Baillie Gifford unveils responsible fund for £1bn duo

ESG investors seeking income have faced ‘very limited options’

The duo behind Baillie Gifford’s Scottish American Investment Company are to launch the first responsible fund in the Investment Association Global Income sector.

Toby Ross (pictured) and James Dow, who together manage over £1bn for the Scottish fund house, have already received £50m seed funding for the Baillie Gifford Responsible Global Equity Income fund.

It will mirror their open-ended £525m Global Income Growth fund with exclusions in industries like tobacco, alcohol and arms. It will also adhere to the UN Global Compact principles covering human rights, labour, the environment and anti-corruption.

Baillie Gifford Global Income Growth performance

6m1yr3yr5yr
Baillie Gifford Global Income Growth11.771.6911.1646.2172.64
FTSE All World10.00-1.0713.5552.3079.93
IA Global Equity Income8.91-0.479.8636.2349.16
Source: FE Analytics

‘That’s a smart move’

Morningstar head of sustainability Hortense Bioy agreed there are currently “very limited options” for ESG-conscious investors seeking income. “So, that’s a smart move.”

Bioy added: “It can be difficult for investors, especially in the UK, to find ‘responsible’ income because that means avoiding a bunch of controversial companies in the tobacco, pharmaceutical and financial sectors that have historically been large dividend payers.”

EQ Investors head of impact Damien Lardoux said the Baillie Gifford Positive Change fund, launched in 2017, delivered a more meaningful environmental and social impact. “However, the focus of this strategy in more mature businesses generating an income is a nice addition to the sector and we will keep a close eye on it to see how the process might evolve overtime.”

Leveraging the success of an existing fund

It is increasingly common for asset managers to leverage the success of an existing strategy with the launch of a responsible sister fund, said Bioy. Alternatively, money managers may choose to launch new strategies from scratch or repurpose and rename existing funds.

“The Baillie Gifford Global Income Growth Fund has exhibited outstanding performance relative to global-income peers. Launching an ESG-version of an existing strategy also allows the firm to offer choice to the end investor and attract new investors,” she said.

The portfolios’ top 10 holdings are identical, although their weightings are slightly different, she points out.

“It may be the case that the responsible portfolio just excludes the most controversial stocks from the conventional fund. It would be interesting to know if the portfolio managers plan to replace these stocks with more compliant stocks, instead of just applying a screen.”

Charities and endowments targeted

Ross said: “Investors have often had to make a choice between investing for income and investing for the greater good. This fund bridges this gap for those seeking a high and rising income from responsible equity investments.”

Baillie Gifford is targeting the fund at charities and endowments but wealth managers will also be able to access the fund.

Baillie Gifford director of retail marketing and distribution James Budden said the fund house had spotted a gap in the market for a responsible growth and income product.

The fund has an estimated estimated ongoing charge of 0.63% for Class B Shares.

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