Short Briefings on Long Term Thinking - Baillie Gifford

From the maker of the world’s favourite fizzy drinks to a Japanese used-car auction operator, the durable-growth approach to investing seeks companies that can continue compounding through change. Investment manager Alistair Way explains the factors that signal a company is in control of its own fate, whatever the future throws at it.
 
Background: 
Alistair Way is an investment manager in Baillie Gifford’s Durable Growth Team. In this episode of Short Briefings on Long Term Thinking, he joins host Leo Kelion to explore ‘uncommon compounders’ – companies with competitive advantages, strong cash flows and management teams able to adapt through economic, technological and social change.

This is the first of four weekly specials exploring three flavours of growth. The focus this episode is Baillie Gifford’s ‘durable growth’ style of active, long-term investing. Alistair explains that this approach aims to share in the gains when favourable conditions prevail while taking care to minimise losses when markets turn.

Way explains why Coca-Cola’s marketing might and asset-light operations stand out, why he thinks the Japanese car auction business USS and chip designer MediaTek have room to grow and what he learned from a Chinese investment that went wrong.

Companies discussed include:
• Coca-Cola: the soft-drinks maker, which is investing in its fairlife ultra-filtered milk division
• USS: the Japanese used-car auction operator combines scale, data and a national network with scope to keep taking market share
• MediaTek: the Taiwanese chip designer whose products power an increasing number of Android devices and is now moving into AI chips for datacentres
• Proctor & Gamble: the consumer goods conglomerate with a high-performance corporate culture
 
Resources: 
An Irish Atlantic Rainforest by Eoghan Daltun
Baillie Gifford website
Durable growth
Short briefings on long term thinking podcast hub

Companies mentioned include:
Coca-Cola
Google
MediaTek
NVIDIA
USS

Timecodes:
00:00 Introduction
02:18  Why Alistair returned to Baillie Gifford
03:28 Seeking uncommon compounders
05:04 Why Coca-Cola endures
07:46 fairlife and changing consumer tastes
09:14  How Coca-Cola manages risk
11:25   Finding an edge in familiar companies
13:02  USS and used-car auctions in Japan
14:45  Revisiting USS after two decades
17:36  MediaTek and durable technology
20:13  The lesson from New Oriental Education
21:59  Researching US uniform rental
23:19  Durable Growth in a fast-changing world
24:18  Book choice: An Irish Atlantic Rainforest
 
Glossary of terms (in order of mention):
 
Durable growth: An investment approach that seeks companies able to grow earnings steadily over a long period and remain resilient in different market conditions.
 
Steady compounder: A company that can grow earnings consistently over many years, allowing each period’s gains to build on those before it.
 
Uncommon compounder: The Durable Growth Team’s term for a rare company that may be able to compound earnings steadily and resiliently for many years.
 
Consumer staples: Everyday products that people tend to keep buying across the economic cycle, such as food, drink and household goods.
 
Asset-light: Describes a business that can operate and grow without owning large amounts of factories, equipment or other physical assets.
 
Capital requirements: The money a business needs to operate, maintain its assets and fund growth.
 
Free cash flow: Cash left after a company has paid its operating expenses and spending on long-lived assets.
 
Value chain: The linked activities involved in creating, producing, distributing and selling a product or service.
 
Economies of scale: Cost or competitive advantages that arise as a company grows and handles more activity.
 
Addressable market: The total potential demand available to a product, service or company.

Optionality: The ability to pursue additional sources of growth without depending on them for the core investment case.
 
Low-nanowidth processor: The speaker’s shorthand for a processor made with extremely small components, which can improve performance and energy efficiency.
 
Social licence: The informal acceptance a company receives from customers, regulators and wider society to continue operating and growing.
 
Network effects: A situation in which a product, service or marketplace becomes more useful as more people or businesses use it.

The biggest car-carrying ships on the planet. A chip-testing rig that weighs as much as a small elephant. Investment manager Alex Summers takes us inside some of emerging markets’ least-watched growth companies to explain how his team sees what others have missed. “Often, the crowd is going to be right,” he acknowledges, but when it’s not, long-termism, access to management and asking different questions are key to how his team determines investment opportunities.
 
