PICKING UP SPEED The long-term outlook for India
INTERPRETING THE NUMBERS An interview with Hans Rosling
THINKING SMALL
The rise of nanotechnology
Welcome I am delighted to welcome you to another issue of Trust magazine. Our investors here in Edinburgh always try to cut out the noise and listen to what is important. One man who also does this is Professor Hans Rosling, with his unique and memorable interpretations of social and economic statistics. Heather Farmbrough, Trust’s editor, travelled to interview Professor Rosling at his home in Sweden. She came away stimulated by new ideas and I think the article on page 9 gives a real insight into this extraordinary thinker and the logic behind many of his views. Charles Plowden, Baillie Gifford’s joint senior partner, also tried to screen out the noise on his first visit to India this year. As an experienced investor, he says he arrived a little sceptical, but he left convinced that it is worthwhile for Baillie Gifford to look even more closely at this vast and very diverse country. These are just two of the many interesting features inside this issue. I have enjoyed reading them all and I hope you do too.
Lindsey Greig is responsible for customer support for personal investors and intermediaries.
t | 02
This issue’s contributors
is the editor of Trust and a freelance journalist. She has worked as a stockbroker, a fund manager and a journalist on the Financial Times.
DAVID SMITH
PHILIP COGGAN
is economics editor and an assistant editor and policy adviser for The Sunday Times. His latest book is Free Lunch: Easily Digestible Economics.
is the Buttonwood columnist and capital markets editor of The Economist. His new book on democracy was published in September.
HEATHER CONNON
JOE FARADAY
has been a financial journalist for 25 years, contributing to titles such as the Observer, The Independent and the London Evening Standard.
Contributor Illustrations: Iain McIntosh
LINDSEY GREIG Chief Executive, Baillie Gifford Savings Management Limited
HEATHER FARMBROUGH
is an investment manager with Baillie Gifford. He has a degree in engineering, joined Baillie Gifford in 2002 and has travelled extensively.
DANIEL SIMPSON
EDWARD RUSSELL-WALLING
is a freelance writer, and a former correspondent for Reuters and The New York Times. His debut book is A Rough Guide to the Dark Side.
is a writer and editor specialising in business and finance. He has written for several publications including The Wall Street Journal and the Financial Times.
www.bgtrustonline.com
Contents Regulars
Features
04 IN BRIEF Baillie Gifford’s next Private Investors’ Forum, and our Children’s Savings Plan offer
06
THE FUTURE IS TINY Nanotechnology uses small particles to think big, writes Daniel Simpson
05 SPONSORSHIP & EVENTS Win a weekend at the Bath Literature Festival and details of our other sponsored events
12
PERCEIVED WISDOM We expose the pitfalls behind well-worn investment sayings
14 16
THE SCOTTISH REFERENDUM Baillie Gifford’s thoughts on the 2014 vote
18
IMPRESSIONS OF INDIA Charles Plowden and others on the potential opportunities in India
09 STATISTICAL MAGICIAN Exclusive interview with Professor Hans Rosling 30
INTERVIEW Gordon McQueen talks to Heather Farmbrough about the recent turmoil in British banking
32 DAVID SMITH David Smith contemplates the future for India 34 BOOK REVIEW Philip Coggan on Nate Silver’s book The Signal and the Noise 35 THE TRUSTS Baillie Gifford’s trusts, how to invest and risk details
Editor: Heather Farmbrough Sub-Editors: Bernie Deehan, Lisa Loveday Design: Touch www.thetouchagency.co.uk Print: J Thomson Colour Printers www.jtcp.co.uk Trust is a financial promotion. It has been printed on Arctic Volume paper which was sourced from wellmanaged forests independently certified according to the rules of the Forest Stewardship Council ® TT-COC-002242
trust@bailliegifford.com and 0800 917 2112
POSTCARDS FROM AFRICA A tour of the continent reveals several investment hotspots, discovers Joe Faraday
23 SEEING THROUGH THE NUMBERS Heather Connon looks at what annual reports actually say 27 CALLED TO ACCOUNT Edward Russell-Walling considers what makes a good modern bank
All editorial queries should be directed to: Stuart Conlan, Baillie Gifford Savings Management Limited, Calton Square, 1 Greenside Row, Edinburgh EH1 3AN. Images © Getty Images unless otherwise stated. Trust is also online at www.bgtrustonline.com Cover image shows the Kalka-Shimla Railway, Himachal Pradesh, India © Getty Images The articles in this issue were written between August and September 2013
03 | t
A great offer with our Children’s Savings Plan
Live forum with our fund managers
Open a new Baillie Gifford Children’s Savings Plan before 31 January 2014 and you will receive a £10 Amazon Gift Card.* The Children’s Savings Plan offers an affordable way to invest for a child’s financial future through the stock market. You can choose from the range of eight investment trusts managed by Baillie Gifford. Invest from £100 as a lump sum or from £25 each month and there is no maximum limit. You can start (and stop) investing at any time and switch between the eight trusts whenever you wish.
Baillie Gifford is holding its next Private Investors’ Forum on Tuesday 18 March 2014 at the Assembly Rooms in Edinburgh’s George Street. After a buffet lunch, there will be presentations by some of our key investment trust managers, and Baillie Gifford representatives will be on hand to answer any queries you may have.
As with all stock market investments, please remember that your capital is at risk.
*Terms & conditions apply. New Children’s Savings Plan customers only. For more details visit www.bailliegifford.com or call the Client Relations Team on 0800 917 2112.
To be the first to find out about the line-up at next year’s event and to pre-register for free tickets, visit www.bgtrustonline.com to sign up for email alerts. At Trust Online you can also read what our speakers said at the recent Private Investors’ Forum in London.
RISK WARNINGS AND IMPORTANT INFORMATION The views expressed in Trust should not be considered as advice or a recommendation to buy, sell or hold a particular investment. The articles contain information and opinion on investments that does not constitute independent investment research, and is therefore not subject to the protections afforded to independent research. Some of the views expressed are not necessarily those of Baillie Gifford. Investment markets and conditions can change rapidly, therefore the views expressed should not be taken as statements of fact nor should reliance be placed on them when making investment decisions.
t | 04
The information contained within Trust has been compiled with considerable care to ensure its accuracy at the date of publication. However, no representation or warranty, express or implied, is made to its accuracy or completeness. Nothing in this information or elsewhere in Trust shall exclude, limit or restrict our duties and liabilities to you under the Financial Services and Markets Act 2000 or any conduct of business rules that we are bound to comply with. Any telephone call you make to us may be recorded for training or monitoring purposes. www.bgtrustonline.com
Sponsorship & Events Win a weekend at The Independent Bath Literature Festival
The Caledonian Challenge is one of the biggest and longest-running charity sports events in the calendar, and Baillie Gifford is now its lead sponsor. Since the event began in 1996, it has helped to raise £12m for Foundation Scotland, formerly the Scottish Community Foundation, which provides funds to support community activities in every Scottish local authority area.
To enter this exclusive prize draw and view terms and conditions, visit www.bgtrustonline.com/sponsorship. The closing date for prize draw entries is midnight on Sunday 12 January 2014. Entrants must be UK residents aged 18 or over. Good luck!
© Tim Winterburn
Readers of Trust have the chance to win two nights at a luxury hotel in Bath and tickets for the city’s literature festival. Beginning on Friday 28 February 2014, the festival brings together some of the world’s finest writers and thinkers. The prize includes bed and breakfast accommodation for two at the stylish Best Western Abbey Hotel, a stone’s throw from the Roman Baths and Bath Abbey. Winners will also receive two tickets to events taking place at the festival on Friday 28 February and Saturday 1 March, as well as an invitation to the exclusive opening-night party. The festival, running until Sunday 9 March, features the first programme of events compiled by its new artistic director, writer and broadcaster Viv Groskop. Baillie Gifford is a long-term sponsor of the festival.
Walk this Way
Savour fine wines and good reads Baillie Gifford sponsored 10 literary festivals in 2013, helping to bring together some of the country’s best-selling authors at celebrated events across the UK, including Ways with Words in Dartington, The Independent Bath Literature Festival, Henley Literary Festival and The Times Cheltenham Literature Festival. To round off the busy 2013 sponsorship programme, we are offering Trust readers the chance to win a selection of author-signed trust@bailliegifford.com and 0800 917 2112
books from the Baillie Giffordsponsored events, as well as a case of award-winning wines, worth over £100, from Laithwaites, featuring wines from some of the best independent producers. To enter this exclusive prize draw and to view the terms and conditions, please visit www.bgtrustonline.com/sponsorship. The closing date for prize draw entries is Sunday 15 December. Entrants must be UK residents aged 18 or over.
