equity Growth Quarterly Update 31 March 2022
Contents
01 Executive Summary Through passporting it has established Baillie Gifford
02 Commentary Investment Management (Europe) Limited (Frankfurt Branch)
to market its investment management and advisory services
05 Performance and distribute Baillie Gifford Worldwide Funds plc in
11 Portfolio Overview Germany. Similarly, it has established Baillie Gifford
Investment Management (Europe) Limited (Amsterdam
12 Governance Summary Branch) to market its investment management and advisory
15 Governance Engagement services and distribute Baillie Gifford Worldwide Funds plc in
The Netherlands.
17 Voting Baillie Gifford Investment Management (Europe) Limited
18 Transaction Notes also has a representative office in Zurich, Switzerland pursuant
to Art. 58 of the Federal Act on Financial Institutions
19 Legal Notices ("FinIA"). It does not constitute a branch and therefore does
not have authority to commit Baillie Gifford Investment
Management (Europe) Limited. The firm is currently awaiting
This document is solely for the use of professional authorisation by the Swiss Financial Market Supervisory
investors and should not be relied upon by any other Authority (FINMA) to maintain this representative office of a
person. It is not intended for use by retail clients. foreign asset manager of collective assets in Switzerland
pursuant to the applicable transitional provisions of FinIA.
Important Information and Risk Factors Baillie Gifford Investment Management (Europe) Limited
is a wholly owned subsidiary of Baillie Gifford Overseas
Baillie Gifford & Co and Baillie Gifford & Co Limited are Limited, which is wholly owned by Baillie Gifford & Co.
authorised and regulated by the Financial Conduct Authority Baillie Gifford Overseas Limited and Baillie Gifford & Co are
(FCA). Baillie Gifford & Co Limited is an Authorised authorised and regulated in the UK by the Financial Conduct
Corporate Director of OEICs. Authority.
Baillie Gifford Overseas Limited provides investment Persons resident or domiciled outwith the UK should
management and advisory services to non-UK consult with their professional advisers as to whether they
Professional/Institutional clients only. Baillie Gifford Overseas require any governmental or other consents in order to enable
Limited is wholly owned by Baillie Gifford & Co. Baillie them to invest, and with their tax advisers for advice relevant to
Gifford Overseas Limited is authorised and regulated by the their own particular circumstances.
Financial Conduct Authority. This document contains information on investments which
Baillie Gifford Asia (Hong Kong) Limited does not constitute independent research. Accordingly, it is not
柏基亞洲(香港)有限公司 is wholly owned by Baillie Gifford subject to the protections afforded to independent research and
Overseas Limited and holds a Type 1 and Type 2 licence from Baillie Gifford and its staff may have dealt in the investments
the Securities & Futures Commission of Hong Kong to market concerned.
and distribute Baillie Gifford’s range of collective investment All information is based on a representative portfolio, new
schemes to professional investors in Hong Kong. Baillie client portfolios may not mirror the representative portfolio
Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 exactly. As at March 31, 2022, in US dollars and sourced from
can be contacted at Suites 2713-2715, Two International Baillie Gifford & Co unless otherwise stated.
Finance Centre, 8 Finance Street, Central, Hong Kong,
Telephone +852 3756 5700. South Africa
Baillie Gifford Investment Management (Europe) Limited
provides investment management and advisory services to Baillie Gifford Overseas Limited is registered as a Foreign
Financial Services Provider with the Financial Sector Conduct
European (excluding UK) clients. It was incorporated in
Ireland in May 2018. Baillie Gifford Investment Management Authority in South Africa.
(Europe) Limited is authorised by the Central Bank of Ireland North America
as an AIFM under the AIFM Regulations and as a UCITS
management company under the UCITS Regulation. Baillie Baillie Gifford International LLC is wholly owned by Baillie
Gifford Investment Management (Europe) Limited is also Gifford Overseas Limited; it was formed in Delaware in 2005
authorised in accordance with Regulation 7 of the AIFM and is registered with the SEC. It is the legal entity through
Regulations, to provide management of portfolios of which Baillie Gifford Overseas Limited provides client service
investments, including Individual Portfolio Management
and marketing functions in North America. Baillie Gifford
(‘IPM’) and Non-Core Services. Baillie Gifford Investment
Management (Europe) Limited has been appointed as UCITS Overseas Limited is registered with the SEC in the United
management company to the following UCITS umbrella States of America.