Background:
Alex Summers is co-manager of our Emerging Markets Leading Companies Fund, an investment manager in our Emerging Markets Equity Team and a member of the International Growth Portfolio Construction Group.
In this conversation, he tells Short Briefings… host Leo Kelion why one of his team’s guiding principles is that before investing in a company, he and his colleagues must be able to articulate the critical uncertainty about a stock and why others may be wrong.
 “Often, you can observe something about a company, and it may be true,” he explains. “But if everybody else believes that, you’re not going to create any additional outperformance by owning those companies.”
 
Companies discussed include:
Hyundai Glovis – the logistics company that’s invested in a dozen ultra-sized ships and now sees an opportunity in transporting spent electric vehicle batteries
Chroma ATE – the test-equipment company whose customised cabinets provide critical checks for NVIDIA and Nasa
Silergy – the mainland China-based semiconductor company specialising in power-management chips
Reliance Industries – India’s most valuable company and its heavy investment in solar panels, green hydrogen and battery storage systems
Toss – the South Korean financial super-app that provides banking, payment and ecommerce services
 
Resources:
Baillie Gifford website
Emerging Markets Leading Companies Fund
Emerging markets: from imitators to innovators (video)
Emerging markets: the next engines of global growth
Short Briefings on Long Term Thinking podcast archive
When consensus fails
Companies mentioned include:
·       Chroma ATE
·       Hyundai Glovis
·       Meituan
·       NVIDIA
·       PB Fintech
·       Reliance Industries
·       Samsung Electronics
·       Silergy
·       SK hynix
·       Talabat
·       Toss
·       TSMC
Timecodes (audio version):
00:00 Introduction
01:45  From Toronto to Edinburgh
02:35 A lesser-covered class of companies
03:35 Taking a five-to-10-year view
04:15  Forming non-consensus views
05:35 Hyundai Glovis and EV batteries
07:10  Corporate governance reform in South Korea
09:30 Getting access to senior leaders
11:50   Chroma ATE’s chip-testing equipment
14:50  Building conviction in Silergy
16:30  Declining to invest in Talabat
18:20  Visiting Reliance Industries in Jamnagar
20:45 Retaining sell discipline
22:00 Toss and private companies
24:15  Moving towards physical assets
25:35 Podcasts and Substack picks
 
Glossary of terms (in order of mention):
Magnificent Seven: A nickname for seven large US technology-related companies – Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA and Tesla.
Holding period: The length of time an investment is owned.
Corporate governance: The systems and processes by which a company is directed and controlled, including board accountability and the treatment of shareholders.
Minority shareholder: An investor who owns less than a controlling stake in a company and cannot direct it alone.
Bottom-up investing: Assessing individual companies rather than starting with forecasts for economies, markets or sectors.
Economies of scale: Advantages that arise as a company handles more volume, reducing the average cost of each unit.
Profit margin: The proportion of revenue left as profit after costs have been deducted.
Graphics processing unit (GPU): A chip designed to perform many calculations in parallel, originally for graphics but now also widely used in AI.
Analog chip: A semiconductor that processes continuous real-world signals, such as sound, temperature or voltage.
Flotation or initial public offering (IPO): The process by which a private company first offers shares to public investors and lists them on a stock exchange.
Cash flow: The movement of money into and out of a business over time.
Capital allocation: The decisions a company makes about how to use its money, such as investing in growth, making acquisitions, paying dividends or reducing debt.
Business vertical: A distinct business area within a company, usually focused on a particular product, service or market.
Overweight: Holding more of an investment, sector or theme than the index used for a comparison.
Fintech: Technology-driven financial services, such as digital payments, lending or banking tools.
Insurance brokerage: A business that helps customers compare and buy insurance, acting as an intermediary between them and insurers.
Capital-light: Describes a business that needs relatively little investment in physical assets to operate and grow.

“Europe looks more like emerging markets than it does North America,” Joe Faraday, Baillie Gifford’s new head of European equities, suggests in this conversation. He means that growth takes many forms across the continent, creating an eclectic mix of companies to choose from and specific circumstances to consider. As he reveals, it’s led him to reposition the portfolios under his watch, broadening the types of companies they contain.