The Caledonian Challenge 2014 takes place on 14 June and offers participants ‘the walk of their life’ – the chance to complete 54 or 24 miles of the most spectacular section of the West Highland Way in either 24 or 12 hours. Walkers will see stunning scenery, including views of Ben Nevis. For more details about the challenge, including information on how to take part, please visit the charity’s fundraising website at www.caledonianchallenge.com 05 | t
The future is tiny
ILLUSTRATIONS: ALEX WALKER
NANOTECHNOLOGY – THE DEVELOPMENT OF MICROSCOPIC, PLIABLE NEW MATERIALS – WILL REVOLUTIONISE EVERY INDUSTRY. DANIEL SIMPSON EXPLORES ITS POTENTIAL
t | 06
www.bgtrustonline.com
Technology keeps getting smaller and more powerful. The latest innovations have shrunk to the size of nature’s building blocks, which means atoms can be rearranged to make almost anything. Science at this miniature scale is called nanotechnology and it could change manufacturing as radically as the internet transformed service industries. “The impact of nanotechnology in the long run simply cannot be understated,” says Brian Lum, a fund manager at Baillie Gifford. “It will fundamentally change how we innovate.” The measurable unit used in nanotechnology is a nanometre, which is a billionth of a metre. To give a practical idea of the size, a sheet of paper is about 100,000 nanometres thick. The physics employed at this microscopic scale is dominated by quantum mechanics, which can lead to phenomena that researchers are now trying to exploit. Historically, industrial progress has been bound by natural limitations: metals corrode, wood warps and plastics scratch. Designers can work around flaws, but breakthroughs often hinge on new materials. In future, these materials could be engineered to order. “You won’t have to find a material that has other properties,” says Brian. “You’ll just
take one and adjust its nanostructure to do what you need.” It sounds like science fiction: a world in which resources lose their scarcity, and their value. But research has made major advances in recent years, and has begun to lead to commercial applications, such as the quantum dots produced by Nanoco, a company held by The Monks Investment Trust PLC. These nanoparticles work like light-emitting diodes, but they can be ‘tuned’ to emit any colour of light on the spectrum, just by varying their size. The most obvious use for this technology is in displays, solar panels and lighting, but they could also be used in bio-imaging (viewing biological processes at microscopic scale) and anti-counterfeiting tools. LONG ROAD AHEAD Existing products that contain nanoparticles include waterproof coatings, sunscreens and antimicrobial fabrics that combat odours. While each of these helps improve an existing process incrementally, a genuinely novel application enabled by nanotechnology has yet to materialise. “There’s still lots of research to be done on manipulating materials,” says Brian. “The most exciting things are still a long way off.” These could
include self-assembling and selfhealing structures, devices to capture energy from air, and aeroplanes that weigh a small fraction of current models. Theoretically, all of these applications are plausible, but in practice most are probably decades from fruition. According to Brendan Ring, commercialisation manager at Trinity College Dublin, who manages partnerships between researchers and companies: “Most of the stuff in laboratories is at least ten years from being commercialised.” The obstacles include the complexity of the physics involved, often at subatomic scale, and the specific conditions required to change physical properties. “Nanomaterials are amazingly versatile,” says Brian, “but the flip side is they’re difficult to make well.” They can also be hard to scale up for mass production, as illustrated by a material called graphene. First produced in 2004, graphene is a sheet of carbon that is a single atom thick. Despite being thin and pliable, it is strong as well as conductive. However, graphene is tricky to synthesise in bulk, so the prospect of its widespread use remains some way in the distance. Even so, graphene is currently being used in other forms. Carbon
We need to be able to predict properties of materials that haven’t been made yet GRAPHENE: THE “MIRACLE MATERIAL”? It might simply be a very thin form of pencil ‘lead’, but graphene is hundreds of times stronger than steel, as flexible as rubber and a better conductor than copper. It could be used to make powerful batteries as well as paper-thin, inexpensive touchscreens for smartphones. Currently, graphene is only deployed in trace proportions, for example in the tennis rackets of Wimbledon champions Andy Murray and Novak Djokovic. There are many different grades of the material, and the challenge is to make it high quality yet affordable. trust@bailliegifford.com and 0800 917 2112
Graphene’s properties could lead to exciting applications. Although it blocks gases, it can be engineered to allow water vapour to pass through, which could make it useful as a membrane for desalination. Its reaction to light could offer the potential to make efficient solar panels. And some developers hope graphene might replace silicon in microchips, though it cannot yet be made to behave as a semiconductor. But rest assured – researchers are working on it. 07 | t
nanotubes are essentially cylinders of graphene, which can be added to existing compounds to reinforce them. Such coatings are prized by the oil and gas industry, because they can help with work taking place in harsh conditions, such as deep-water drilling. Nanoparticles may also assist in hydraulic fracturing in the future, where they will help in devices that prop open cracks in rocks to access
nanotechnology”, which enable new ideas to be developed. Data from this analysis is then processed by supercomputers, which create virtual simulations to test materials. This means that researchers do not need to make the vast range of possible combinations, but can focus on synthesising materials that already have the properties they are looking for.
proportions. Nano-diagnostic tools, gene sequencing and targeted medical treatments are now in development. Currently, the biggest nanoscale business is semiconductors – materials that possess a range of electrical conductivity between that of a metal and that of an insulator. Modern electronics relies on semiconductors, and constant progress in this area means that
wells. (See box on previous page for more on graphene.) New materials are the essence of nanotechnology, and, in terms of their ingredients, the range of permutations is immense. To study potential materials at the scale of nanometres, scientists use a wide variety of sophisticated instruments such as electron microscopes; these are powerful magnifiers that use a beam of electrons to build up an image of a specimen. Brian likens them to “the picks and shovels of
“We need to be able to predict properties of materials that haven’t been made yet,” says David Cebon, professor of mechanical engineering at the University of Cambridge.
microchips are getting ever smaller while their capacity increases. This will continue as silicon (which is used to form most semiconductors) gives way to new materials. The longer-term goal is quantum computing, based on subatomic physics. Instead of storing data as zeroes or ones, a quantum machine would hold both in a single ‘qubit’, which could vastly increase processing speeds. When this technology arrives, innovation will accelerate faster than ever.
t | 08
SCIENCE AT WORK Nanotechnology is currently more of a buzzword than an actual sector: it just means working at the nano-scale. One of the most promising fields in the near term is its use in biotechnology. DNA is about 2 nanometres wide, and many biological processes unfold at these
www.bgtrustonline.com
Statistical magician
PORTRAITS: OLA HEDDIN
HEATHER FARMBROUGH MEETS HANS ROSLING, WHOSE UNIQUE WAY WITH DATA GIVES US A FRESH VIEW OF THE WORLD – AND WHERE WE SHOULD BE HEADING
In 2012, Time magazine listed Professor Hans Rosling as one of the world’s 100 most influential people. He has the ear of presidents and the hearts and minds of those who use the interactive statistical database at Gapminder (www.gapminder.org) which his son Ola developed and was launched in 2005. On the website you can find Hans predicting that on 27 July 2048, the Asian region will regain its dominant position as leader of the world. All of the statistics that Hans uses are publicly available, but his interpretation and presentation is unique. For example, his 2010 documentary for the BBC, The Joy of Stats, contained a section in which he told the story of the world in 200 countries over 200 years using 120,000 numbers – in just four minutes. Hans is so many things that it is impossible to pin him down. He is professor of public health science at the Karolinska Institute in Stockholm, and an ‘edutainer’ at Gapminder, but he’s also a doctor, academic, statistician, web developer, lecturer and internet entrepreneur. And trust@bailliegifford.com and 0800 917 2112
he definitely knows how to enchant an audience. He has the freedom of the court jester, he says, and uses it to communicate often unpalatable truths. Hans is obsessed with improving the health of the poorest and most underprivileged. He lives with his wife Agneta, a psychiatrist, in a modest red wooden house near Uppsala, an hour’s drive north of Stockholm. Other than some African wood carvings, there are few clues at home to his international career. The walls of the hallway are crammed with books and his grandson’s paintings are drying on the dining table. He travels around the world and yet he lives just 200 metres from where he was born. Is that important? “Yes,” he replies, gesturing around the room. “Life is as it is. Nothing was planned, it was just serendipity. I did not have a plan that I was going to do all this. It just happened, and luckily, I’m still able to live here.” By “this”, he is referring to a career spanning more than 40 years, which began with studying statistics before training to become a doctor. In Africa in 1981, 09 | t
he discovered an outbreak of a formerly unknown paralytic disease – which his research group named konzo – and its subsequent investigation earned him a PhD degree from Uppsala University. He spent 20 years studying outbreaks of this disease in remote rural areas across Africa and supervised more than 10 PhD students. On Midsummer’s Eve, 1983, he inserted a pacemaker into a patient for the last time and quit to become a researcher in public health and, from there, an academic lecturer. Fifteen years later, Ola convinced Hans that they should work together to bring statistics to a much wider audience in a totally different way. Over several years, they developed Trendalyzer, the animated software technology that Gapminder uses. In 2007, they sold the fifth iteration of the Trendalyzer source code to Google. Gapminder, a non-profitable organisation, is still run by Hans and Ola from a studio in Stockholm. The turning point in Hans’ career, however, according to Agneta, was when they went together to Asia for six months in 1972. “We were backpacking but the concept and word had yet to be invented,” Hans says. They travelled to India initially and spent three weeks in Bangalore with students on a public health degree course, visiting factories and remote rural areas. After trekking in Nepal, they visited the Chulalongkorn University Hospital in Bangkok before going on to Indonesia. It was on this trip that Hans realised that the West would not continue to dominate the world for all that much longer. The trip also fired his obsession with public health and kindled a long-standing curiosity about how the rest of the world lived. A “genetic” social democrat, Hans says he inherited both his political outlook and interest in other people from his father
