Fixed income funds account for four out of five funds flagged for poor performance in Baillie Gifford’s first value for money assessment, while two gilt funds that failed the value for money test were closed earlier this year.
The Baillie Gifford fund board deemed 35 out of 37 funds value for money. Funds are assessed on seven criteria, meaning even if they underperform they can still be deemed value for money on other factors such as cost, quality of service and economies of scale.
The Baillie Gifford Active Gilt Investment and Active Long Gilt Investment funds were the only two deemed not value for money. Baillie Gifford announced in January that it was closing both funds. At the time it attributed the closures to the low interest rate environment.
A further five underperforming funds will be monitored further despite being deemed value for money. Underperformance in four other funds was attributed to recent coronavirus market volatility or because funds did not have a long enough track record.
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Argentina, currencies and coronavirus blamed for bond fund underperformance
Four of the five funds being monitored by the Baillie Gifford fund board are fixed income products. In each case, the fund board said it would “continue to monitor progress in case further action is required”.
The Baillie Gifford Emerging Markets Bond fund was deemed to have underperformed due to a position in Argentina in 2018. “The fund has suffered from a number of poor periods of performance but changes have been made to the investment process and team,” the fund board said.
Currency positioning was blamed for underperformance in the Baillie Gifford Sterling Aggregate Plus Bond fund. The fund board said changes were made to the investment process in 2019, specifically related to government bonds and currencies.
Underperformance in the Baillie Gifford Investment Grade Bond and Sterling Aggregate Bond funds was attributed to market turbulence in the first three months of 2020. Despite being happy with performance prior to this period, the fund board said it would continue to monitor both funds.
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Boohoo highlighted as bright spot in underperforming UK fund
Only one equity fund is being monitored by the fund board.
The Baillie Gifford British Smaller Companies fund was one of a trio of equity funds that failed on performance, although it is the only fund of the three being monitored by the fund board.
The board highlighted controversial fast fashion company Boohoo as well as Yougov as “notable successes” in the portfolio. Boohoo, which remains a 6% holding in the fund, has failed to regain its share price losses after an investigation was launched in July into slavery within its UK supply chain.
The Baillie Gifford UK Equity Core Fund also underperformed, but the board argued it had only launched in January 2018 and therefore did not have a long enough track record. The board gave the same response regarding underperformance in the Baillie Gifford Japanese Income Growth fund. It deemed both funds value for money and decided neither required further monitoring.
Market turbulence was blamed for underperformance in the Baillie Gifford Diversified Growth and Multi Asset Growth funds, which were both also deemed value for money.
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