Short Briefings on Long Term Thinking - Baillie Gifford

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 batteriesChroma ATE – the test-equipment company whose customised cabinets provide critical checks for NVIDIA and NasaSilergy – the mainland China-based semiconductor company specialising in power-management chipsReliance Industries – India’s most valuable company and its heavy investment in solar panels, green hydrogen and battery storage systemsToss – the South Korean financial super-app that provides banking, payment and ecommerce services Resources:Baillie Gifford websiteEmerging Markets Leading Companies FundEmerging markets: from imitators to innovators (video)Emerging markets: the next engines of global growthShort Briefings on Long Term Thinking podcast archiveWhen consensus fails Companies mentioned include:·       Chroma ATE·       Hyundai Glovis·       Meituan·       NVIDIA·       PB Fintech·       Reliance Industries·       Samsung Electronics·       Silergy·       SK hynix·       Talabat·       Toss·       TSMCTimecodes (audio version):00:00 Introduction01:45  From Toronto to Edinburgh02:35 A lesser-covered class of companies03:35 Taking a five-to-10-year view04:15  Forming non-consensus views05:35 Hyundai Glovis and EV batteries07:10  Corporate governance reform in South Korea09:30 Getting access to senior leaders11:50   Chroma ATE’s chip-testing equipment14:50  Building conviction in Silergy16:30  Declining to invest in Talabat18:20  Visiting Reliance Industries in Jamnagar20:45 Retaining sell discipline22:00 Toss and private companies24:15  Moving towards physical assets25:35 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 servicesLPP – the Polish retail group behind Sinsay, the rapidly growing fashion and homeware brand big in central and eastern EuropeTotalEnergies – the French energy group involved in exploration and production, liquefied natural gas and renewablesRheinmetall – the German defence contractor, whose activities range from drones and armoured vehicles to ammunition and satellitesBending Spoons – the Italian app acquirer that rearchitects and revitalises mature digital businessesRational – the German manufacturer of ‘combi ovens’ designed for commercial kitchensResources:A disciplined case for European GrowthEuropean megatrends: what’s on my mind?Supercommunicators by Charles DuhiggThe European opportunity setThe Short Briefings… archive Companies mentioned include:·       Airbus·       Allegro·       Bending Spoons·       CaixaBank·       Dino Polska·       Exail·       Iberdrola·       Piraeus Bank·       LPP·       LVMH·       Nexans·       Rational·       Rheinmetall·       TEKEVER·       TotalEnergiesTimecodes:00:00  Introduction01:50  From paint-making to portfolio management03:30  Investment track record05:25  Broadening the growth types07:05 Megatrends and individual circumstances08:45  Rearmament, energy security and consumption10:30  “Europe’s not like Marmite”11:45  TotalEnergies – a mega energy business16:30  Rheinmetall – a catch-all defence contractor19:05  LPP – the Zara of eastern Europe22:20  Piraeus Bank pushes into insurance24:40  LVMH and the outlook for luxury26:40  Building on Bending Spoons28:50  “Decisive action has been taken”29:35  Book choiceGlossary 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 orbitupgrading its Starlink broadband network with satellites that connect to smartphones directlyputting and operating datacentres in orbitIn 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 TeamEdinburgh Worldwide Investment TrustElon Musk by Ashlee VancePrivate companies: our philosophyQuantum, space, fusion: three firms engineering the futureSpaceX: the economics of the impossibleStarlink: broadband from aboveTitan robotic construction system Companies mentioned include: ·      Alphabet (Google)·      Anthropic·      Astranis·      Rocket Lab·      SpaceX·      TeslaTimecodes:00:05    Introduction02:00    A successor to the Space Shuttle03:55    Reimagining a market05:55    Reusable rockets06:30    Mars as a ‘forcing function’07:55    First encounter with Gwynne Shotwell10:10    The ‘scale of the Dutch East India Company’12:40    What we got wrong14:25    The advantages of early access17:50    Starship’s cost advantage19:40    Next-generation Starlink satellites22:30    AI and space-based datacentres27:20    SpaceX’s scale of ambition29:00    Governance risk31:05    Flywheels and stepping stones32:55    3D-printed homes34:25    A “nerdy” book pickGlossary 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.”  ResourcesBaillie Gifford digital assets hubDr Ian Hunt: Replicating Legacy is Squandering the Promise of Tokenisation: We Are Building a Faster HorseShort Briefings on Long Term Thinking podcast archive Timecodes:00:00  Introduction01:40   “A world with less friction”02:15   The lesson from losing it all04:50  From Bloomberg to bonds06:35  Defining tokenisation and the blockchain08:20  Same assets, better system09:35  One golden source of truth12:35   Making assets more useful16:10   Turning assets into “Lego bricks”19:20   Stablecoins, regulation and new decision-makers24:00  Managing crypto risks26:25  The ‘same but better’ rule28:00  Starting with fixed income29:20  Meeting clients where they are30:27  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.