t | 10
who worked in a small local coffee-roasting factory. “He used to bring home the metal objects they found in the coffee sacks,” Hans recalls. “It was most exciting when they found coins, because then we knew exactly which countries they were from. He’d put me on his lap and we’d look at an atlas, and he’d talk about Colombia, Brazil, Ethiopia or British East Africa and would tell me about the working conditions of those who had picked the coffee, so in a way I grew up with the idea that they were his workmates. He used to take me to lectures organised by the Swedish Labour Movement, and I loved to listen to explorers talking about different parts of the world.” I ask Hans how, as someone who has seen so much poverty, he reacts when he sees consumers spending so much in the West. I realise my mistake immediately. You don’t adopt lazy terminology around Hans. “That’s an interesting concept,” says Hans. “What is ‘The West’?” And...“When you say or think the West today, is contemporary Poland part of it?” And...“So Poland is West, what about Belarus?... Russia?... Turkey?... What’s the difference between Turkey and the Ukraine? The Ukraine is poorer than Turkey. ‘The West’ is a very vague cultural identity, you know, much stronger emotionally than intellectually, and the reason why I asked you is why I’ve been successful. I just brought some intellectual thinking into the description of the world. “The last time I arrived in India, I was given an immigration card. It said: Name, Age, and then Sex, and they had three options for Sex. So this means that even when we come to gender, we know the world is not as simple as just those two, but they are very dominant. When it comes to the world, it’s not as if we have the West and the poor, and then some little transgender in between. No, the majority is in between, so what we need is a new sorting system, a bookshelf that doesn’t just have the West and the rest but has different categories of countries, of life situations – what they call segmentation in the marketplace.” CHANGING TASTES It’s easy enough, Hans argues, to know what people who have very little want: they want the same as the rest of us – clean water, food, washing machines for their sheets, and jeans. But what will the rich want? That’s harder to know, he says. “The post-industrial society’s economy is not based on price or production. We go from service society to creative society to experiences. Nokia is down and out in Finland now, but what is one of the country’s most successful companies? It’s Rovio, who make Angry Birds (the video game). Who the heck at Baillie Gifford would have known that you should invest in Angry Birds? www.bgtrustonline.com
Ignorance is not lack of knowledge: it’s a preconceived idea that fills a place in our system of thinking “It’s hell to be an investor in the post-industrialised societies,” Hans declaims. “Who would have understood that you should have invested in Twitter and Facebook?” How does he feel about people spending large sums of money on things they don’t need when there are so many poor people in the world? “I see great taxing opportunities,” he says. “The tax man will get the money and then where will it go? Unfortunately, governments don’t invest it in a very clever way because they invest with a post-industrial mind rather than with the needs of the poor households in mind.” Hans believes that the old West will not only be a smaller and smaller part of the world economy, but that the rest of the world is doing well at managing without it already. He believes that the long-term aim for rapidly growing companies in the West is what he calls “the multi-polar world”, rather than the West. Where does that leave the UK? He turns round my question with one of his own, which he then answers. “What’s the most successful product from London in the last year? The Olympics.” “What do I consume regularly from London?” he asks. “Look!” He picks up The Economist magazine from the coffee table and waves it about. “This is excellent,” he says. “So now Britain is moving into the creative society, where it is still good at research and fashion and so on. I think Britain has a better future than Germany, where they are continuing to make cars. Where’s the future in that? They will be beaten by the Iranians.” trust@bailliegifford.com and 0800 917 2112
FALL IN BIRTHS Hans was filmed recently for an upcoming BBC documentary. They wanted him to talk about what they called ‘the scare’ of population growth. Instead, Hans challenged them by asking them how many children were being born across the world today? Contrary to what they, and many people believe, this figure has stopped growing. It matters, Hans argues, because the average number of children per woman is an extremely strong indicator of social change, if not the most important indicator. “We’ve asked the British and Swedish people, how many babies are born per woman in Bangladesh? They think it’s four or five, but it’s 2.2. So here we have a change that has happened, and people have missed it, because the media missed it. It happened too slowly; there wasn’t an Olympics, there wasn’t an earthquake. This ignorance becomes more interesting, because ignorance is not lack of knowledge: it’s a preconceived idea that fills a place in our system of thinking.” Hans is beginning to look a little tired – we have talked for a long time – but this vanishes when I ask how seeing human suffering and extreme poverty affects him. “Human beings are part of the world,” he replies. “If you decide to be a pathologist, you have to deal with dead bodies. If you decide to be an undertaker, you have to deal with death. When I see poor people, I roll up my sleeves (he does this). I have a much greater problem with greed. I almost wonder why people don’t ask how they feel about not doing something important? “Eradicating extreme poverty is not about emotions. It’s a human, professional and urgent task. I don’t know how to give a decent answer to your question, but it’s more or less that extreme poverty is so serious that it requires professionalism.” To see more of Hans’ statistical work, visit www.gapminder.org
11 | t
Perceived wisdom SOME INVESTMENT ASSUMPTIONS ARE OFTEN MISTAKEN FOR FACT. THAT’S DANGEROUS. HERE WE TURN SOME POPULAR MISCONCEPTIONS ON THEIR HEAD…
ADAGE 1 CASH IS A SAFE OPTION Nervous investors may feel that the safest option is to hold cash. However, the current rate of inflation exceeds interest rates, leading to a loss of value in real terms, so cash might be a short-term option pending other opportunities.
ADAGE 3 BONDS MAKE A SAFER INVESTMENT THAN EQUITIES While still generally attractive to investors, some bonds currently offer below-inflation returns and may carry higher levels of risk than was historically the case. This asset class could offer many opportunities but bonds need careful research and may require a long-term investment approach.
ADAGE 2 DIVERSIFICATION REDUCES PORTFOLIO RISK While diversifying can help to reduce potential losses arising from falls in specific markets, over-diversifying also carries risks. Many believe that spreading a portfolio too thinly makes it more difficult to know the holdings well, and feel that focused portfolios may deliver stronger returns.
ADAGE 4 MARKETS HAVE BECOME TOO EFFICIENT Improved technology and the availability of more detailed research have, it is claimed, made it harder to spot discrepancies between stock valuations. Nevertheless, through extensive research and talking to company management it’s still possible to find (or unearth) attractive investment opportunities.
“I believe what I said yesterday. I don’t know what I said, but I know what I think... and I assume it’s what I said” Donald Rumsfeld, former US defence secretary t | 12
www.bgtrustonline.com
ILLUSTRATION: SERGIO MEMBRILLAS
ADAGE 5 BALANCE SHEET STRENGTH MATTERS LESS THAN PROFITABILITY While earnings present an important snapshot of a company’s current operations, there may be reasons why they have risen sharply. Profits can also be manipulated and suffer from volatility while the balance sheet is often a better indicator of the company’s sustainability.
ADAGE 7 INVESTMENT RETURNS BENEFIT FROM A STRONG ECONOMY There is no exact correlation between economic growth and investment returns. Globalisation means that the share prices of exporters may be strong, even if their domestic economy is struggling. In addition, some companies fare better in times of economic uncertainty.
ADAGE 6 GOOD INVESTMENT RETURNS FOR SUCCESSIVE QUARTERS INDICATE A SUCCESSFUL STRATEGY Short-term returns may be driven by market noise or current fads. A better indicator of the robustness of an investment strategy might be how it has performed during periods of market weakness and over years rather than months.
ADAGE 8 “THIS TIME IT’S DIFFERENT” These are the four most dangerous words in investment, and they are trotted out frequently to justify the appearance of asset bubbles. Invariably, the situation is a result of the same exuberance that existed in previous situations, and may have the same painful outcome.
Please remember that the value of a stock market investment and any income from it can fall as well as rise and investors may not get back the amount invested.
Investments with exposure to overseas securities can be affected by changing stock market conditions and currency exchange rates.
trust@bailliegifford.com and 0800 917 2112
13 | t
The Scottish Referendum
THE SCOTTISH PARLIAMENT ‘THINK PODS’ [THIS PAGE] AND DEBATING CHAMBER [OPPOSITE]
t | 14
www.bgtrustonline.com
ROBERT O’RIORDAN, CLIENT DIRECTOR, INVESTMENT TRUSTS, OUTLINES HOW BAILLIE GIFFORD IS THINKING ABOUT THE SEPTEMBER 2014 VOTE Baillie Gifford has an international outlook: our institutional clients come from all around the world and we invest globally. At the same time, the firm has always been based in Edinburgh. While a high proportion of shareholders of the investment trusts we manage live in Scotland, the majority are from other parts of the United Kingdom and the same applies to the readership of Trust. Readers may wonder how the Scottish independence referendum, which takes place on 18 September 2014, will affect them as investors. As things stand, Baillie Gifford’s answer is, by necessity, vague. In simple terms, it is impossible to say with precision what the impact will be until some time after the result of the vote is known. That said, if there is a ‘No’ vote then the status quo is maintained and if it is a ‘Yes’ vote there will still be a further period of uncertainty as details of a settlement are negotiated. The exact question has been set as ‘Should Scotland be an independent country?’ and there will be a prolonged period of campaigning leading up to the vote. Two campaign groups have formed. ‘Yes Scotland’ is backed by two parties represented in the Scottish Parliament, the governing Scottish National Party and the Scottish Greens. ‘Better Together’ is campaigning for a ‘No’ vote and was established with the support of the three main pro-union parties in Scotland: Scottish Labour, the Scottish Conservative Party and the Scottish Liberal Democrats. trust@bailliegifford.com and 0800 917 2112
At the time of writing, opinion polls indicate that a ‘No’ vote is more likely than a ‘Yes’ vote. But polls are not always reliable and there are few certainties in politics. If the result is a ‘Yes’ vote there will be a period of negotiation between the two governments which will cover a range of topics including the details of taxation and financial regulation, as well as the other major constitutional issues. By their very nature, any such talks carry uncertain outcomes.