company; Baillie Gifford Worldwide Funds plc. The Manager is not resident in Canada, its head office and
principal place of business is in Edinburgh, Scotland. Baillie
Gifford Overseas Limited is regulated in Canada as a portfolio
manager and exempt market dealer with the Ontario Securities
Calton Square, 1 Greenside Row, Edinburgh EH1 3AN
Telephone +44 (0)131 275 2000 bailliegifford.com
Copyright © Baillie Gifford & Co 2009. Ref: 20332 10009707
Commission ('OSC'). Its portfolio manager licence is currently Capital Market Authority. No authorization, licence or
passported into Alberta, Quebec, Saskatchewan, Manitoba and approval has been received from the Capital Market Authority
Newfoundland & Labrador whereas the exempt market dealer of Oman or any other regulatory authority in Oman, to provide
licence is passported across all Canadian provinces and such advice or service within Oman. BGO does not solicit
territories. Baillie Gifford International LLC is regulated by the business in Oman and does not market, offer, sell or distribute
OSC as an exempt market and its licence is passported across
any financial or investment products or services in Oman and
all Canadian provinces and territories. Baillie Gifford
Investment Management (Europe) Limited (‘BGE’) relies on no subscription to any securities, products or financial services
the International Investment Fund Manager Exemption in the may or will be consummated within Oman. The recipient of
provinces of Ontario and Quebec. this document represents that it is a financial institution or a
sophisticated investor (as described in Article 139 of the
Japan Executive Regulations of the Capital Market Law) and that its
officers/employees have such experience in business and
Mitsubishi UFJ Baillie Gifford Asset Management Limited
financial matters that they are capable of evaluating the merits
(‘MUBGAM’) is a joint venture company between Mitsubishi
and risks of investments.
UFJ Trust & Banking Corporation and Baillie Gifford
Overseas Limited. MUBGAM is authorised and regulated by Israel
the Financial Conduct Authority.
Baillie Gifford Overseas is not licensed under Israel’s
South Korea Regulation of Investment Advising, Investment Marketing and
Portfolio Management Law, 5755-1995 (the Advice Law) and
Baillie Gifford Overseas Limited is licensed with the Financial
does not carry insurance pursuant to the Advice Law. This
Services Commission in South Korea as a cross border
document is only intended for those categories of Israeli
Discretionary Investment Manager and Non-Discretionary
residents who are qualified clients listed on the First
Investment Adviser.
Addendum to the Advice Law.
Australia
Baillie Gifford Overseas Limited (ARBN 118 567 178) is
registered as a foreign company under the Corporations Act
2001 (Cth) and holds Foreign Australian Financial Services
Licence No 528911. This material is provided to you on the
basis that you are a “wholesale client” within the meaning of
section 761G of the Corporations Act 2001 (Cth)
(“Corporations Act”). Please advise Baillie Gifford Overseas
Limited immediately if you are not a wholesale client. In no
circumstances may this document be made available to a “retail
client” within the meaning of section 761G of the Corporations
Act. This material contains general information only. It does
not take into account any person’s objectives, financial
situation or needs.
Qatar
The materials contained herein are not intended to constitute an
offer or provision of investment management, investment and
advisory services or other financial services under the laws of
Qatar. The services have not been and will not be authorised by
the Qatar Financial Markets Authority, the Qatar Financial
Centre Regulatory Authority or the Qatar Central Bank in
accordance with their regulations or any other regulations in
Qatar.
Oman
Baillie Gifford Overseas Limited (“BGO”) neither has a
registered business presence nor a representative office in
Oman and does not undertake banking business or provide
financial services in Oman. Consequently, BGO is not
regulated by either the Central Bank of Oman or Oman’s
Past Performance
Past performance is not a guide to future returns. Changes in
investment strategies, contributions or withdrawals may
materially alter the performance and results of the portfolio.
Material market or economic conditions will have an
impact on investment results. The returns presented in this
document are gross of fees unless otherwise stated and reflect
the reinvestment of dividends and interest.
Historical performance results for investment indexes
and/or categories, generally do not reflect the deduction of
transaction costs and/or custodial charges or the deduction of
an investment management fee, the incurrence of which would
have the effect of decreasing historical performance results.
It should not be assumed that recommendations/
transactions made in the future will be profitable or will equal
performance of the securities mentioned.
Potential for Profit and Loss
All investment strategies have the potential for profit and loss.
Stock Examples
Any stock examples, or images, used in this paper are not
intended to represent recommendations to buy or sell, neither is
it implied that they will prove profitable in the future. It is not
known whether they will feature in any future portfolio
produced by us. Any individual examples will represent only a
small part of the overall portfolio and are inserted purely to
help illustrate our investment style. A full list of portfolio
holdings is available on request.
Financial Intermediaries
This document is suitable for use of financial intermediaries.