Background:
Joe Faraday is our head of European equities and investment manager of the Baillie Gifford European Growth Trust and European Fund.
In this conversation, he tells Short Briefings… host Leo Kelion about some of the stocks he has added to and removed from the portfolios of our European Growth Strategy. Faraday took charge earlier this year with a mandate to improve performance.
“We’ve changed rather a lot,” he says, regarding efforts to broaden the mix of growth themes the portfolios he manages tap into, while ensuring that he grounds each buy or sell decision on an intimate understanding of each stock.

Companies discussed include:
Piraeus Bank – Greece’s biggest lender, expanding its reach with new insurance, asset management and digital banking services
LPP – the Polish retail group behind Sinsay, the rapidly growing fashion and homeware brand big in central and eastern Europe
TotalEnergies – the French energy group involved in exploration and production, liquefied natural gas and renewables
Rheinmetall – the German defence contractor, whose activities range from drones and armoured vehicles to ammunition and satellites
Bending Spoons – the Italian app acquirer that rearchitects and revitalises mature digital businesses
Rational – the German manufacturer of ‘combi ovens’ designed for commercial kitchens

Resources:
A disciplined case for European Growth
European megatrends: what’s on my mind?
Supercommunicators by Charles Duhigg
The European opportunity set
The Short Briefings… archive
 
Companies mentioned include:
·       Airbus
·       Allegro
·       Bending Spoons
·       CaixaBank
·       Dino Polska
·       Exail
·       Iberdrola
·       Piraeus Bank
·       LPP
·       LVMH
·       Nexans
·       Rational
·       Rheinmetall
·       TEKEVER
·       TotalEnergies

Timecodes:
00:00  Introduction
01:50  From paint-making to portfolio management
03:30  Investment track record
05:25  Broadening the growth types
07:05 Megatrends and individual circumstances
08:45  Rearmament, energy security and consumption
10:30  “Europe’s not like Marmite”
11:45  TotalEnergies – a mega energy business
16:30  Rheinmetall – a catch-all defence contractor
19:05  LPP – the Zara of eastern Europe
22:20  Piraeus Bank pushes into insurance
24:40  LVMH and the outlook for luxury
26:40  Building on Bending Spoons
28:50  “Decisive action has been taken”
29:35  Book choice

Glossary of terms (in order of mention):
Small-cap: Shares in companies with relatively small total stock market values.
Compound: Gains that build on earlier gains, so an investment’s value can grow at an increasing rate over time.
Exploration and production: The part of the oil and gas industry that searches for reserves and extracts them.
Liquefied natural gas (LNG): Natural gas cooled into liquid form so it can be stored and transported more easily.
Integrated power: A business that combines several parts of the electricity system, such as generation, trading and supply, often across conventional and renewable sources.
Capital allocation: The decisions a company makes about how to use its money, including investing in operations, buying businesses, repaying debt or returning cash to shareholders.
Free cash flow: Cash left after a company has paid its operating costs and the investment needed to maintain or expand the business.
Capital markets day: An event where a listed company gives investors and analysts detailed information about its strategy, operations and financial prospects.
International Monetary Fund (IMF): An international institution that monitors economies, advises governments and can lend to countries facing financial difficulty.
Flotation: The process by which a private company lists its shares on a public stock market, often through an initial public offering (IPO).

Baillie Gifford first invested in SpaceX in 2018, nearly eight years before its record-setting stock market listing. Investment manager Luke Ward, who championed the holding, discusses what first drew him to the business, why Starship is critical to its future, and reveals where he’s now looking for another company with industry-upturning potential.

