/ BAILLIE GIFFORD /
That is investing blind or without thinking ,” says Plowden . In other words , passive investment takes positions in businesses regardless of fundamentals and future prospects . They may even be in terminal decline .
That said , it is active management that has come under fire of late , with some studies suggesting that the average active fund typically underperforms the wider market . But assessing average performance across the active management universe is pointless , says Plowden .
Investors are better served focusing on the genuinely active portfolios with identifiable features that mark them out as more likely to outperform consistently . “ The active managers that do outperform in the longterm tend to be those with a high active share , low portfolio turnover and a long investment horizon ,” he says . Publishing the portfolio turnover ratio , which indicates the frequency with which assets in a fund are bought and sold , aims to demonstrate a commitment to long-term investing in which managers own shares in companies rather than simply ‘ renting ’ them with a short-term view . Low portfolio turnover shows a commitment to long-term investing and can also mean that trading costs are kept down and so don ’ t eat excessively into investment returns . Baillie Gifford equity funds and trusts tend to have an average annual portfolio turnover below 20 per cent .
By holding positions over a long period of time – as investment trusts in particular are able to do because of their closed-ended that has been running Monks since 2015 ). “ There ’ s been a huge amount of pressure on Amazon – which hasn ’ t made that much profit – to raise prices and reinvest at a lower rate , but its consistent position is to reinvest almost all profits and we support that .”
Each January the Monks team sets out the main thematic areas likely to merit particular attention over the coming year .
“ High active share is not the answer to everything , but it does at least suggest that a manager is trying to outperform ”
structure – a manager can develop a dialogue with companies and have a greater influence over their management and business strategy .
“ When we buy shares in a company we think of ourselves as part owners of that business ,” says Plowden .
He cites the example of Amazon , owned for more than a decade by his Global Alpha team ( the team
Jeff Salway is a freelance journalist , writing on pensions , investments and banking for a range of publications . He was previously personal finance editor at The Scotsman / Scotland on Sunday .
Despite the gloom around trade protectionism in the wake of Trump ’ s US election victory , Plowden offers a more optimistic hypothesis : “ There ’ s huge development of railroads and gas pipelines across Asia and Africa and you can see China ’ s embrace of global opportunities as an offset at the least to any protectionism in the US .” Ultimately , the key is to think about how the world may look in the future and to invest with that in mind . This should yield better returns over the long term than slavishly following a benchmark .•
IMPORTANT INFORMATION The views expressed in this article should not be considered as advice or a recommendation to buy , sell or hold a particular investment . Some of the views expressed are not necessarily those of Baillie Gifford . Investment markets and conditions can change rapidly , therefore the views expressed should not be taken as statements of fact nor should reliance be placed on them when making investment decisions . This article contains information on investments which does not constitute independent investment research . Accordingly , it is not subject to the protections afforded to independent research and Baillie Gifford and its staff may have dealt in the investments concerned . Please remember that the value of a stock market investment and any income from it can fall as well as rise and investors may not get back the amount invested . Investments with exposure to overseas securities can be affected by changing stock market conditions and currency exchange rates . The Trust invests in emerging markets where difficulties in dealing , settlement and custody could arise , resulting in a negative impact on the value of your investment . This interview took place in January 2017 .
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