Financial intermediaries are solely responsible for any further
distribution and Baillie Gifford takes no responsibility for the
reliance on this document by any other person who did not
receive this document directly from Baillie Gifford.Executive Summary 01 Product Overview US Equity Growth is a long-term, concentrated, regional equity strategy investing in exceptional growth business in the USA. These businesses are owned for long enough that the advantages of their business models and strength of their cultures become the dominant drivers of their stock prices. Risk Analysis Key Statistics Number of Holdings 45 Typical Number of Holdings 30-50 Active Share 91%* Annual Turnover 13% *Relative to S&P 500. Source: Baillie Gifford & Co, S&P. Strategy volatility since early 2020 is unprecedented in its 25-year history. We believe the portfolio is far more resilient than recent share price moves indicate Recent performance has been weak, as the growth rates for many of the companies we invest in inevitably moderate from the extraordinary levels of the past two years The US is the innovation capital of the world and the companies we hold ameliorate challenges as diverse as climate change, the Covid pandemic and high inflation Baillie Gifford Key Facts Assets under management and advice US$365.3bn Number of clients 871 Number of employees 1684 Number of investment professionals 352
Commentary 02
Calm amid the storm Heroes and villains
Strategy volatility since early 2020 is unprecedented in At times of heightened volatility and extreme short-term
its 25-year history. We did not consider outperformance outcomes, it is worthwhile taking the time to separate the
of 110 per cent in 2020 possible, nor did we envisage signal from the noise. Hopefully, it is clear from previous
underperformance by 30 per cent in 2021, with continued communications that we view the signal as the long-term
weak performance this quarter. Steep share price falls fundamental progress of the businesses in which we
have occurred recently amid a challenging backdrop of invest; the noise is the market’s near-term reaction,
ongoing supply chain disruption and the highest level of reflected in share prices. Over our five-year investment
inflation in the US for 30 years. We are horrified by the time horizon fundamentals drive share prices.
invasion of Ukraine and the tragic loss of life it is In truth, we were neither heroes in 2020 nor villains
inflicting. since. It is precisely this share price noise that we must
Decision-making during times of stress is challenging. look past. Turning our attention to fundamental progress,
It creates pressure to act, to believe that the world order the strategy delivered higher growth on average in 2021
has changed and one’s approach to investing must change than in 2020, with 40 per cent of the current portfolio
as well. We have analysed the resilience of the portfolio to delivering above 50 per cent sales growth, compared to
this environment, and our firm belief is that maintaining a 31 per cent in 2020. The stark difference in performance
long-term growth investing mindset provides the best between 2020 and 2021 is largely driven by market
chance of continuing to deliver the exceptional long-term sentiment, the difference in valuation the market assigns
outperformance required. We aim to invest in innovative, to our holdings. The portfolio re-rated in 2020 and
disruptive businesses which deliver broadly top quintile de-rated in 2021. At a portfolio level, valuations are back
growth over the next five years. The chart below to pre-Covid-19 levels, the collective outperformance
demonstrates that this group of stocks has outperformed in over the two-year period was driven by growth, not
every five-year period since 1995. This pattern has re-valuation.
persisted through periods of conflict, tranquillity, low and
high inflation and during periods where growth or value
has been in vogue. We draw comfort from the belief that Annual sales growth 2021 2020 2019
we are exploiting a persistent market anomaly driven by >50% 40% 31% 15%
the short-termism of others. This is the difference between 25%−50% 28% 26% 34%
growth and momentum investing, and we must stay the
course for the benefit of long-term returns.Commentary 03
Fundamental resilience For the most part, the combination of strong
fundamental progress and falling share prices leaves
The companies we are invested in have proven resilient us more excited about the current positioning of the
from a fundamental perspective to this difficult portfolio. However, there is a high bar for inclusion in the
environment. Their products and services are in much portfolio, and there are exceptions to this overall picture
greater demand, business models have adapted, the of strong fundamental progress. Our work over the past
portfolio has net cash compared to a highly indebted 12 months has revealed a few holdings where the scale
market, and 80 per cent of the portfolio is profitable on of future growth is less enticing. We sold Alphabet and
a net income basis or generates positive free cash flow. Mastercard for this reason in preference for companies
Most of the companies are investing heavily in their with more open-ended growth opportunities. And the
future success which dampens down current profitability, unexpected pandemic growth boost has done more harm
but we believe increases the chance and magnitude of than good to the long-term investment cases for a short-
long-term success. list of holdings. We sold the online user car dealership,
Share prices have proven far less resilient as the Vroom, amid signs it was struggling to cope. Similarly,
growth rates for many of the companies we invest in we sold Zillow as it found house pricing volatility too
inevitably moderate from the extraordinary levels of the difficult to live with for its direct home buying and
past two years. This adjustment is a primary reason for selling business. Peloton got ahead of itself in building
recent share price weakness, with holdings that were for unsustainable levels of demand. It remains a holding
clear beneficiaries of the lockdown environment as we weigh up the cost control medicine it is taking
(Moderna, Shopify, Wayfair, Zoom and Netflix), and versus the appeal of what remains a special business
those that are dependent on consumer appetite for model.
borrowing (Affirm, Redfin, Carvana, Vroom, Rivian and
Zillow) particularly hard hit.Commentary 04
Outlook We see parallels in the current internet and data
revolution. There has been the first generation of internet
Innovation and adaptability ultimately provide resilience giants, but we are now seeing new companies come to
to a challenging environment. In contrast to the prevailing public markets which are harnessing the power of data,
sentiment, we have a much more positive investment knowledge and the ability to analyse their environment
outlook which drives portfolio positioning. The US and improve, in a way never previously possible – this
remains the innovation capital of the world and the could gather pace for decades.
