Is the UK market ripe for stock pickers?
Being a UK equity fund manager may seem a somewhat depressing occupation these days. As the spectre of the country’s exit from the European Union looms large, there are plenty of doomsayers taking the view that investing money in UK stocks is a foolish thing to do.
Why would anyone bother evaluating UK investment opportunities when you could invest in the innovative dynamism of certain parts of corporate America, or the allure of China’s fascinating journey to global economic dominance? Against these competing attractions, the fate of UK PLC seems a sorry one.
We, however, refuse to be disheartened. Rather than being dull and futile, investing in the UK market is for us a greatly rewarding exercise. This is simply because there are some tremendously exciting British businesses which we wish to help grow to become multiples of their current size in the years to come. Some of these companies might not be household names, but they are true world leaders in their fields. They have built enviable competitive positions that rivals find hard to match. They are run with ambition and a real sense of purpose, confidently unlocking large growth opportunities which often span the globe. They feed on powerful, deeply entrenched social trends and, through innovation, aim to solve some of the most intractable challenges facing the industries they operate in. We believe that these companies’ prosperity will not be easily derailed. Their strengths and adaptability should enable them to drive their vision, even amid evidently seismic political and economic events. And, by continuing to be sizeable, highly committed and patient shareholders of these businesses, while acting on our clients behalf, we have put ourselves in the privileged position of taking a disproportionate share of any future success.
We are unashamedly bottom-up investors. You will not hear us muse on, or attempt to predict, the daily twists and turns of economic data, stock market sentiment, or government policy. We do not think we can add much on those issues. Our enthusiasm for some of the exceptional UK growth businesses spans a wide variety of different industries.
Long-term winners and the need for a strong corporate culture
At Baillie Gifford, we have learnt a lot by owning great businesses and hope we can use some of those lessons to spot other big winners in the future. One of the key things we have observed is just how crucial unusual corporate cultures have been to their excellence. This manifests itself in a number of ways. First, they are all united by an unwavering focus on the long term. Whilst most companies tend to pay lip service to long-termism, it seems to us that precious few have the courage to consistently follow this belief. For most, a quarter or two of weak demand or missed earnings expectations is sufficient to result in ad hoc cost cutting and various forms of financial engineering to shore up the numbers. Second, great UK growth businesses all have strong identities and a vision which extends far beyond the imperative to generate profit for shareholders. This in turn tends to result in them having a strong alignment with their customers and employees.
Conclusion
We are not arguing that conquering these new horizons will be an easy task for the companies in our portfolios. Setbacks along the way are inevitable, just as they have been in the past. However, the scale of the opportunity truly excites us. It is only through our continued patience and commitment as shareholders that we and our clients will be able to fully benefit from this great potential.
Important Information
The views expressed in this article are those of Milena Mileva and should not be taken as fact. They should not be considered as advice or a recommendation to buy, sell or hold a particular investment and no reliance should be placed upon these when making investment decisions.
Your capital may be at risk.
Baillie Gifford & Co Limited is authorised and regulated by the Financial Conduct Authority (FCA).