There will be a prolonged period of campaigning leading up to the vote So how does a firm like Baillie Gifford plan for unknown and unknowable conclusions, and how are questions from investment trust shareholders (including those who hold their shares within Baillie Gifford managed plans) answered? We have a working party within the firm which is considering the referendum and the issues raised by it. Work to date has mainly
been information gathering. Communication has taken place with both sides of the campaign as well as with the Scottish and UK governments. This group has been working closely with Scottish Financial Enterprise (SFE), a trade body of which Baillie Gifford is a member. Discussions have considered the key questions concerning a vote for independence which could have an impact on the financial services industry. These core issues cover the economy and currency, taxation, the impact on Scottish banks, the market for financial services and financial regulation. SFE is also seeking to understand the processes that might be involved in any transition. Baillie Gifford is a partnership and has a tradition of avoiding comment on party political issues. Our main task at the moment in respect of the referendum is to review developments and consider any steps that might ultimately need to be taken to ensure the protection of clients’ interests and allow a ‘business as usual’ outcome. We expect that Edinburgh will continue to be an attractive place from which to manage investments for the long term – as it has been since Baillie Gifford’s first client, Scottish Mortgage Investment Trust PLC, was incorporated over a hundred years ago. Over the shorter term, the firm will continue to navigate political and economic currents in a pragmatic fashion, as we have always done. It is clear that whatever the outcome of the vote, financial services are a key sector in both the Scottish and UK economy. Whatever the shade of the incumbent government, we expect it will seek to nurture the sector rather than hinder it. 15 | t
Postcards from Africa JOE FARADAY LOOKS AT FIVE POTENTIAL INVESTMENT HOTSPOTS Will Africa be one of the biggest economic growth stories during this century? In his latest book, The Fastest Billion, emerging markets specialist Charles Robertson says: “Africa waits no more; Africa’s time is now.” Despite much of the negative newsflow we read in the media, can the continent rise up to achieve growth that will rival, if not surpass, that recorded by Asia over the
past few decades? Africa has minerals, agricultural potential and its own unique internal dynamism. It is also making considerable improvements in governance, health and education. All of this development and optimism is catching the interest of investors, but which of Africa’s 54 countries do we think are the ones to watch?
NIGERIA – CONSUMPTION BOOM Last year, Nigeria reached the point where urbanisation covered 50 per cent of its land. Consumption is on the rise, and the growing cities are one of its most important drivers. Many multinationals have been doing business in Nigeria for decades. For example, every day Nestlé sells 60 million Maggi stock cubes and Coca-Cola shifts eight million cans of its flagship brand. Consumption has much further to go, too: the population of the Nigerian city Lagos has grown from a few hundred thousand in the 1960s to around 21 million, yet it only has two big shopping malls. How big will the Nigerian consumer market be in a decade or two?
KENYA – CRADLE OF MOBILE CIVILIZATION Kenya is the birthplace of mobile banking. M-Pesa – M for mobile, and pesa is Swahili for money – was introduced by Safaricom (a Vodafone subsidiary) in 2007. It provides a mobile phone banking system with the ability to transfer money at the click of a button, and you don’t need a smartphone – an ordinary mobile will do. In the absence of a banking infrastructure, this makes a huge difference. There are 20 nations where 10 per cent or more of its people use mobile money – and 15 of them are in Africa. Could Kenya become the Silicon Valley of mobile banking?
Please remember that the value of a stock market investment and any income from it can fall as well as rise and investors may not get back the amount invested. Investments with exposure to overseas securities can be affected by changing stock market conditions and
t | 16
currency exchange rates. Investing in emerging markets is only suitable for those investors prepared to accept a higher level of risk. This is because difficulties in dealing, settlement and custody could arise, resulting in a negative impact on the value of your investment. www.bgtrustonline.com
SOUTH AFRICA – THE RAINBOW NATION South Africa has its headwinds. The economy is slowing. It has experienced a boom on the back of commodity prices and an easy credit cycle that is slowing down. However, the country still has the opportunity to be a gateway to the rest of Africa for many foreign companies. Domestic businesses are trying to expand and there is opportunity for open-ended growth. Retail floor space could expand by double digit figures for decades to come. Internet and media businesses have a potential audience that many Western companies could only dream of. Can these emerging South African businesses step up a gear and really seize the African growth potential?
ETHIOPIA – BACKED BY CHINA Ethiopia has been one of the fastest-growing countries in Africa over the past decade, with the economy expanding by around 15 per cent a year. This is in stark contrast to preceding decades when the country was mired in political turmoil. Growth should continue. There has been a lot of investment: asphalt roads are replacing many dirt tracks, while hotels, malls and cinemas are slowly displacing shanty towns. The government is investing in education and building new universities. The driving force behind all of this progress has been China. Ethiopian Airlines now even flies to three Chinese cities.
GHANA – RICH IN RESOURCES The past quarter of a century in Ghana has seen relatively sound management, a competitive business environment and a sustained drop in poverty. These factors, as well as an abundance of natural resources, particularly oil, should help the country continue to develop. Oil production will boost growth and help the economy diversify. Cocoa and gold production, and overseas workers sending money back home to Ghana, will also help. Ghana’s political backdrop is stable and this situation is expected to continue – president John Mahama came to power last year, and is seen as more proactive and willing to listen to his people than his predecessors.
trust@bailliegifford.com and 0800 917 2112
17 | t
Impressions of India
t | 18
www.bgtrustonline.com
THIS VAST COUNTRY IS CHANGING, FAST. CHARLES PLOWDEN TELLS HEATHER FARMBROUGH WHY HIS GRASS ROOTS TOUR HAS INSPIRED HIM India baffles many observers. It is a country of contradictions: sparkling new airports and skyscrapers standing beside slums; the educated and uneducated; democracy, an extensive state welfare programme and a well-established legal system – and yet widespread alleged corruption. India, with its 28 federal states whose individual fortunes vary widely, has promised much to investors but not always delivered. However, with an economy worth almost US $2 trillion, the third largest in Asia, it is a country that investors have to get to grips with. Earlier this year, Charles Plowden, Baillie Gifford’s joint senior partner, visited India for
“I was asking, ‘Should our global funds be investing here?’” he recalls. “And my answer was ‘Yes’, despite (or perhaps even because of) the chaos and uncertainty. “I got the strong impression that India is changing,” he continues. “The last 10 years have seen impressive growth until recently. At the moment some things aren’t going too well (see article on page 32) but India’s economic performance has been improving every decade on record since the 1950s. We have ratcheted up the level of work we do on India at Baillie Gifford and are definitely spending more time on it at the moment. I certainly have much more to learn about it. “China is a command economy. If they need to knock down a village to build a bridge or a road, they do. In India, nothing gets built and no one can agree, power lines stop at state borders. It’s
The great hope has been that India will be a different sort of economy the first time. As the partner in overall charge of the firm’s investment teams and the manager of global investments, Charles has sensed a growing interest among colleagues in investing in India. “One of our targets as investors is to familiarise ourselves with parts of the world we are less familiar with,” he says. “I didn’t go with a list of stocks to buy; it was more of a factfinding mission.” Charles visited five cities and states in a week, taking in Bangalore (India’s IT hub), Chennai, Ahmedabad in Gujarat (the economic wonder state), New Delhi, and Chandigarh in Punjab (known for its agriculture, textiles and property boom). Charles points out that investors over 40, as he is, tend to be quite sceptical about India. Despite his innate scepticism, however, he returned from his trip convinced that the overwhelming story coming from the people he met – from businessmen, MBA students and senior civil servants to farmers and car dealers – was of clear progress both economically and socially. trust@bailliegifford.com and 0800 917 2112
chaotic and messy but it is free and democratic. Behind the chaos, it is developing. Ironically, one of the reasons some people are cautious about reform in India is that things are going reasonably well without it – however, there is also a line of thought that only a crisis produces meaningful reform and change.” OVERCOMING THE HURDLES The big problems in companies and government institutions, historically, have been bureaucracy and corruption. According to the Doing Business Database, India is one of the most difficult countries in the world in which to transact business. Charles feels that some of this has been exaggerated. Although India’s reputation for bureaucracy and corruption is unlikely to change, he feels there are signs of genuine improvement. How can he tell? “We do what we do with any situations like this,” he replies. “We look at what is happening rather than the political promises 19 | t
that have been made.” The government’s determination to press ahead with essential but often unpopular reforms, such as deregulating prices, is not only essential but also a sign of its commitment to change, he argues. “The government is doing things that governments normally do after an election, not before – ending price-fixing and subsidies, which have led to unpopular increases in electricity and other fuel and transport prices,” says Charles. Biometric identity cards are being rolled out for the entire population; progress is well under way and around 25 per cent of the population already has them. This will provide everyone with access to bank accounts and enable the government to make cash payments directly to the needy. It will also identify undeclared wealth in a country where only 2.5 per cent of the population pays any income tax. Corruption was the main concern of all the young people – mostly MBA students and entrepreneurs – that Charles met in India. Here, he argues, the power of the democratic vote is enormous. “Indians have seen that there is an alternative and economic development brings benefits to everyone. Improved governance has led to huge advances in Gujarat and Bihar. Gujarat has a physical infrastructure that is certainly on a par with the US or UK. We saw several prosperous, brand new factories; the airports are immaculate and very modern, just like China’s – a shining example of what can be achieved. “Investors like Gujarat because it has resolved its power and transport problems and now has superb shipping and road links as well as ‘can-do’ planning and administration policies. And Narendra Modi, chief minister of Gujarat, has potential to be the next prime minister of India on the premise of getting India working.”
ROOM TO GROW Although Indian consumption has tripled since the late 1990s, it still has a long way to go, writes Joe Faraday. The consumption level per capita is a long way behind the amount we are used to in the West and still a fraction of the level in many other emerging markets. The average Indian person drinks only 1 per cent of the amount of wine the average Chinese person drinks, uses only 3 per cent of the nappies, smokes 4 per cent of the cigarettes, and eats 5 per cent of the noodles and 15 per cent of the snacks. Growth is strongly underpinned by urbanisation, rising salaries and productivity improvements. Consumption should stand a reasonable chance of tripling over the next decade or so.
t | 20
www.bgtrustonline.com
Charles points out that an interesting number of global manufacturing firms including John Deere (agricultural machinery manufacturer) and Volvo (the truck and machinery manufacturer) – both companies in which Baillie Gifford invests – are choosing India as their Asian manufacturing centres.