companies we hold ameliorate challenges as diverse We can’t tell you when share prices will bounce
as climate change, the Covid-19 pandemic and high back. Nobody can; stocks markets are unpredictable
inflation. and in the short run are affected by all sorts of human
We could well be at a tipping point in a revolution behaviours. Panic, excitement and herding, to name a
that is being driven by technology. These revolutions few. Our investment process deliberately invests through
have happened several times in history and each time that noise because we know that, over periods of five
they follow a similar path, taking around 50 years to play years and longer, market sentiment becomes much less
out. The first part of the industrial revolution involves a important. Company fundamentals dominate over these
small number of companies harnessing a new technology longer time frames, which is why we search for those
to great effect. They become dominant monopolistic rare businesses with exceptional and underappreciated
companies in a relatively small number of industries. growth potential. In contrast to current market sentiment,
In this first phase, inequality goes up, social unrest rises we believe that the opportunities to own businesses with
and regulators and governments struggle to know what outlier potential are expanding as innovation accelerates
to do. This can last 20 years or more. As the technology in almost every industry. The businesses driving this
becomes better understood, it starts to be used by innovation could return several times their starting share
more companies, and in industries that are less and less price to patient shareholders. In times like these, it
connected creating a golden era. Employment rises, becomes harder to exercise patience, but that’s exactly
inequality falls, and broad benefits are delivered to when our investment edge is at its strongest.
society. Eventually, the new technology becomes fully
absorbed into our lives and we stop thinking of it as
technology altogether. Like running water, railways,
or the telephone.
Disruption Week investment webinar series, June 21-24.
Details & registration:bailliegifford.com/DisruptionWeekPerformance - US Dollar 05
Performance Objective
2%+ p.a. above benchmark over 5 years.
The performance target stated is aspirational and in no way guaranteed, nor is it intended to be precise,
and is not used for the purpose of determining or constraining the composition of the fund’s portfolio. We
believe it to be a reasonable estimate of the amount by which we can outperform the relevant benchmark
in the long term through the consistent application of our investment process, taking into account the
opportunity set and the characteristics of the markets in which the strategy invests. Performance may
vary between segregated accounts and pooled funds in different jurisdictions as each structure will bear a
different set of costs. A single performance target may not be appropriate for all vehicles in all
jurisdictions and for this reason our fund specific materials will often refer to ‘material’ outperformance of
a benchmark. Factors that may lead to Baillie Gifford failing to meet our investment performance
objectives in future include a significant change in market characteristics such that our growth investment
style is unrewarded for a period of time; or misjudgement of the prospects for long-term earnings growth
for a significant number of individual stocks in which we invest.
Periodic Performance
Composite Net (%) Benchmark (%) Difference (%)
3 Months* -25.9 -4.6 -21.3
1 Year* -28.2 15.6 -43.9
3 Years 21.3 18.9 2.4
5 Years 23.4 16.0 7.4
10 Years 17.4 14.6 2.8
15 Years 13.0 10.3 2.7
20 Years 11.7 9.3 2.4
Since Inception 11.1 8.8 2.3
Annualised periods ended 31 March 2022. *Not annualised.
Inception date: 31 August 1997
Figures may not sum due to rounding.
Benchmark is S&P 500.
Source: StatPro, S&P.
US dollars
Discrete Performance
31/03/17- 31/03/18- 31/03/19- 31/03/20- 31/03/21-
31/03/18 31/03/19 31/03/20 31/03/21 31/03/22
Composite Net (%) 37.6 16.5 1.8 144.2 -28.2
Benchmark (%) 14.0 9.5 -7.0 56.4 15.6
Benchmark is S&P 500.
Source: StatPro, S&P.
US dollars
US Equity composite is more concentrated than S&P 500.Performance - Euro 06
Performance Objective
2%+ p.a. above benchmark over 5 years.
The performance target stated is aspirational and in no way guaranteed, nor is it intended to be precise,
and is not used for the purpose of determining or constraining the composition of the fund’s portfolio. We
believe it to be a reasonable estimate of the amount by which we can outperform the relevant benchmark
in the long term through the consistent application of our investment process, taking into account the
opportunity set and the characteristics of the markets in which the strategy invests. Performance may
vary between segregated accounts and pooled funds in different jurisdictions as each structure will bear a
different set of costs. A single performance target may not be appropriate for all vehicles in all
jurisdictions and for this reason our fund specific materials will often refer to ‘material’ outperformance of
a benchmark. Factors that may lead to Baillie Gifford failing to meet our investment performance
objectives in future include a significant change in market characteristics such that our growth investment
style is unrewarded for a period of time; or misjudgement of the prospects for long-term earnings growth
for a significant number of individual stocks in which we invest.