The US public’s tastes and habits are fragmenting, leading to new consumer behaviours. The shift from a handful of TV networks to an endless supply of streamed shows and social media clips is just one of many causes. Investment manager Dave Bujnowski discusses the characteristics that determine which growth companies should thrive in the resulting ‘high entropy’ environment.Dave Bujnowski is an investment manager in our US Equity Growth Team and co-manager of the Baillie Gifford U.S. Equity Growth Fund and our American Fund. In this conversation, he tells Short Briefings… host Leo Kelion about his work with anthropologist Dr Grant McCracken, studying the causes and effects of the fragmentation of American culture. They believe that US culture is a system that has entered a ‘high entropy state’ – meaning that tastes and habits no longer change in an orderly manner. The result is “tremendous instability” and a sense of “continual pandemonium”. This shift, they argue, has implications for growth companies and helps explain why some are struggling to maintain mass-market appeal. But the disorder also plays to others' advantage, and they have sought to identify which will thrive and why. Portfolio companies discussed include:·      Cloudflare – the service that protects websites from attack and optimises their performance·      DraftKings – the sports gambling platform that lets Americans bet on sporting events·      Samsara – the Internet of Things specialist helping companies track and make sense of data·      SharkNinja – the home appliance company behind the CREAMi ice-cream maker·      Shopify – the ecommerce platform serving merchants ·       Resources:Dr Grant McCrackenShort Briefings on Long Term Thinking podcast archiveThe Long View collectionThinking in SystemsWhen systems fragment: entropy, cultural change and the next great US companies  Companies mentioned include:·      Alphabet (Google)·      Amazon·      Cloudflare·      DraftKings·      Meta·      Netflix·      Samsara·      SharkNinja·      Shopify·      SpaceX Timecodes:00:00  Introduction02:05  System-level thinking03:20  How change happens06:10   Entropy and fragmentation08:15   A conversation with Cloudflare’s CEO10:20   Ants and anthropology13:25   Grant McCracken on North Sea culture15:15   The causes of splintering culture17:05   New consumer behaviours19:15   Challenging times for lululemon21:00   Shopify and agility23:10   Agentic commerce25:40  SharkNinja and new niches28:30  DraftKings and cultural anchors30:40  Samsara’s entropy antidote32:10   Finance and space: systems to watch33:50  Book choice  Glossary of terms (in order of mention): Entropy: In this podcast, a metaphor for systems becoming more fragmented, varied and harder to predict.Cash flows: The money moving into and out of a business.Market cap: The total stock-market value of a company: share price multiplied by number of shares.S&P 500: A major US stock-market index of large companies.Second law of thermodynamics: A physics principle often simplified as the tendency of energy in a closed system to spread out over time. Mainframe: A large, central computer used by organisations to process major computing tasks. Big iron: Informal technology term for large, powerful central computers. MMA: Mixed martial arts, a full-contact combat sport. Delulu: Internet slang for optimistic or unrealistic self-belief. Short for ‘delusional’. Traffic aggregation: Bringing together large numbers of users or customers in one place, often online. Total addressable market (TAM): The total potential market size for a product or service if it reached all possible customers. Prediction markets: Markets where people trade contracts based on the likelihood of future events. Internet of Things: Everyday equipment connected to the internet so it can collect and share data.