1 New Dehli Airport 2 Picking tea 3 Agricultural workers in Chennai 4 Construction in Ahmedabad 5 Downtown Mumbai 6 Indian Institute of Management, in Ahmedabad 7 Shopping in Bangalore trust@bailliegifford.com and 0800 917 2112
LIE OF THE LAND India lacks many natural resources, particularly oil. Manufacturing industry accounts for little more than 14 per cent of GDP, so India runs a persistent trade deficit with high imports and limited exports (17 per cent of GDP). Although over half the population still works in agriculture, the service sector – including Bollywood, IT, business outsourcing services and private banks – accounts for over 50 per cent of India’s economy and employs some 28 per cent of its workforce. With an eye on the birth rate, Joe Faraday, another fund manager at Baillie Gifford, is concerned about India’s reliance on the service sector. “What are all the people going to do?” he asks. “The country has to industrialise and build a competitive industrial base. The big questions are ‘Can India industrialise, and to what extent?’” Gareth Leather at consultancy Capital Economics explains: “Since the Second World War, Asian economies pretty much all developed manufacturing first and services later. But India just hasn’t developed its manufacturing side; the sector might employ two million people, but this is tiny out of a population of 1.2 billion. The big problem is that to work in a highly productive job in the service sector, you need skills. But university enrolment levels are still low and many Indians are not equipped with the skills needed for high productivity jobs. The great hope has been that India will be a different sort of economy.” Perhaps it will. Charles suggests: “Maybe we don’t need Indian companies to learn how to make things. Maybe it’s just necessary to get Volvo to make things. China is becoming less competitive as an export base than India.” India is already dependent on itself, unlike China, whose current growth is partly dependent on the rest of the world buying cheap goods. The success of the entertainment industry in a country where families often group together in front of the TV bears this out. Moreover, the latest rounds of deregulation will make it easier for foreign investors to invest in car plants and other major manufacturing assets, as well as banks and the retailing of foreign brands. Last year the government also opened up the aviation and broadcast sectors to foreign investment. Charles thinks Indian private banks are interesting. “Some seem to have the capability for growth while in contrast the state banks, which account for some 21 | t
INDIA IN NUMBERS Total population 1,220,800,359
Source of data and relevant dates at www.cia.gov
80 per cent of the loans outstanding, are undercapitalised and in disarray,” he says. India’s private banks are liquid and geared into the country’s economy. Scottish Mortgage Investment Trust PLC is an investor in mortgage bank HDFC, while Pacific Horizon Investment Trust PLC holds shares in Federal Bank. India is not burdened by an ageing population, unlike China and Japan. Its population is growing faster than fellow BRIC economies Brazil, Russia and China in both absolute and relative terms, and it is the only BRIC member where the fertility rate is still increasing. Infant mortality is still high, but if it can be brought down, the birth rate suggests a huge stream of future consumers and entrepreneurs. Consumption per capita is still relatively low, compared with developing countries and has a long way to go (see box on page 20). “I didn’t see any highly organised retail,” Charles observes. “For instance, when it comes to food retailing, because many people still buy food on the street, and don’t have fridges and freezers, the widespread presence of supermarkets may be some way down the line.” BUYING INTO INDIA So how do investors find their way through all the impressions and information and go about investing in India? “It’s all about stock-picking,” explains Mike Gush, manager of Pacific Horizon. The Trust has been investing in Indian stocks since its remit was expanded to include the Indian subcontinent in 2006. The Indian investments now account for just around 8 per cent of the Trust’s portfolio. “We have historically
t | 22
struggled with the valuations,” Mike comments. “Indian companies have traded on big premiums compared to investments available in other markets. We have to look carefully at individual firms and their merits. The increase in exposure over the past year, adding companies such as IT service firms HCL Technologies and Tech Mahindra, and conglomerate Reliance Industries, is a combination of more palatable valuations and attractive fundamentals. Ultimately, it’s always about the stocks.” Charles agrees the emphasis has to be on stock-picking, but he does not underplay the difficulties of investing in India. Companies are often less liquid than institutional investors would like. “There are a lot of quoted firms but many are still small and the majority are conglomerates,” he observes. “Analysts have to work hard in India,” Charles adds. “But my visit convinced me that India is both investible and exciting. That is a view that many of my colleagues share.” Please remember that the value of a stock market investment and any income from it can fall as well as rise and investors may not get back the amount invested. Investments with exposure to overseas securities can be affected by changing stock market conditions and currency exchange rates. Investing in emerging markets is only suitable for those investors prepared to accept a higher level of risk. This is because difficulties in dealing, settlement and custody could arise, resulting in a negative impact on the value of your investment. www.bgtrustonline.com
Seeing through the numbers ANNUAL REPORTS PROVIDE DETAILS OF A COMPANY’S PERFORMANCE – BUT HEATHER CONNON EXPLORES THE ART OF READING AND ANALYSING THEM SKILFULLY
trust@bailliegifford.com and 0800 917 2112
23 | t
ACCOUNTING
Glossy pictures, photographs of directors and cheerful employees, and colourful charts to put a favourable slant on financial performance: these have become standard elements of contemporary annual reports. Yet behind the sheen and the corporatespeak, these documents contain information that can be invaluable when assessing whether the company is a good one in which to invest. Extracting that useful information is not straightforward, however. First, there is the sheer size of these reports. Over the past decade or so, they have been getting steadily bigger – the 2012 annual report from Barclays, for example, runs to a daunting 356 pages. This expansion is due to financial regulations that have required new elements, such as a full corporate governance report, to be added to the traditional mix of balance sheets, profit and loss
t | 24
accounts, and directors’ reports. But understanding and interpreting this growing mass of information also requires good knowledge of accounting conventions, experience of analysing complex numerical information, and the time and dedication to pore over some dry, technical material. Putting in the effort can bring considerable rewards though, in the form of a more detailed understanding of the business, and its performance and prospects. Baillie Gifford’s investment strategy is ‘bottom-up’, based on detailed analysis of a company’s strengths, weaknesses and long-term prospects. Tom Walsh, deputy manager of The Monks Investment Trust PLC, says studying the annual report is a core part of that process. Torcail Stewart, co-manager of the Baillie Gifford Corporate Bond
Fund, agrees that such analysis is “fundamental to understanding a company. The accounts section of the report provides you with details that are not found in the quarterly or interim reports, and which can be very enlightening.” Broadly speaking, a company’s annual report can be divided into three areas: the business review, the corporate governance report and the financial statements. All of these elements play a role in analysing the business, according to Tom. LOOKING FOR CLUES At individual meetings, companies can tailor their message to accord with what they believe the shareholder wants to hear, but the business review has to address all audiences. “It can be interesting to see what the priorities are [in the business review],” says Tom. www.bgtrustonline.com
He cites the example of a company that was initially identified as a potential management turnaround and domestic cyclical recovery story. The business review in the annual report, however, discussed its ambitions to become a global business and to make overseas acquisitions. “We might not have picked up on that if we had only read the press releases on preliminary results, or the analysts’ reports,” observes Tom. All elements of the report can provide useful information. The divisional analysis, which describes the performance of the different parts of a company’s business, can highlight areas of strength and
Tom also points out that the annual report essentially looks backwards; by the time it is printed and mailed out, information can be six months out of date. The report, he adds, is only useful as part of Baillie Gifford’s overall investment analysis, which is based on judging what is likely to happen in the future. The corporate governance section can shed light on a key question: are the interests of a company’s senior managers aligned with those of its investors? “For example, we might think that increasing the return on investment is the key requirement for a company,” says Tom, “but its directors may be incentivised to grow sales. That could
Corporate scandals, such as the collapse of energy company Enron in 2001, were partly due to accounts that failed to reveal the full story weakness; the business review will indicate management’s publicly stated priorities; and the summary of results for the past five or 10 years can illuminate trends that might not have been otherwise obvious. However, Tom sounds a note of caution: only the financial statements have to be audited. While the auditors will review other areas covered in the annual report, at best they will only look for areas of material inconsistency. Nor is an audit a guarantee that the accounts will be true and fair: corporate scandals, such as the collapse of energy company Enron in 2001, were partly due to accounts that failed to reveal the full story, while the recent banking and financial crisis could be said to have stemmed from the failure of banks’ accounts to reveal the true nature of the risky financial instruments they were trading in. trust@bailliegifford.com and 0800 917 2112
represent a dislocation between what we expect and what will be delivered.” Uncovering a corporate governance issue need not be a reason to sell the company’s shares – often it will be a trigger to engage with the company, perhaps to discuss the incentive programme and whether it should be adjusted to better reflect shareholder interests. PLAYING WITH NUMBERS While attention in company results presentations is often focused on profits, for Torcail the cash flow statement can be more important. “Cash is king for bond investors,” he says. “You will find that, further down the profit and loss account, there are more and more adjustments companies can make.” The detailed notes that come with the accounts, which make up the bulk of the financial statements, can be a valuable source of previously
ACCOUNTING TECHNIQUES TO LOOK OUT FOR While detailed accounting standards cover all areas of financial reporting, they still allow scope for variations, which can have a significant impact on the reported results. Key areas include: Depreciation and amortisation Amortisation is the practice of reducing the value of assets to reflect their reduced worth over time. Similar companies in the same industry can choose to write their assets off over markedly different time periods: the longer the period chosen, the lower the charge against profits will be and the higher the resultant earnings. Revenue recognition While there are guidelines on when companies should take income into account, there is still scope for discretion: recognising profits early can boost current results at the expense of future years, while deferring profits into the future can artificially inflate future growth rates. ‘Adjusted’ figures Companies often make adjustments to profits to show the underlying performance of the business – for example, by excluding one-offs such as restructuring charges, ostensibly to provide investors with a more representative view of the company’s performance. But these adjustments can have a significant impact on stated profits. Research and development Companies can choose whether to write off the costs of R&D against profits in the year they are incurred or whether to capitalise them, treating them as an asset to be written off in future. 25 | t
undisclosed information that highlights the need for further investigation. Torcail looks for signs that the company may be getting involved in unexpected financial activities. For example, a company might disclose that it has had to value some of its derivatives based on current market rates rather than their initial cost – a process called mark-to-market accounting. “If there are mark-to-market losses in the derivatives account, it could indicate that the company has moved beyond hedging to taking speculative positions, as we’ve seen in the shipping industry,” says Torcail. Companies doing business in different currencies may use derivatives to protect themselves against losses from exchange fluctuations. But derivatives can also be used for speculation and the accounts can highlight when this is happening.