Periodic Performance
Composite Net (%) Benchmark (%) Difference (%)
3 Months* -24.3 -2.5 -21.8
1 Year* -24.2 22.2 -46.3
3 Years 21.6 19.3 2.4
5 Years 22.4 15.1 7.3
10 Years 19.5 16.7 2.8
15 Years 14.3 11.6 2.7
20 Years 10.3 7.9 2.4
Since Inception 11.0 8.7 2.3
Annualised periods ended 31 March 2022. *Not annualised.
Inception date: 31 August 1997
Figures may not sum due to rounding.
Benchmark is S&P 500.
Source: StatPro, S&P.
euro
Discrete Performance
31/03/17- 31/03/18- 31/03/19- 31/03/20- 31/03/21-
31/03/18 31/03/19 31/03/20 31/03/21 31/03/22
Composite Net (%) 19.7 27.6 4.1 128.0 -24.2
Benchmark (%) -0.9 19.9 -4.8 46.0 22.2
Benchmark is S&P 500.
Source: StatPro, S&P.
euroPerformance - Sterling 07
Performance Objective
2%+ p.a. above benchmark over 5 years.
The performance target stated is aspirational and in no way guaranteed, nor is it intended to be precise,
and is not used for the purpose of determining or constraining the composition of the fund’s portfolio. We
believe it to be a reasonable estimate of the amount by which we can outperform the relevant benchmark
in the long term through the consistent application of our investment process, taking into account the
opportunity set and the characteristics of the markets in which the strategy invests. Performance may
vary between segregated accounts and pooled funds in different jurisdictions as each structure will bear a
different set of costs. A single performance target may not be appropriate for all vehicles in all
jurisdictions and for this reason our fund specific materials will often refer to ‘material’ outperformance of
a benchmark. Factors that may lead to Baillie Gifford failing to meet our investment performance
objectives in future include a significant change in market characteristics such that our growth investment
style is unrewarded for a period of time; or misjudgement of the prospects for long-term earnings growth
for a significant number of individual stocks in which we invest.
Periodic Performance
Composite Net (%) Benchmark (%) Difference (%)
3 Months* -23.8 -1.9 -22.0
1 Year* -24.8 21.2 -46.0
3 Years 20.9 18.5 2.3
5 Years 22.1 14.8 7.3
10 Years 19.7 16.9 2.8
15 Years 16.0 13.2 2.8
20 Years 12.1 9.7 2.4
Since Inception 12.0 9.7 2.3
Annualised periods ended 31 March 2022. *Not annualised.
Inception date: 31 August 1997
Figures may not sum due to rounding.
Benchmark is S&P 500.
Source: StatPro, S&P.
sterling
Discrete Performance
31/03/17- 31/03/18- 31/03/19- 31/03/20- 31/03/21-
31/03/18 31/03/19 31/03/20 31/03/21 31/03/22
Composite Net (%) 22.7 25.4 7.0 119.4 -24.8
Benchmark (%) 1.6 17.9 -2.2 40.5 21.2
Benchmark is S&P 500.
Source: StatPro, S&P.
sterlingPerformance- Canadian Dollar 08
Performance Objective
2%+ p.a. above benchmark over 5 years.
The performance target stated is aspirational and in no way guaranteed, nor is it intended to be precise,
and is not used for the purpose of determining or constraining the composition of the fund’s portfolio. We
believe it to be a reasonable estimate of the amount by which we can outperform the relevant benchmark
in the long term through the consistent application of our investment process, taking into account the
opportunity set and the characteristics of the markets in which the strategy invests. Performance may
vary between segregated accounts and pooled funds in different jurisdictions as each structure will bear a
different set of costs. A single performance target may not be appropriate for all vehicles in all
jurisdictions and for this reason our fund specific materials will often refer to ‘material’ outperformance of
a benchmark. Factors that may lead to Baillie Gifford failing to meet our investment performance
objectives in future include a significant change in market characteristics such that our growth investment
style is unrewarded for a period of time; or misjudgement of the prospects for long-term earnings growth
for a significant number of individual stocks in which we invest.
Periodic Performance
Composite Net (%) Benchmark (%) Difference (%)
3 Months* -26.8 -5.7 -21.1
1 Year* -28.7 14.9 -43.6
3 Years 18.6 16.3 2.3
5 Years 21.8 14.5 7.3
10 Years 20.1 17.2 2.8
15 Years 13.6 10.9 2.7
20 Years 10.3 7.9 2.4
Since Inception 10.6 8.3 2.3
Annualised periods ended 31 March 2022. *Not annualised.
Inception date: 31 August 1997
Figures may not sum due to rounding.
Benchmark is S&P 500.
Source: StatPro, S&P.
Canadian dollars
Discrete Performance
31/03/17- 31/03/18- 31/03/19- 31/03/20- 31/03/21-
31/03/18 31/03/19 31/03/20 31/03/21 31/03/22
Composite Net (%) 33.0 20.7 8.4 115.6 -28.7
Benchmark (%) 10.2 13.5 -0.9 38.1 14.9
Benchmark is S&P 500.
