After 51% Drop, Baillie Gifford EM Fund Tries New Approach

Baillie Gifford's $6 billion Emerging Markets Equities Fund, co-managed by Ben Durrant, is retooling its investment strategy after a 51% drop and five years of significant underperformance, lagging its benchmark and 60% of peers. This strategic shift addresses the fund's poor positioning against recent geopolitical turmoil, such as the Russian invasion of Ukraine, and specific market trends like the rise in Indian stocks, aiming to adapt to the evolving emerging markets landscape.

Analysis

Baillie Gifford's $6 billion Emerging Markets Equities Fund is undergoing a strategic overhaul following a period of substantial underperformance. The fund has experienced a 51% drop from its peak and has lagged its benchmark and nearly 60% of its peers over the past five years. This poor performance is directly attributed to the fund's inability to navigate significant geopolitical events, specifically being ill-positioned for Russia's invasion of Ukraine, and failing to capitalize on major market-specific trends, such as the recent advance in Indian equities. The move by co-manager Ben Durrant to retool the investment strategy signals an acknowledgment of these past failures and a necessary attempt to adapt the fund's approach to an emerging markets landscape increasingly shaped by geopolitical volatility.

Key Decisions for Investors

• Current investors in the fund should critically assess their position, as holding implies confidence that the announced strategic shift will reverse five years of significant underperformance against its benchmark and peers.
• Potential investors should adopt a cautious, wait-and-see approach, monitoring for specific details of the new strategy and tangible evidence of improved performance before committing capital.
• The fund's struggles highlight the critical need for all emerging market investors to scrutinize a portfolio's resilience to geopolitical shocks and its ability to adapt to divergent country-specific performance trends.