t | 26
Checklists are used at Baillie Gifford to inform its investment decisions. These include reading and analysing the annual report and accounts – sometimes including those from previous years. While reading the report, managers and analysts will also consider the quality of earnings, whether there have been any changes in the way income is recognised, and the relationship between profits and cash flow. Baillie Gifford’s investment horizons spread far beyond the UK, so fund managers have had to become adept at reading overseas accounts. A growing number of companies now use International Financial Reporting Standards when compiling their accounts, so will adhere to similar rules to those followed by British businesses. However, there can still be considerable variations between countries, which can require more detailed analysis. The accounts themselves generally include a five- or 10-year summary of a company’s results, which will also show changes in accounting policies and consequent adjustments to figures made over the period. “Sellside analysts (who market the company’s shares to prospective investors) will make their own assumptions about how profits should be adjusted to reveal the longterm trend,” says Torcail. “But if you are an investor and go to the accounts yourself, you can see what the company has done and make your own assumptions. “I have found it more helpful to delve into the accounts myself to get a feel for the raw data and then make my up own mind,” he adds. “Knowing the moving parts within the accounts arguably provides a better understanding of how the company will perform in the future.” The key is to avoid being seduced by a few posed photographs and some upbeat comments by the chairperson. Understanding the business requires much more effort than that. As Torcail says, “You need to keep your wits about you when reading accounts.” Please remember that the value of a stock market investment and any income from it can fall as well as rise and investors may not get back the amount invested. Investments with exposure to overseas securities can be affected by changing stock market conditions and currency exchange rates.
www.bgtrustonline.com
Called to account EDWARD RUSSELL-WALLING DESCRIBES WHAT MAKES A GOOD MODERN BANK
THE CITY OF LONDON
trust@bailliegifford.com and 0800 917 2112
Banks are emerging from the doghouse, for investors if not necessarily for moralists. Wall Street has returned to pre-crisis levels of profitability and the UK’s ailing RBS and Lloyds Banking Group are back in the black. As the financial crisis demonstrated all too painfully, however, short-run profits alone don’t make the ideal bank. So what exactly should a ‘good’ bank look like? Banks are, of course, in a commodity business. Money is the same wherever it comes from, which makes it hard to differentiate one bank from another. A bank can always lend more cheaply than its neighbour but, unless it can also perform the trick of borrowing more cheaply, its life may be truncated. How a bank funds itself, therefore, is an important differentiator between being prudent and incautious. For a big, trusted bank, the cheapest form of borrowing is the customer deposit which, due to customer inertia, is unlikely to disappear overnight. Borrowing in the short-term money markets is relatively cheap but less dependable and prone to dry up at the slightest whiff of trouble – as Northern Rock discovered shortly before it seized up in 2007. The longer-term bond markets are a halfway house – more expensive, but they offer the security of knowing that the money needn’t be repaid at short notice. A good bank diversifies its funding sources, favouring deposits rather than short-term markets. ‘Spread’ – the difference between interest received on loans and interest paid on borrowings and customer deposits – is obviously
27 | t
crucial to banks. Periods of low interest rates, as now, are less productive for banks because they limit the scope for spread. But spreads are immaterial if the loan doesn’t get repaid, which makes risk management an even more fundamental issue. The culture that determines risk appetite is influenced by regulators – which is partly why the crisis
controls, Caplen says, with its risk management committee chaired by Matías Rodríguez Inciarte and overseen by the company’s allpowerful chairman, Emilio Botín. While it could not escape damage from the Spanish crisis, Santander is well-diversified outside Spain. “Where a bank stuck to the basics, it did all right,” Caplen notes. “There’s much talk about banks holding a lot
over the same time frame. Risks and rewards should be symmetrical – so if people act inappropriately they should bear the consequences.” That touches on the benefits of long- rather than short-termism. At big American banks that came unstuck in the crisis, the top brass was tightly focused on the next quarterly figures, but not on whether the bank was going to
Only since the crisis has it been more widely accepted at better banks that risk strategy should be set and monitored by the board was a mild one for conservatively regulated banks in Canada and Australia. But it also comes from top management. Only since the crisis has it been more widely accepted at better banks that risk strategy should be set and monitored by the board. “Before, during and after the crisis, there have been good banks,” says Brian Caplen, editor of The Banker. “BNP Paribas, for example, has always had strong risk management. They believe that if there’s any doubt, you don’t do it, so they never got into sub-prime.” Santander has also benefited from a culture of tough management
of capital nowadays, but it doesn’t matter how much capital you have if your assets (including loans) are no good.” Aggressive, incautious lending and investment precipitated the financial crisis in the first place (and most of its predecessors). That’s why Patrick Edwardson, manager of The Scottish American Investment Company P.L.C. (SAINTS), believes appropriate incentives are the most important feature of a good modern bank. “Returns are the result of investment and lending decisions by individuals,” he says. “Outcomes are only known after a number of years, so rewards ought to be determined
blow up two years down the road. Gerald Smith, manager of The Monks Investment Trust PLC, thinks the ideal bank should be managed contra-cyclically. “Typically, when times are good, banks want to lend more at low rates, and when times turn bad they stop, write off their bad debts and try to rebuild their balance sheets,” he says. “But a good bank should withdraw from the market when things get too hot and then, when competitors are cutting back, it can pick up market share.” Management is under great pressure from shareholders to behave cyclically – to match
THE UNION OF COMMERCIAL AND INVESTMENT BANKS Traditionally, commercial banks and investment banks did two very different things. However, it was their fusion into a single institution that helped to cause the financial crisis. Commercial banks take in deposits and lend them to their clients, either ‘retail’ (personal) or ‘corporate’ (business). They operate current and savings accounts, and sell standardised financial products. They are, or should be, cautious and conservative. Investment banks are not really banks at all. They have no retail customers and do not (in theory) lend money. Instead, they earn fees helping companies to raise finance (by listing shares or selling bonds, perhaps), and to buy and sell businesses. They are
t | 28
typically imaginative and sometimes audacious. Commercial banks are often regarded as the ones with the money and investment banks as the ones with the brains. Having been forcibly separated in the US and UK for much of the 20th century, they were allowed to combine in what effectively became giant financial supermarkets. This happened in the UK in 1986 when the City was deregulated, and the US allowed the banks to unite a few years later in 1999. The brains got their hands on the money, and the crisis was the inevitable consequence. In the UK, it is proposed that each bank’s high street activities should now be placed in a separate subsidiary from its riskier investment banking activities. www.bgtrustonline.com
THE BNP PARIBAS BUILDING IN PARIS
industry-wide earnings by running with the herd. So Gerald wants to see more alignment between the interests of managers and those of shareholders. That’s the case at California-based First Republic Bank, held by Monks. Its specialist niche is mortgages for high net worth individuals. Management owns almost one per cent of the bank which, given its high value total worth, certainly makes them think like owners rather than managers. SAINTS’ holdings include Sweden’s prudently-managed Svenska Handelsbanken. “Its principal attraction is its long-term focus,” Patrick explains. “Customer relationships matter more than maximising the short-term take.” Another holding is HSBC. Patrick trust@bailliegifford.com and 0800 917 2112
sees its strong existing capital base as a competitive advantage at a time when all banks are being asked to beef up their capital. Banks tend to be only as prosperous as the businesses and people they lend money to, so there is a high correlation between their performance and the general economic cycle. For this, amongst other reasons, neither SAINTS nor Monks is overly exposed to the banking sector. But there are always exceptions. The growth possibilities in Russian consumer lending have prompted a Monks stake in Sberbank. Its largest shareholder is Russia’s central bank, so it should be safe, and its lending to the country’s nascent mortgage market is growing. “We believe loan
growth will continue for many years before the market gets overheated,” Gerald says. Please remember that the value of a stock market investment and any income from it can fall as well as rise and investors may not get back the amount invested. Investments with exposure to overseas securities can be affected by changing stock market conditions and currency exchange rates. Investing in emerging markets is only suitable for those investors prepared to accept a higher level of risk. This is because difficulties in dealing, settlement and custody could arise, resulting in a negative impact on the value of your investment. 29 | t
Towards a steadier system GORDON MCQUEEN, A NONEXECUTIVE DIRECTOR OF SCOTTISH MORTGAGE INVESTMENT TRUST PLC AND FORMER FINANCE DIRECTOR OF BANK OF SCOTLAND, TALKS TO HEATHER FARMBROUGH ABOUT WHAT HE THINKS WENT WRONG IN BRITISH BANKING HEATHER FARMROUGH Justin Welby, the Archbishop of Canterbury, likened trying to borrow from you and the Bank of Scotland when he was in the oil business to “screwing blood out of a stone”. But clearly not all bankers were like that. What do you think caused the banking crisis? GORDON MCQUEEN In a nutshell, and very much with the benefit of hindsight, I think the UK government was incompetent in setting the framework for bank regulation, which was not as tough as it should have been, particularly with regard to capital ratios and liquidity requirements. Any government that chooses to regulate an industry must ensure the regulation is sound and effective in order to work properly. It would be better not to have any regulation at all and instead rely on the prudence and good sense of the practitioners, than to have inadequate or ineffective regulation. The regulator was probably reasonably sound on individual credit risk – the individual loans held by each bank – but very weak in terms of the systemic credit and liquidity risk. I don’t think the regulator fully understood the total aggregate credit risk
t | 30
BANKING IN THE FAST LANE
of the UK banking system. In my view, it was a mistake to give control of interest rates to the Bank of England with an inf lation target as the only significant determinant; the government should have kept this as a lever for economic management and used it intelligently on any signs of an overheating economy. Under the Bank of England regime, interest rates fell and the lax capital regulation allowed aggregate credit volumes to balloon, which led to a credit boom that eventually came unstuck. And how does that happen? It happens because the politicians try to buy votes. If consumers feel good and have lots of cheap credit,
they’ll vote for that government; banks are merely the conduit of the government’s economic management. HF But companies in all kinds of industries will push the regulations because they are competing with each other, surely? GM Yes, it’s human nature to push the boundaries as far as the regulations allow in order to provide better shareholder returns. A prudent bank with prudent management that does not push the boundaries will end up delivering relatively poor returns to shareholders and will just be taken over. So it’s a kind of playing
www.bgtrustonline.com
By the way, it wasn’t really a global banking crisis… it was a US, UK and European crisis
A big bank will have lots of different activities and these all carry slightly different risks, of which many may be uncorrelated. A purely domestic bank in Sweden would not have been troubled by the collapse of the US Mortgage Backed Security (MBS) market. But international banks have assets all over the world and when some of those asset classes turn sour, it tends to hurt, especially if lots of corporate loans have been packaged up and risk passed on internationally. This is what happened from the 1990s in the international financial markets. There is another characteristic of big banks that tends to make them more vulnerable: their heavy reliance on wholesale funding carries a substantially greater systemic risk than a purely domestic bank funded with customer deposits. HF Do you think banks can escape the economic cycle?
