Short Briefings on Long Term Thinking – Baillie Gifford

Are European stocks coming back into favour? After years of underperformance, many of the continent’s companies appear undervalued when compared to their historical prices and US counterparts. Investment manager Stephen Paice suggests that a group of growth-focused stocks could be among the biggest winners if sentiment shifts, and he identifies a handful of places they are thriving.

Three technologies – quantum computing, reusable rockets and nuclear fusion – could change the trajectory of human progress. Find out how a trio of private companies is bringing them closer to fruition.

From smarter robots to intelligently designed drugs, Baillie Gifford partner Stuart Dunbar discusses some of the transformations that will define the years ahead.

The US’s transformational upgrade of its drainage, power and road networks is a long-term investment opportunity hiding in plain sight. In this podcast, Michael Taylor reveals some of the outstanding companies involved and makes the case that the markets have yet to fully appreciate the advantages working in their favour. Background: Michael Taylor is an investment manager in Baillie Gifford’s US Alpha strategy. In this Disruption Week briefing, he explains why years of neglect coupled with the destructive consequences of wild weather and our insatiable appetite for data-processing power have led the US to embark on a massive renewal of its physical infrastructure.  Taylor suggests that many of the companies creating long-term value benefit from supply advantages, which help them defend their commoditised products’ prices. These range from ownership of gravel quarries, which are difficult to get planning permission for, to the use of a gigantic, portable plastic drain-making machine. In addition, Taylor discusses what a second Trump presidency might mean for the sector and why finding standout companies involves travelling off the beaten track. Resources: Disruption WeekBuilding back: the great US infrastructure opportunitySpotting the winners from the great US infrastructure renaissance Companies mentioned include: Advanced Drainage SystemsEatonComfort Systems USAMartin MariettaNVIDIAStella-Jones Timecodes:00:00 Introduction1:35    Exceptional businesses confronting an exceptional problem3:20   The US v global infrastructure opportunity4:35   Donald Trump’s second presidency6:40   The benefits of patience7:35   Wild weather8:45   Investing in Advanced Drainage Systems11:05  Labour shortages12:15  Stella-Jones’s wooden telegraph poles14:05  Tree-spotter specialists16:15  Martin Marietta’s supply-side advantage18:55  Recycled aggregates’ limitations20:15  Finding US infrastructure investments21:45  Comfort Systems USA and keeping datacentres cool24:20  “Massive in terms of magnitude of spend and duration”

Many of the world’s most exciting, high-growth and disruptive companies are private. Moreover, the entrepreneurs running them are typically keeping them private for longer before trading their shares on public stock exchanges – and in some cases have no plans to do so. Baillie Gifford’s Private Companies Team seeks out exciting businesses and founders in this space to give our clients access to an increasingly important source of long-term growth. Taking a highly selective approach, it has invested more than $9bn across over 140 firms over the past 12 years. In this podcast, Alexander Nicolier explains how it does so and discusses some of our notable holdings. Background: Alexander Nicolier is an investment manager in our Private Companies Team. In this Disruption Week briefing, he reveals the scale of the opportunity and the increasing impact that the sector’s restless founders and their exceptional companies are delivering.From SpaceX to Bending Spoons, Epic Games to ByteDance, one of the distinguishing features of these pioneering firms is that they’ve been able to choose their shareholders. Nicolier reveals why Baillie Gifford’s patient approach and reputation have helped make us a favoured partner.He also reveals how deep research helps him and his colleagues embrace the uncertainty that can be involved with backing companies at an earlier stage of growth than many public market stocks. And he introduces some of his team’s most recent investments, including the immersive experience specialist Cosm and the next-generation computing company Tenstorrent. Resources: Alexander Nicolier profileArmand Spitz: seller of starsBaillie Gifford Private Companies hubDisruption WeekPrivate companies: investing in trailblazers The hidden cost of software Companies mentioned include: Bending SpoonsByteDanceCosmDisneyEpic GamesLoftMercadoLibreMetaNuBankOdditySpaceXStarlinkTempusTencentTenstorrentTesla  Timecodes: 0:00 Introduction1:30    What’s often misunderstood about private companies2:40   Relationship building in Brazil and Colombia3:40   Why reputation matters5:35   “Look out for a gringo”6:30   Private markets’ scale7:00   Our clients’ advantage9:25   SpaceX and uncertainty12:40  Dealing with setbacks13:45  Bending Spoons’ business model16:50  Cosm’s ‘shared reality’ experience18:50  Tenstorrent and Jim Keller’s talent magnetism20:20 The state of the IPO market21:55  Why Epic Games has stayed private25:00  Disney’s $1.5bn stake in Epic Games26:40 “Too big to ignore”