Source: StatPro, S&P.
Canadian dollarsPerformance – Australian Dollar 09
Performance Objective
2%+ p.a. above benchmark over 5 years.
The performance target stated is aspirational and in no way guaranteed, nor is it intended to be precise,
and is not used for the purpose of determining or constraining the composition of the fund’s portfolio. We
believe it to be a reasonable estimate of the amount by which we can outperform the relevant benchmark
in the long term through the consistent application of our investment process, taking into account the
opportunity set and the characteristics of the markets in which the strategy invests. Performance may
vary between segregated accounts and pooled funds in different jurisdictions as each structure will bear a
different set of costs. A single performance target may not be appropriate for all vehicles in all
jurisdictions and for this reason our fund specific materials will often refer to ‘material’ outperformance of
a benchmark. Factors that may lead to Baillie Gifford failing to meet our investment performance
objectives in future include a significant change in market characteristics such that our growth investment
style is unrewarded for a period of time; or misjudgement of the prospects for long-term earnings growth
for a significant number of individual stocks in which we invest.
Periodic Performance
Composite Net (%) Benchmark (%) Difference (%)
3 Months* -28.3 -7.6 -20.7
1 Year* -27.2 17.3 -44.5
3 Years 19.1 16.7 2.3
5 Years 23.8 16.4 7.4
10 Years 21.3 18.4 2.9
15 Years 13.5 10.8 2.7
20 Years 9.8 7.4 2.4
Since Inception 11.0 8.7 2.3
Annualised periods ended 31 March 2022. *Not annualised.
Inception date: 31 August 1997
Figures may not sum due to rounding.
Benchmark is S&P 500.
Source: StatPro, S&P.
Australian dollars
Discrete Performance
31/03/17- 31/03/18- 31/03/19- 31/03/20- 31/03/21-
31/03/18 31/03/19 31/03/20 31/03/21 31/03/22
Composite Net (%) 36.9 25.8 18.1 96.2 -27.2
Benchmark (%) 13.4 18.2 8.0 25.6 17.3
Benchmark is S&P 500.
Source: StatPro, S&P.
Australian dollarsPerformance – Attribution 10 Stock Level Attribution Top and Bottom Ten Contributors to Relative Performance Quarter to March 31, 2022 One Year to March 31, 2022 Stock Name Contribution (%) Stock Name Contribution (%) Meta Platforms 0.6 Tesla Inc 1.4 Tesla Inc 0.4 Cloudflare 0.9 Chegg 0.3 Meta Platforms 0.7 Home Depot 0.3 Datadog 0.6 Novocure 0.2 Paypal 0.5 Microsoft 0.2 Walt Disney 0.4 Paypal 0.2 NVIDIA 0.3 Amazon.com 0.1 JP Morgan Chase 0.3 JP Morgan Chase 0.1 Intel 0.2 Adobe Systems 0.1 Comcast 0.2 Shopify -4.8 Wayfair -4.8 Wayfair -1.7 Shopify -4.6 The Trade Desk -1.5 Roku -2.9 Moderna -1.5 Twilio -2.6 Netflix -1.4 Zoom -2.4 Roku -1.3 Redfin -1.9 Twilio -1.2 Chegg -1.6 Affirm -1.1 Vroom -1.6 Carvana -0.9 Netflix -1.5 10X Genomics -0.8 Carvana -1.5 Source: StatPro, S&P. US Equity composite relative to S&P 500. The holdings identified do not represent all of the securities purchased, sold or held during the measurement period. Past performance does not guarantee future returns. A full list showing all holdings’ contribution to the portfolio’s performance and a description on how the attribution is calculated is available on request. Some stocks may not have been held for the whole period.
Portfolio Overview 11
Top Ten Holdings
Stock Name Description of Business % of Portfolio
Tesla Inc Electric vehicles, autonomous driving and solar energy 7.9
The Trade Desk Advertising technology company 7.1
Shopify Cloud-based commerce platform provider 6.4
Amazon.com Online retail and computing infrastructure 5.7
Moderna A clinical stage biotechnology company 5.2
Cloudflare Application software developer 3.7
Illumina Gene sequencing equipment and consumables 3.7
NVIDIA Visual computing technology 3.6
Netflix Subscription service for TV shows and movies 3.5
Twilio Communication platform as a Service 2.7
Total 49.4
Sector Weights (%)
6 1 Information Technology 35.8
5
2 Consumer Discretionary 25.5
4 3 Health Care 19.8
1 4 Communication Services 8.4
5 Industrials 4.7
6 Financials 3.8
7 Real Estate 0.8
3
8 Materials 0.8
9 Cash 0.3
2
Figures may not sum due to rounding.Governance Summary 12 Voting Activity Votes Cast in Favour Votes Cast Against Votes Abstained/Withheld Companies None Companies None Companies None Resolutions None Resolutions None Resolutions None When thinking about ESG, it is as important to understand where you are starting from, as where you are hoping to go ESG approaches have to accommodate complexity and nuance - these issues do not lend themselves to binary classifications Ultimately, effective ESG integration involves ongoing research and engagement, not simple solutions Company Engagement Engagement Type Company Corporate Governance Carvana Co., Peloton Interactive, Inc. Environmental/Social Moderna, Inc., Tesla, Inc. Notes on company engagements highlighted in blue can be found in this report. Notes on other company engagements are available on request.
