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What we do now on the investment side will impact returns
long into the future. And what we believe we should do on
behalf of clients is best summed up as ‘not much’
where it all began, seems to have
a more coherent policy. China is
Market backdrop
an important model, where we’ve
Concerns of a sharp shock to financial seen what looks so far like a short-
markets caused by a supply shutdown lived dislocation, with indicators
have now spread to fears about a broad tentatively suggesting things are
economic slowdown in 2020. Further
going back to normal. Government
near-term volatility in markets is likely stimulus should also help this.
and it remains unclear how quickly
the virus will be contained.
What should investors do?
What is interesting about this
The answer is, fundamentally,
unfolding crisis compared to previous don’t panic. If you are investing in a
ones is that there is an extreme degree company on a 10-year view because
of short-term uncertainty, but there is you think it has got wonderful
a reasonable likelihood that the threat opportunities and will grow to be
will have abated within six months to a a multiple of its current size, you
year if the right measures are taken to
should ask yourself what’s changed in
protect people and economies. At this the last two months? Obviously, there
stage, demand is being delayed, if you are all sorts of near-term challenges.
like, rather than cancelled altogether.
About short-term growth, about how
This means that this crisis is one
companies are operating, about doing
driven by liquidity (short term) rather the right thing for stakeholders, for
than solvency (long term) concerns,
staff, for society in general when
which has been a driver of previous
you’re confronted with a pandemic.
crises (the global financial crisis,
Everyone has an obligation to
Asian crisis). So, governments and
respond to that in a way that’s socially
central banks must act to keep the
responsible, including ourselves.
banking system lending. Such action That is where we are now. However, it
is key to keeping businesses afloat
will not make a significant difference
during this period.
to whether great companies will be
It is interesting to note that Asia,
successful on a 10-year view.
TRUSTNET
[ BAILLIE GIFFORD ]
16 / 17
What are we doing?
What we do now on the investment
side will impact returns long into
the future. And what we believe we
should do on behalf of clients is best
summed up as ‘not much’. At Baillie
Gifford we have always taken the view
that companies that lack financial
strength – which for us generally
means high levels of debt relative to
cashflow – are, sooner or later, likely
to experience an existential threat. Of
course, we had no foreknowledge of
coronavirus, but what we do know is
that every so often something comes
along which knocks the economy
off balance for a while. Coronavirus
is not the first and won’t be the last
shock to the system. What’s important
for a portfolio of good quality
growth companies is to maintain
perspective, and not to engage in the
futile exercise of trying to guess what
investors are going to do next as prices
disconnect from fundamentals. Good
companies will come through this
period with opportunities intact and
the wherewithal to take advantage.
Not that we are complacent. We are
reviewing all our holdings to make
sure, in our mind, they are all still good
growth companies.
Our focus for now is to continue
with our long-term investment
research. Where we have influence,
we will encourage the companies in
which we invest to stay resolutely
fixed on the long term too. If
anything, we expect to see some
opportunities emerge to buy or
increase holdings in companies that
we already admire, but at temporarily
depressed prices. Above all else, we
won’t be acting in haste.
This article does not constitute, and is not subject to the protections afforded
to, independent research. Baillie Gifford and its staff may have dealt in the
investments concerned. The views expressed are not statements of fact and
should not be considered as advice or a recommendation to buy, sell or hold a
particular investment.
Baillie Gifford & Co and Baillie Gifford & Co Limited is authorised and
regulated by the Financial Conduct Authority (FCA). The investments trusts
managed by Baillie Gifford & Co Limited are listed UK companies and are not
authorised or regulated by the Financial Conduct Authority. Baillie Gifford &
Co Limited is an Authorised Corporate Director of OEICs.
All information is sourced from Baillie Gifford & Co Limited and is current
unless otherwise stated.
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