China is transitioning from a property-led economy to one focused on advanced manufacturing. It already leads the world in electric car production and the batteries that power them. And it’s also a growing force in renewables, robotics and biotech. Investment manager Helen Xiong discusses some of the growth companies involved, why concerns about overcapacity seem overstated and why rising trade barriers have implications for stocks traded inside and outside China. Background:Helen Xiong is an investment manager in Baillie Gifford’s Global Alpha Team and recently became joint deputy manager of The Monks Investment Trust. In this episode of Short Briefings on Long Term Thinking she discusses why global growth investors can’t ignore China even if they don’t directly own stakes in any of its companies.She describes how the country has made ‘advanced manufacturing’ a strategic priority, laying the foundations for future growth. This has already yielded results, with companies such as the electric vehicle maker Li Auto and battery producer CATL creating long-term value for shareholders – with the prospect of more to come.Xiong suggests that ‘rising trade barriers’ are one consequence of Western nations’ seeking to protect domestic industries and discusses how she takes this into account when deciding which companies to back. In addition, she considers the implications of Chinese retaliation and what that might mean for some of the US and Europe’s leading exporters.Xiong also shares her view on recent stimulus by the Chinese central bank and government agencies, focusing on signals of a shift that could create long-term shareholder value. Resources: China: finding the new shoots of growthJonathan Haidt: The Righteous Mind – Why Good People are Divided by Politics and Religion More from Helen Xiong:Beyond NVIDIA: investing across the semiconductor ecosystemGlobal Alpha Investor Forum 2024 Companies mentioned include:Li AutoCATL Timecodes:00:00    Introduction1:30      The advantage of being Chinese, African and European3:00      Relationships v individualism5:15      China’s post-Covid economy7:00      Why China matters to global investors8:30      Overcapacity: a feature, not a bug10:15    Brutal competition10:55    Investing in Li Auto13:45    Li Xiang’s attention to detail14:30    The car industry’s iPhone moment16:25    Trade tariffs18:20    Potential Chinese retaliation19:35    Chinese regulators20:35    Stimulus21:35    Focusing on long-term shareholder value22:20    Book choice23:45    Conclusion

Upheaval can create opportunity. Baillie Gifford’s Japan Team seeks out companies that will derive the greatest long-term benefit from transformational forces impacting business and broader society. In this podcast, investment manager Matthew Brett identifies four ‘structural growth’ drivers and the portfolio companies taking advantage of them. Background:Matthew Brett is the investment manager of The Baillie Gifford Japan Trust and our Japanese Fund, as well as co-manager of the Japanese Income Growth Fund. In this episode of Short Briefings on Long Term Thinking he discusses four forces creating long-term growth opportunities: -        Japan’s late embrace of digitalisation-        the rising spending power of its Asian neighbours-        the accelerated adoption of industrial automation-        the unmet health needs of an ageing populationBrett also names some of the Japanese companies driving these changes or otherwise gaining advantage, including ecommerce conglomerate Rakuten, skincare beauty firm Shiseido, machine vision specialist Keyence and Alzheimer’s drug developer Eisai.  Resources:Japan: the next opportunityKohei Saito: Slow Down – How Degrowth Communism Can Save The Earth Companies mentioned include:CalbeeDMG MoriEisaiKeyenceKOSÉPeptiDreamRakutenShiseidoSoftBank Timecodes:00:00    Introduction1:45      From psychology to investment2:25      Changing Japan3:15      Japan’s distinguishing market characteristics4:15      Visiting companies and other equities research6:00      Performance versus the TOPIX8:00      Defining digitalisation8:30      Leaving paper behind10:15    Rakuten’s online enterprise10:50    The advantage of QR barcode payments11:30    Rakuten’s loyalty points scheme12:25    Accelerating automation and industrial robots13:30    DMG Mori’s precision machines14:40   Keyence and robotic vision16:40    China’s chance of catch-up17:40    Rising wealth of Japan’s Asian neighbours19:00    Shiseido’s skincare advantage20:10    Unmet healthcare needs of an ageing population21:30    Testing further uses for Eisai’s Alzheimer’s drug 23:30    PeptiDream’s synthetic peptides24:00    Using AI to put peptides to use25:10    Calbee’s continued innovation26:00    Book choice28:50    Conclusion