Governance Summary 13
As active, long-term investors, we understand there is no resource intensity; the effects of our holdings on their
such thing as a perfect company. The question we have customers and suppliers; and many other ‘ESG’ topics,
always sought to answer through ESG is: “how does the are part of the long-term investment potential, not
company get better from this starting point?” We believe supplementary to it.
that companies that are fundamentally misaligned with Our discussions with Lemonade, an innovative
broader societal expectations and ignore their insurance business, highlighted that its approach to
environmental impacts are unlikely to be successful over carbon emissions could become an advantage over more
the long run. We invest in companies, not sectors nor traditional competition. Lemonade has already
themes; we analyse each company on its merits. differentiated itself via a highly automated model that
We consider ongoing engagement with company makes use of behavioural indicators in its pricing and
management as core to our ESG activities and integral to makes the claims process many times faster. The
our long-term investment framework. Sometimes, this company also returns excess premiums to charities of its
engagement will involve reassuring management of our customers’ choosing, creating a fundamentally different
support during challenging periods; at other times, it relationship with its customers. We were interested to
entails urging companies to ‘do and be better’. discuss the company’s thoughts on climate change.
What that entails rightly continues to change. Societal Lemonade stopped investing its insurance float in
norms and expectations do not stand still. Likewise, you polluting industries three years ago. Its move into
would expect the issues that we examine to determine the insuring vehicles has brought it into more direct
investment case, and raise with company boards and interaction with emissions. Lemonade uses its data to
management, to adapt and grow with the times. estimate the emissions from vehicle and then offsets the
carbon as part of the product design. The company is
We have engaged with several of the companies in the
giving discounts for electric vehicles and offering free
US Equity Growth strategy already this year on a broad
insurance for chargers. This could give it a competitive
range of topics. We have deliberately not separated out
lead in a growing segment of the vehicle market and
ESG considerations into standalone discussions with
further differentiate it from the competition in the eyes of
companies. Instead, we include these questions in our
its customers. Are these ESG considerations, or
meetings with company leadership. Labour relations;
investment ones? We resist the artificial separation in our
analysis.Governance Summary 14
We also discussed emissions with two of our
biotechnology holdings: Sana Biotechnology and Denali
Therapeutics. These businesses might not be the most
obviously exposed to climate change, but with talented
employees in the biotech space in high demand,
employee retention is a critical issue. Average ‘regretted’
turnover in the industry is 25 per cent, but Sana’s is much
lower. It believes company values and mission play an
important role in retaining staff; people want to work
somewhere where their values are represented. Sana
would like to make some form of climate commitment to
communicate its values on this topic more clearly but are
still developing this ambition. We have offered to
continue to share our perspectives based on what we’ve
learned from other companies. Denali are also
considering whether it should begin to report on climate,
and while it is at an early stage in its thought process,
it also noted that employees would like to see the
company take the lead. We plan to continue these
conversations in future meetings. This will help us build
insight into the way each company engages with and
retains staff – an important issue for long-term growth.
ESG resists easy classification. We hope that the
examples above reinforce the idea that ESG does not sit
apart from investment analysis. The consideration of
ESG factors, by its nature, is a process of change. Yes,
it involves assessing the current risks and opportunities,
but the emphasis should be on ascertaining where the
opportunities for improvement (and potentially
transformation) lie.
And what ‘better’ looks like will depend on your
starting point. If the starting point changes
fundamentally, then it is both legitimate and necessary
to re-examine the company and its credentials. We can
establish how the company can improve and the
pathways it will need to tread to get there.
As investors that believe in the due consideration of
ESG matters and our responsibility as stewards of our
clients’ capital, we need to grapple with this complexity.
There are no easy answers – no neat boxes to tick,
no simple metrics to apply. There is only detailed
fundamental analysis and ongoing engagement, and a
healthy dose of humility.Governance Engagement 15
Company Engagement Report
Carvana Co. Objective: Our meeting with CFO Mark Jenkins gave us an opportunity to discuss potential
macro-economic headwinds and how to ensure management is aligned with the broader
goals of the organisation.