Background:

Luke Ward is an investment manager on Baillie Gifford’s Private Companies Team and co-manager of Edinburgh Worldwide Investment Trust.
In this conversation, he tells Short Briefings… host Leo Kelion how SpaceX’s first successful landing and recovery of one of its rocket boosters led him to explore an investment in the company, and how he gained access to its senior management.
Ward also explores three growth drivers that could determine its future success:
regularly flying a new, larger spacecraft, Starship, into orbit
upgrading its Starlink broadband network with satellites that connect to smartphones directly
putting and operating datacentres in orbit
In addition, he discusses some of the risks in being a long-term shareholder in the Elon Musk-run endeavour.
Ward also reveals why he thinks the construction industry is ripe for disruption from 3D-printing robots.
 
Resources:
 
Baillie Gifford Private Companies Team
Edinburgh Worldwide Investment Trust
Elon Musk by Ashlee Vance
Private companies: our philosophy
Quantum, space, fusion: three firms engineering the future
SpaceX: the economics of the impossible
Starlink: broadband from above
Titan robotic construction system
 
Companies mentioned include:
 
·      Alphabet (Google)
·      Anthropic
·      Astranis
·      Rocket Lab
·      SpaceX
·      Tesla

Timecodes:
00:05    Introduction
02:00    A successor to the Space Shuttle
03:55    Reimagining a market
05:55    Reusable rockets
06:30    Mars as a ‘forcing function’
07:55    First encounter with Gwynne Shotwell
10:10    The ‘scale of the Dutch East India Company’
12:40    What we got wrong
14:25    The advantages of early access
17:50    Starship’s cost advantage
19:40    Next-generation Starlink satellites
22:30    AI and space-based datacentres
27:20    SpaceX’s scale of ambition
29:00    Governance risk
31:05    Flywheels and stepping stones
32:55    3D-printed homes
34:25    A “nerdy” book pick

Glossary of terms (in order of mention):

Path dependency: The idea that earlier choices shape and constrain what becomes possible later.
Rocket booster: The part of a rocket that provides extra thrust during launch, usually early in flight.
Orbital-class craft: A spacecraft or rocket powerful enough to reach orbit around Earth.
Market capitalisation: A public company’s total value on the stock market, calculated from its share price and number of shares.
Vertical integration: When a company owns and controls more of its supply chain itself, rather than relying on outside suppliers.
Point solution: A product or service built to solve one specific problem, rather than a broader system of related problems.
Balance sheet: A financial statement showing what a company owns, owes and is worth at a point in time.
Roadshow: A series of presentations in which a company and its advisers meet potential investors before a share sale or listing.
Cost curve: The trend in how the cost of producing or delivering something changes as technology improves or scale increases.
Geostationary orbit: An orbit where a satellite moves at the same rate as Earth rotates, so it appears to stay above the same point on the planet.
Transistors: Tiny electronic switches used in computer chips to control electrical signals.
S-curve: A pattern where progress starts slowly, accelerates rapidly and then slows again as a technology matures.
Ancillary services: Supporting services or costs around the main product or technology, rather than the core hardware itself.
Orders of magnitude: Very large multiples, usually powers of 10.
Radiation hardening: Designing or adapting electronics so they can keep working despite radiation in space.
Cap table: Short for capitalisation table, a record of who owns a company’s shares and on what terms.
Thermal mass: A material’s ability to absorb, store and release heat, helping to smooth temperature changes.

Tokenisation represents an “operating system upgrade” for the investment industry, says Theo Golden, Baillie Gifford’s new head of digital assets. In this episode, they explain what it involves and how it should deliver a better experience, both by reducing the number of middlemen between you and your investments and making your holdings more “useful”.
 
Background:

In this conversation, Theo Golden tells Short Briefings… host Leo Kelion about how tokenisation can reduce costs and complexity – and pave the way for providing clients with new services that better fit their needs.
 
Tokenisation means taking an asset – such as a fund – and turning it into a line of code. This lives on a blockchain: a shared digital record that no single party owns or controls. The investment itself doesn't change, but what does are the ways that ownership is recorded and transferred. Instead of a chain of intermediaries, each keeping their own set of books, everyone can work from one shared record. As Golden puts it, it's “the same but better” – the same investments, on faster, lower-cost, more flexible rails built for the internet age.
 
It also paves the way to new capabilities. Among those Golden discusses are making it much easier for clients to use the funds they invest in as collateral for loans, and the development of “agentic wealth management” – AI bots that autonomously plan and, potentially, update an individual client’s portfolio based on their risk appetite and changing circumstances.
 