field where everybody tends to push the regulations as far as they can in order to try and beat their peers. HF What do we need for a well-run banking system? GM We need honest government that does not compromise the economy. We need a government that sets an effective bank regulatory framework and structure. That’s very complicated because it has to be, or it is perceived to have to be, a global regulation system. But within the international regulatory environment, each country can gold-plate or tighten the agreed international rules.
trust@bailliegifford.com and 0800 917 2112
By the way, it wasn’t really a global banking crisis. South America didn’t have a big banking crisis, the Far East didn’t, and Australia, Canada and Sweden didn’t because they had been through it before and tightened up regulatory controls on excessively risky lending. It was a US, UK and European crisis, regardless of what politicians might say, and in the UK, in my view, it was born and bred in Downing Street, albeit exacerbated by the greed of avaricious bankers. HF Did the banks just get too big? GM All things being equal, the bigger a bank, the greater the inherent diversification of risk.
GM Funnily enough, I’m a great believer in the virtue of economic cycles. Before Gordon Brown became chancellor, the UK went through five- to seven-year economic cycles, which were almost self-correcting, because every five to seven years the banks would have a credit downturn, and a lot of their loans would go bad, and so the bankers learnt a lesson and tightened their lending criteria. Without that cycle, the bankers became complacent. This interview took place in September 2013 and the views expressed are those of the interviewee.
31 | t
Will India deliver? DAVID SMITH ON WHY HE THINKS IT WILL It was not supposed to be like this for India. Only a few years ago, this vibrant, colourful country, once memorably described as a “functioning anarchy” by the great economist (and former US ambassador to India) J.K. Galbraith, appeared to be finally putting a past of slow growth and poverty behind her. India was not only a member of the exclusive BRIC club of emerging economies (along with Brazil, Russia and China), but many saw her as its jewel in the crown. In 2007, when I wrote my book about China and India,
An economy with a working-age population growing by seven million annually needs the right policies in place to absorb that number of people and ensure future prosperity The Dragon and the Elephant, the Indian elephant was not so much lumbering as galloping. The future for India’s 1.1 billion citizens looked bright (the figure has now grown to more than 1.2 billion). Many said the people’s prospects were better than for their counterparts in China, not least because of India’s famously young population, with more than 65 per cent of people aged 35 or under. China, with an ageing population and a one-child policy, was in danger of becoming old before she got genuinely rich. India had – and still has – a potentially huge demographic advantage. But the question in the past few years is whether India has been squandering that advantage, and others, in what has been a disappointing period. In 2012, the Indian economy grew by just 3.2 per cent, a far cry from the 9 per cent the government was targeting just a few years ago. With inflation at 9.3 per cent last year, and current account and budget deficits of around 5 per cent of gross domestic product, India looks more like the
t | 32
DOING THE ROUNDS, CHANDIGARH, INDIA
problem economy of old than a new emerging-market giant. The rupee, the country’s currency, has reflected this disappointment, falling to record lows against the dollar. In five years the dollar has risen by 50 per cent against the troubled rupee. So what has gone wrong for India, and will this period of underperformance last? Is the elephant, having lost the spring in her step, condemned to a lumbering existence? India’s growth slowdown shows that her economy is not immune to the forces that are reducing the pace of expansion elsewhere in the world. www.bgtrustonline.com
Most of all, however, India appeared to lose the impetus for reform that had driven growth since the early 1990s, with businesses blaming the familiar problems of bottlenecks (including a lack of infrastructure investment) and bureaucracy for their own failure to invest. In some cases – such as the opening up of the retail sector to foreign investment – the government of prime minister Manmohan Singh appeared to succumb to domestic political pressure, and went back on or delayed promised reforms.
Initially, India’s response to the global financial crisis appeared to have been to step up a gear. Growth in the 2010–11 fiscal year (ending in March 2011) was a strong 9.3 per cent, even as advanced economies were struggling. It did not last, however, for a variety of reasons. High inflation squeezed real incomes, reducing consumer spending growth. The Reserve Bank of India, the country’s central bank, raised interest rates in an attempt to curb inflation. Government spending was restrained, with the aim of cutting the budget deficit. trust@bailliegifford.com and 0800 917 2112
REASONS FOR OPTIMISM Some of this is worrying. It is, however, much too soon to write off India. The International Monetary Fund, in its summer 2013 forecast update, predicted 5.6 per cent growth for this year, rising to 6.3 per cent in 2014. Though that is a long way from India’s former goal of 9 per cent, it is considerably better than the 3.2 per cent achieved in 2012. A recent assessment by The World Bank concluded that India’s medium- and long-term outlook remains good. “Despite the current downturn, long-term prospects remain bright for India,” said Martin Rama, the World Bank’s chief economist for the South Asia region. “India possesses the fundamentals to grow at sustained high rates over the next several decades.” None of that, of course, is guaranteed. An economy with a working-age population growing by seven million annually needs the right policies in place to absorb that number of people and ensure future prosperity. If not, India would have the mother and father of unemployment problems. The world needs India to grow and so do the Indian people. It could go either way but there are reasons for optimism – it is hoped that the recent slowdown may have acted as a wake-up call to the authorities. A series of reforms in July 2013, opening up key sectors such as telecommunications and defence to foreign direct investment, suggested a rekindling of the appetite for supply-side changes that, over time, will boost growth. Those, like me, who think India has enormous potential and can rediscover the elixir of strong growth, hope so anyway. 33 | t
BOOK REVIEW
The Signal and the Noise: The Art and Science of Prediction Philip Coggan reviews Nate Silver’s book Nate Silver is the statistician who, in the run-up to the 2012 US Presidential election, gave comfort to Democrats and riled Republicans by maintaining (in his New York Times blog) that Barack Obama was on track to beat Mitt Romney. Silver made the successful prediction by calmly focusing on the numbers – in particular the methodology (and past success rates) of the different opinion pollsters. In the process, he turned himself into a kind of geek superstar, and has even been headhunted by the sports TV network, ESPN. His book ranges far and wide across modern issues that are affected by statistics – from baseball and financial analysis to earthquake prediction and climate change. We are bombarded with numbers from morning to night; the US government produces around 45,000 economic indicators each year and private data providers track as many as four million statistics. But much of this information is what Silver calls “noise” – randomly generated numbers that are the equivalent of static on a telephone line. The task is to identify the useful information – the “signal” – in the midst of all this confusion. Lay readers should not be deterred by this book; it is not littered with equations, and Silver’s prose is crisp and clear. Readers should view the text as a kind of self-defence course against the next ‘expert’ that tries to baffle them with statistics. Take economic forecasts, for example: Silver points out that the margin of error when forecasting US growth has been 3.2 percentage points. So when an economist tells you that gross domestic product will grow by 2.5 per cent next year, this means you can be confident that growth will be between 5.7 per cent and minus 0.7 per cent. For policymaking purposes, such forecasts are worse than useless.