Sometimes, you have to take a step back to leap forward. Over the past couple of years, Meta, Amazon, Block and Shopify are among the growth companies to have made efficiency cuts following the pandemic. Gary Robinson, an investor in Baillie Gifford’s US Equity Team, says that’s made them more agile and resilient – qualities that will let them take advantage of artificial intelligence and other opportunities to drive long-term growth. Background: Gary Robinson is joint manager of the Baillie Gifford US Growth Trust, a manager of the American Fund and a partner in our firm. In this episode of Short Briefings on Long Term Thinking, he explores how four leading internet-focused firms have streamlined their operations and reallocated resources to become more adaptable during a period of rapid change.Robinson draws a parallel with companies that made cutbacks after the global financial crisis to suggest that the markets may have underestimated how much growth can be unlocked by leaders taking a hard look at their firm’s spending, organisational structure and business priorities.Robinson suggests that recent efficiency drives will help Shopify, Meta and Amazon pursue AI-related opportunities that could meaningfully increase their earnings. And at Block, efforts to bring two products closer together could help the firm challenge Visa, Mastercard and American Express. Resources: Behind The Tech: Tobi Lütke: CEO and Founder, ShopifyDwarkesh Podcast: Mark Zuckerberg – Llama 3, Open Sourcing $10b Models & Caesar AugustusBent Flyvberg: How Big Things Get DoneCyril Northcote Parkinson: Parkinson’s Law, and Other Studies in Administration More from Gary Robinson: Lessons from evolutionary biologyWhy companies should embrace chaos Companies mentioned include: AmazonBlockMetaNetflixShopify Timecodes: 00:00    Introduction01:40    A background in biochemistry02:55    The appeal of American companies03:30    Parallels with the global financial crisis04:40   Post-Covid efficiency efforts06:25    Addressing overhiring and patched-together processes07:40    Future-proofed businesses08:00    The potential of AI08:10    Shopify and the distraction of side quests10:45    Shopify’s Sidekick assistant12:50    Engineering Shopify’s internal operations14:20    The authority of founder-leaders16:00    Meta’s ‘year of efficiency’18:00    How AI can drive further growth at Facebook and Instagram20:10    Business chatbots on WhatsApp and Messenger21:15    Investing in Block22:30    Capping employee numbers without compromising growth24:40    Square and Cash App’s potential to rival Visa and Mastercard26:35    Meeting Jack Dorsey27:40    Discipline and focus at Amazon29:00    Amazon’s fast-growing advertising business30:20    Generative AI’s trillion-dollar opportunity for AWS31:25    Offloading routine tasks to artificial intelligence32:25    Book recommendation33:40    Outro

Emerging markets have sometimes promised more than they have delivered, but circumstances may be tipping in growth investors’ favour. Will Sutcliffe, head of our Emerging Markets Team, explains why it’s an opportune time to invest in the asset class. Background: Will Sutcliffe is the head of Baillie Gifford’s Emerging Markets Team and co-manager of our Emerging Markets Leading Companies Fund. In this episode of Short Briefings on Long Term Thinking, he brings his 23 years of experience in the field to explain what makes the specialism different from other types of growth investing. He makes the case that finding exceptional growth companies at attractive valuations is only part of the equation. Investors must be mindful of the broader macroeconomic environment, he explains, to avoid getting caught out by currency swings or spiralling debt costs. This leads him to conclude that recent resilience in emerging market economies could point to a favourable outlook for the asset class’s growth stocks. All this only matters to our portfolios if there are exceptional businesses to invest in, and Sutcliffe argues that the emerging markets are home to an increasing number of world-class companies. They range from the Taiwanese chip maker TSMC to the energy, retail and telecoms conglomerate Reliance Industries. Resources: Emerging markets: why bother?Stock story: PinduoduoSouth-east Asia’s rising export starsJio Financial ServicesNaturaPDD HoldingsPinduoduoReliance IndustriesTemuTSMCGabriel Garcia Marquez: Until August Timecodes:00:00    Introduction01:45    Joining the Emerging Markets Team03:15    A ‘terrifying’ baptism of fire05:00    Emerging markets’ ‘dirty little secret’05:45    Qualifying for emerging markets status06:45    Higher-calibre companies08:00    Macroeconomic resilience09:30    US-China tensions and Russia’s invasion of Ukraine12:00    Investing in China13:45    PDD Holding’s Pinduoduo and Temu

A new medicine that can help patients lose 15 per cent of their body weight could have far-reaching consequences for healthcare. Wegovy mimics a hormone the gut releases, reducing appetite and slowing digestion to delay hunger’s return. Research is also underway into other potential health benefits. In this podcast, Baillie Gifford investment manager Ross Mathison discusses its maker, the Danish pharmaceuticals manufacturer Novo Nordisk, which became Europe’s most valuable company in 2023. Background:Ross Mathison is an investment manager in our Global Income Growth Team, co-manager of our Global Income Growth Fund and deputy manager of the Scottish American Investment Company (SAINTS). In this episode of Short Briefings on Long Term Thinking, he discusses how medicines that mimic the glucagon-like peptide-1 (GLP-1) hormone could help tackle the growing problem of weight gain. Forecasts suggest that by 2035, more than half the world’s population will either be overweight or obese. That’s likely to lead to more people suffering associated diseases, putting health budgets under further strain. Novo Nordisk initially researched GLP-1s as a diabetes treatment. The company is the world’s biggest insulin producer, but it’s the release of its weight-loss drug Wegovy that’s transformed its growth prospects. News that medical trials suggest that the therapy could also reduce the likelihood of heart attacks, strokes and other cardiovascular threats among some patients has driven further investor interest. Mathison explains that there could be further health benefits beyond this, how even more effective treatments could follow and why Novo Nordisk’s manufacturing edge and connection to the world’s biggest charitable foundation bode well for its future. Resources:New England Journal of Medicine: Semaglutide trialNovo Nordisk cardiovascular trial press releaseNovo Nordisk kidney trial press releaseNovo Nordisk FoundationWegovyWorld Health Organization obesity factsheetHitting Against the Spin Timecodes:00:00    Introduction1:40      What are GLP-1s?4:00      Scientific breakthrough5:05      Obesity: a disease, not a choice6:45      Novo Nordisk’s drug, Wegovy08:10    Prescription costs