Baillie Gifford’s first steps with tokenisation involve fixed income, but in time the ambition is to “build across our investment universe,” Golden says. “So be ready for Baillie Gifford on chain.”
 

 
Resources
Baillie Gifford digital assets hub
Dr Ian Hunt: Replicating Legacy is Squandering the Promise of Tokenisation: We Are Building a Faster Horse
Short Briefings on Long Term Thinking podcast archive
 
Timecodes:
00:00  Introduction
01:40   “A world with less friction”
02:15   The lesson from losing it all
04:50  From Bloomberg to bonds
06:35  Defining tokenisation and the blockchain
08:20  Same assets, better system
09:35  One golden source of truth
12:35   Making assets more useful
16:10   Turning assets into “Lego bricks”
19:20   Stablecoins, regulation and new decision-makers
24:00  Managing crypto risks
26:25  The ‘same but better’ rule
28:00  Starting with fixed income
29:20  Meeting clients where they are
30:27  Book pick
 

Glossary of terms (in order of mention):
 
Trading volumes: The amount of buying and selling taking place in a market over a period of time.
 
Blockchain-based tokenisation: The use of blockchain technology to create digital tokens that represent ownership of assets.
 
Self-sovereign: Controlled directly by the owner, rather than depending entirely on a bank, platform or intermediary.
 
Custody: The safekeeping of assets. Self-custody means holding and controlling the asset directly yourself.
 
Counterparties: The other parties involved in a financial transaction or agreement.
 
Multi Asset: An investment approach that can invest across several asset classes, such as shares, bonds, currencies and infrastructure.
 
Catastrophe bonds: Bonds that transfer insurance-related risks, such as natural-disaster losses, from insurers to investors.
 
FX rates: Foreign exchange rates.
 
Smart contract: Computer code that automatically carries out agreed rules when certain conditions are met.
 
Token: A digital representation of an asset or ownership right on a blockchain.
 
Walled garden: A closed system where users can only operate within the rules and limits of one provider or platform.
 
Fixed income fund: A fund that invests mainly in bonds or other debt instruments that typically pay interest.
 
Growth equity fund: A fund that invests in companies expected to grow faster than the wider market.
 
Vehicle for transfer: The system or method used to move ownership or value from one party to another.
 
Rails: The underlying infrastructure that allows transactions or transfers to take place.
 
Reconciliation: The process of checking that different records match each other.
 
Shareholder registry: The official list of people or organisations that own shares or fund units.
 
Transfer agency register: A fund-administration record that tracks investor ownership and transactions.
 
Wallet: A digital tool used to hold and manage blockchain-based assets.
 
Finality: The point at which a transaction is considered complete and cannot easily be reversed.
 
Unitisation: The process of dividing a fund into units so investors can buy and sell a share of the fund.
 
Inert: Hard to move, transfer or use in other financial activities.
 
UK gilt: A UK government bond.
 
Margin call: A demand for more cash or collateral when the value of an investment or position has fallen.
 
Interoperability: The ability of different systems, assets or pieces of software to work together.
 
Composability: The ability to combine digital assets or software components, like building blocks, to create new services.
 
COBOL: Common Business-Oriented Language – an older computer programming language still used in some legacy financial systems.
 
AI agents: Software that can act semi-independently to carry out tasks on behalf of a user.
 
On-chain books and records: Official ownership and transaction records kept on a blockchain.
 
Stablecoin: A digital asset designed to track the value of a traditional currency, such as the US dollar or pound.
 
Fiat currency: Government-issued money, such as pounds, dollars or yen, that is not backed by a physical commodity such as gold.
 
USDC: A stablecoin issued by Circle that is designed to track the value of the US dollar.
 
FCA: The Financial Conduct Authority, the UK regulator for financial services firms and markets.
 
Burn a token: Permanently cancel or destroy a digital token so it can no longer be used.
 
Remit a token: Re-issue a token to a new wallet.
 
Neobank: A digital-first bank, usually operating mainly through apps or online services.