Just as worrying is the tendency for scientific studies to be wrong; many report positive findings, such as a significant correlation between two factors (say, eating certain foods and getting cancer). However, when Bayer Laboratories decided to repeat a selection of existing experiments themselves, it found that two-thirds of positive findings in medical journals could not be replicated. Conduct enough studies and some will show a significant correlation between two factors; those results will be reported, while the studies that show no correlation at all will be discarded. Silver urges us to think probalistically and to be flexible. In September 2012, when forecasting the election result, he said that Obama had a 78 per cent chance of winning. That meant Silver had almost a one-in-four chance of being wrong. Had new Romney-favouring polls arrived, he would have adjusted the odds. More of us need to think this way – we need to be less dogmatic. That is particularly true in the investment world, where we often have fixed opinions about an asset class; any asset can seem attractive if it is cheap enough, and unattractive if too expensive. This excellent book can improve the way we all think. After finishing it, readers should be a little more informed and a lot more sceptical about the statistics they see all around them. Philip Coggan’s latest book is The Last Vote: The Threats to Western Democracy. The Signal and the Noise: The Art and Science of Prediction by Nate Silver (Penguin, £8.99, Paperback)
OTHER BOOKS THAT BAILLIE GIFFORD IS READING
• Why Nations Fail: The Origins of Power, Prosperity and Poverty by Daron Acemoglu and James A. Robinson • The Private Life of the Brain by Baroness Susan Greenfield • Divided Nations: Why Global Governance is Failing, and What We Can Do About It by Ian Goldin • Delete: The Virtue of Forgetting in the Digital Age by Viktor Mayer-Schönberger
t | 34
www.bgtrustonline.com
It’s easy to find out more about investing with Baillie Gifford: REQUEST A BROCHURE USING THE REPLY PAID CARD CALL OUR CLIENT RELATIONS TEAM ON 0800 917 2112 PAY A VISIT TO OUR WEBSITE AT WWW.BAILLIEGIFFORD.COM This publication is a financial promotion and has been issued and approved by Baillie Gifford Savings Management Limited (BGSM). BGSM is the manager of The Baillie Gifford Children’s Savings Plan, The Baillie Gifford Investment Trust Share Plan and The Baillie Gifford Investment Trust ISA. BGSM is wholly owned by Baillie Gifford & Co, which is the manager and secretary of all the investment trusts listed overleaf. BGSM and Baillie Gifford & Co are authorised and regulated by the Financial Conduct Authority and are based at: Calton Square, 1 Greenside Row, Edinburgh EH1 3AN.
trust@bailliegifford.com and 0800 917 2112
35 | t
A view to invest
opportunities for our clients through extensive and exhaustive independent research – and we are fully committed to our clients’ long-term investment success. Read on for a guide to the eight investment
Since 1909, Baillie Gifford’s success
trusts we manage, and for information
has been built on finding investment
about the investment plans we offer.
Investment trusts are listed companies whose principal purpose is to invest in other companies, with the aim of making money for you, the shareholder. Your money is combined with that of other investors to provide a spread of risk through a wide range of shares. One of the main benefits to shareholders is that your money is being professionally managed by
our investment fund managers. This means that you don’t have to worry about when to buy or sell individual shares in companies. Baillie Gifford manages a range of eight global and specialist investment trusts – some aim to provide an income that will grow over time, some have a complete concentration on capital growth.
SCOTTISH MORTGAGE INVESTMENT TRUST PLC Managed by: James Anderson Deputy Manager: Tom Slater Sector: Global Growth Trust aims: a low cost global portfolio designed to maximise overall returns. Total Net Assets: £2,390m www.scottishmortgageit.com
EDINBURGH WORLDWIDE INVESTMENT TRUST plc Managed by: Mark Urquhart Sector: Global Growth Trust aims: capital growth from a concentrated global portfolio. Total Net Assets: £202m www.edinburghworldwide.co.uk
THE MONKS INVESTMENT TRUST PLC Managed by: Gerald Smith Deputy Manager: Tom Walsh Sector: Global Growth Trust aims: long-term capital growth from an internationally diversified equity portfolio Total Net Assets: £994m www.monksinvestmenttrust.co.uk
MID WYND INTERNATIONAL INVESTMENT TRUST PLC Managed by: Michael MacPhee Sector: Global Growth Trust aims: to achieve growth in both capital and income by investing on a worldwide basis. Total Net Assets: £70m www.midwynd.co.uk
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. Managed by: Patrick Edwardson Deputy Manager: Dominic Neary Sector: Global Growth and Income Trust aims: to increase capital and grow income in order to deliver real dividend growth. Total Net Assets: £318m www.saints-it.com
Our monthly Investment Trust Bulletin contains investment reports, performance data and holdings information for all of the trusts we manage. Copies can be obtained by contacting us, or downloaded at www.bailliegifford.com. The website also contains up-to-date analysis, performance and prices as well as the latest Report & Accounts for each trust.
t | 36
www.bgtrustonline.com
CLIENTS DEPARTMENT AT BAILLIE GIFFORD
SPECIALIST INVESTMENT TRUSTS
RISK FACTORS AND IMPORTANT INFORMATION
The Baillie Gifford Japan Trust PLC Managed by: Sarah Whitley Sector: Japan Trust aims: seeks capital growth through investment in medium to smaller Japanese companies. Total Net Assets: £232m www.japantrustplc.co.uk
• •
Pacific Horizon Investment Trust PLC Managed by: Mike Gush Deputy Manager: Roderick Snell Sector: Asia Pacific excluding Japan Trust aims: seeks capital growth through investment in the Asia Pacific region (excluding Japan) and of the Indian Sub-continent. Total Net Assets: £130m www.pacifichorizon.co.uk Baillie Gifford Shin Nippon PLC Managed by: John MacDougall Sector: Japanese Smaller Companies Trust aims: seeks capital growth through investment in small Japanese companies. Total Net Assets: £106m www.shinnippon.co.uk
trust@bailliegifford.com and 0800 917 2112
• •
•
The information given in this publication is based on Baillie Gifford’s understanding of current tax law and HM Revenue & Customs practice, which may change at any time. The trusts are listed on the London Stock Exchange and are not authorised and regulated by the Financial Conduct Authority. The trust directors and the staff of Baillie Gifford & Co may hold shares in the trusts, or may buy or sell such shares. Baillie Gifford does not provide investment advice, nor should the contents of this publication be taken as investment advice. If you have any doubt about the suitability of an investment, please contact an authorised intermediary for advice.
FURTHER INVESTMENT INFORMATION For more information about how to invest with Baillie Gifford visit www.bailliegifford.com or call us on 0800 917 2112. All data as at 30 September 2013.
37 | t
Baillie Gifford aims to make investing in global stock markets as simple as possible. Our investment trust plans are designed to be flexible, accessible and costeffective ways to invest directly in the investment trusts we manage.
INVESTMENT TRUST SHARE PLAN A flexible, cost-effective and simple way to invest in a spread of shares for the long-term. • No initial charge* • No annual management charge* • Flexible investment options: lump sum investments from £250 and monthly savings from £30
CHILDREN’S SAVINGS PLAN A straightforward way to invest over the long term for children. • • •
Can be opened for any child under 18 Comes with no initial charge or annual management charge* Can be a bare trust or a designated account: lump sum investments from £100 or monthly savings from £25
INVESTMENT TRUST ISA You can choose to open a new stocks and shares ISA or you can transfer the management of your existing ISAs. • • • •
Invest a lump sum from £2,000 (with a minimum of £1,000 per trust) or from £100 a month per trust (subject to investment limits) Invest up to £11,520 in a stocks and shares ISA this tax year Transfer existing ISAs with a minimum value of £2,000 No initial charge and an annual management charge of £32.50 plus VAT*
* Charges are subject to review in April each year. Other charges include a withdrawal charge of £22, the dealing price spread, and a stamp duty cost of 0.5 per cent on purchases. Investment trusts also incur costs in managing and administering their portfolios (including dealing costs).
t | 38
CLIENTS DEPARTMENT AT BAILLIE GIFFORD
RISK FACTORS AND IMPORTANT INFORMATION Any investment in an investment trust involves risk. You should be aware of the following risk factors that apply to all of the investment trusts and to investment in the Share Plan, Children’s Savings Plan and ISA: • The Investment Trusts managed by Baillie Gifford & Co are listed UK companies. As a result, the value of their shares, and any income from them, can fall as well as rise and investors may not get back the amount invested. • The trusts invest in overseas securities, changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up. • All the trusts can borrow money to make further investments (sometimes known as ‘gearing’). The risk is that when this money is repaid by the trust, the value of the investments may not be enough to cover the borrowing and interest costs, and the trust will make a loss. If the trust’s investments fall in value, any borrowings will increase the amount of this loss. • You should note that tax rates and reliefs may change at any time. The value of any tax benefits will depend on your individual circumstances. Details of the other risks associated with the investment trusts and ways to invest in them are in the information we will send to you. All data as at 30 September 2013.
www.bgtrustonline.com
BAILLIE GIFFORD CHILDREN’S SAVINGS PLAN
JUMPING ON THE BED IS SOMETHING THAT MOST PEOPLE GROW OUT OF. BUT WITH A BAILLIE GIFFORD CHILDREN’S SAVINGS PLAN YOU COULD GIVE YOUR CHILD SOMETHING ELSE TO JUMP UP AND DOWN ABOUT RIGHT INTO ADULTHOOD.
Something that lasts. Designed for families wanting to invest for their children, the Baillie Gifford Children’s Savings Plan offers a range of Baillie Gifford managed investment trusts including our flagship fund - Scottish Mortgage. Highly accessible with minimum investments from just £25 a month and lump sums from £100, it could become a wonderful gift from parents, grandparents and godparents alike. At Baillie Gifford we like to take a long-term view of investment, seeking out suitable companies from the world’s stock markets which we believe will grow long into the future. With the Baillie Gifford Children’s Savings Plan, childhood fun may turn into memories but they could be thanking you for making them feel magical when they’re starting to build on their dreams in years to come. Please remember, your investment can be affected by changing stock market conditions and by currency exchange rates. The value of your investment and any income from it can fall as well as rise, and you may not get back the amount invested. Open a Children’s Savings Plan to receive a £10 Amazon gift card*.
For more information call us on 0800 917 2112 or visit www.bgchildsavings.com Baillie Gifford – long-term investment partners *For a limited period and new Children’s Savings Plan customers only. Terms & Conditions and minimum investment amounts apply. Please refer to our website or the application pack that we will send you for full details. Your call may be recorded for training or monitoring purposes. Baillie Gifford Savings Management Limited (BGSM) is the manager of the Baillie Gifford Children’s Savings Plan and is wholly owned by Baillie Gifford & Co, which is the manager and secretary of the investment trusts offered within the Plan. Your personal data is held and used by BGSM in accordance with data protection legislation. We may use your information to send you information about Baillie Gifford products, funds or special offers and to contact you for business research purposes. We will only disclose your information to other companies within the Baillie Gifford group and to agents appointed by us for these purposes. You can withdraw your consent to receiving further marketing communications from us and to being contacted for business research purposes at any time. You also have the right to review and amend your data at any time.