Discussion: Our Phoenix visit to meet Jenkins covered a range of topics: challenges of the
external economic environment, sustainability of strong gross profit per unit, the
challenges of scaling and how it continues to entrench its edge over competitors. All of
this is underpinned by the discussion of maintaining the Carvana culture of transparency
and alignment. Management spends a lot of time and thought in building a collaborative
work environment in order to create a culture and the technology to respond quickly to
clients. This reminds us of early Amazon. For example, open plan executive offices and
transparent meeting rooms have helped promote a collaborative culture. While CEO
Garcia's commitment to give each employee a maximum of $10,000 of Carvana shares in
recognition of the company selling 100,000 vehicles is an indication of the culture of 'skin
in the game' alignment.
Outcome: The meeting presented useful insights into the business model and culture of
the organisation and provided reassurance it can navigate potential challenges to future
growth.
Moderna, Inc. Objective: Following the 2021 publication of the World Health Organisation's (WHO)
roadmap to achieving global Covid-19 vaccination in 2022, we wanted to discuss the
feasibility of the recommendations the roadmap outlines for vaccine manufacturers with
Moderna. We wanted to emphasise our continued support for steps that will improve
global vaccine access. We spoke with the company's General Counsel about this in
January.
Discussion: We are confident that Moderna is meeting the recommendations and spirit of
the WHO's roadmap in most areas. On this call, we requested more detail about its
manufacturing ambitions on the African continent and encouraged further ambition in its
Global Public Health strategy. More public announcements are likely on this in the near
future, but we see these as very positive developments which will improve access to
mRNA vaccines and therapeutics over the long term. There are, however, elements of the
WHO's roadmap that Moderna does not believe it can meet in full, such as the rapid
transfer of know-how and technology.
Outcome: We continue to build our understanding of this very complex area of global
vaccine equity and will continue to encourage appropriate steps towards achieving this at
Moderna.
Peloton Interactive, Inc. Objective: We had a series of meetings with Executive Chair John Foley, CFO Jill
Woodworth, board members Karen Boone and Jay Hoag, and new CEO Barry McCarthy
to discuss recent management changes.
Discussion: Our initial concern with Foley's replacement, Barry McCarthy, was that this
was a cosmetic move to boost the share price ahead of a potential acquisition. While
McCarthy's track record is admired from his days as CFO at Spotify and Netflix, it wasn't
immediately clear that his experience is relevant to the areas where Peloton has struggled
(notably in the hardware business). However, the board explained that it is the partnership
of McCarthy and Foley that is essential for Peloton's next stage of growth. We believe that
the combination of their skill sets will be powerful as McCarthy has partnered with
visionary founders before and views Foley among these. McCarthy plans to examine all
areas of the business and has already identified key areas where immediate improvement
needs to be made, such as ongoing evaluation of leadership, staffing changes and a shift
in resource allocation from low-value hardware to high-value software.
Outcome: We think McCarthy's appointment is a positive development, and we will
continue to engage and monitor the progress the company makes.Governance Engagement 16
Company Engagement Report
Tesla, Inc. Objective: We engaged with the company to learn more about its decision to open a
showroom in Xinjiang and the recent legal case against the company alleging racist
behaviour at its Fremont factory.
Discussion: We received helpful clarity regarding Tesla's operations in Xinjiang. We are
cognisant of concerns about human rights abuses in the region involving the Uyghur
population. The company explained that the new site is a service centre used for
customers, who previously had to drive three hours to other centres in China. We also
learned that Tesla is investing in their responsible teams and has been completing
upstream audits on their supply chain. Reviews of tier-one suppliers have been completed
and work is ongoing to assess tier two to four suppliers. Reassuringly, all work done so far
shows no sign of forced labour.
The second half of our discussion focused on the recent Department of Fair Employment
and Housing (DFEH) case against Tesla alleging Black employees experienced pervasive
racism. There are a few similar cases outstanding against the company. However, it is
difficult to prejudge the outcome of these processes. What we have seen over consecutive
years is that the company is increasing its investment in human capital management and
employee engagement. This includes better terms and conditions for staff, improving
health and safety statistics and a more diverse employee base throughout the
organisation.
Outcome: We received some helpful clarification on important employee and supply chain
topics. We will continue to monitor these issues going forward, including raising them with
the company ahead of this year's AGM.Voting 17 Votes Cast in Favour We did not vote in favour of any resolutions during the period. Votes Cast Against We did not vote against any resolutions during the period. Votes Abstained We did not abstain on any resolutions during the period. Votes Withheld We did not withhold on any resolutions during the period.
Transaction Notes 18
There were no new purchases during the period.
Complete Sales
Stock Name Transaction Rationale
Vroom Inc We have sold the holding in Vroom, an online used car sales platform. Although the long-term
structural shift that is taking used car inventory online looks very much intact, and although
online platforms offer the promise of a lower-friction and more transparent customer experience,
we no longer have conviction that Vroom has a good chance of playing a significant role within
this space. Vroom's financial position puts the shares in a vulnerable position and seems likely
to limit the company's ability to pursue business growth. The share price has fallen a long way
from its post-IPO highs but we do not believe that there is a sufficiently likely upside case for it
to continue to be held.Legal Notices 19
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kind of investment decision and may not be relied on as such.
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