Baillie Gifford late stage growth trust enjoys sharp rebound in August

One of Baillie Gifford’s floundering investment trusts has bounced back sharply in August, which saw emerging markets focused funds dominate performance tables.

Baillie Gifford Schiehallion was the second-best performer last month across the entire investment trust universe, returning 26.5% on a share price basis, according to data from FE Fundinfo. Catco Reinsurance Opportunities, which invests in catastrophe bonds, rose 37%, making it the best performer overall.

Schiehallion, which exclusively targets late-stage growth companies, has been one of the biggest losers in the Edinburgh fund group’s stable this year.

In the year to the beginning of June, it had plunged 44.3%, close to matching the biggest lossmaker, Baillie Gifford US Growth Trust, which was down a spectacular 46.9%.

Like Baillie Gifford US Growth Trust and Scottish Mortgage, Schiehallion suffered during this year’s tech rout, which saw investors pile out of stocks on lofty valuations amid rising inflation and interest rates.

But August saw a reversal of this trend as markets grew hopeful the Federal Reserve would ease up on its rate rising amid softening inflation data and strong jobs figures.

Several of Schiehallion’s holdings, which have gone public in the last year, went along for the ride. American insurer Oscar Health, saw its shares rebound nearly 24% during the period, while Airbnb, Warby Parker and Wise also recouped some of their losses.

Schiehallion listed holdings’ share price performance 1 month (%)

SpaceX and Scopely enjoy massive upward revaluations

Despite concerns about a “valuation lag” between Baillie Gifford trusts’ private holdings and comparative listed peers, many of Schiehallion’s unquoteds have enjoyed massive write-ups since its last financial year ended 31 January 2022.

The value of the £654.4m trust’s stake in SpaceX had shot up by 25% to £63.7m at the end of July, according to data published by Baillie Gifford. That month, Elon Musk’s rocket company raised an additional $250m from investors, bringing the total raised in 2022 to $2bn.

Scopely, a mobile game developer, became Schiehallion’s largest holding after it was revalued upward by 39% to £66.4m from the end of January.

But some of its top holdings remained on depressed valuations compared to the end of January. Its stake in Chinese social media company Bytedance fell in value from £58.4m to £44.3m by the end of July, while Northvolt, a battery supplier for electric vehicles, had dropped from £31m to £23.4m.

Schiehallion is still down 38.3% year-to-date, while Scottish Mortgage, which holds many of the same unquoted and listed holdings, is down 39.6%. Baillie Gifford US Growth Trust remains the worst of all its investment trusts, down 46.2%.

Latam funds dominate from commodities boost

However, it was emerging markets-focused funds that led the charge in August, as the global equities rally ran out of steam halfway through the month.

Three out of five of the top investment trust sectors had an emerging markets bent, with India the second best performer (6.8%), and Asia Pacific Smaller Companies (5.8%) and Global Emerging Markets (5.2%) fourth and fifth overall.

It was a similar story for open-ended funds, with Latin America funds topping the performance table with an average return of 9.6%, followed by India funds with 7.2%.

Seven out of 10 of the best performers out of the Investment Association universe were Latam funds, which Fairview Investing director Ben Yearsley said was not surprising as commodities returned to favour.

Source: FE Fundinfo

UK gilt and long duration investors suffer

However, Yearsley said it was “a sorry state of affairs” for UK gilts and long duration funds, which made up seven out of 10 of the worst performers in August. The worst was the Vanguard UK Long Duration Gilt index, nursing a 12% loss.

While inflation has shown signs of abating in the US, the same cannot be said for the UK, with the consumer price index coming in at a hotter than anticipated 10.1% in July. With the energy crisis exacerbating prices, Citi has estimated inflation could peak at 18% next year. Goldman Sachs has that figure even higher at 22%.

“There isn’t really much joy for UK investors elsewhere at the foot of the tables with a smattering of small- and mid-cap funds also near the bottom,” Yearsley added.

Source: FE Fundinfo