Short Briefings on Long Term Thinking - Baillie Gifford

Japan’s smaller companies represent a “niche and overlooked” asset class, but that’s precisely the growth opportunity, says Brian Lum. The Baillie Gifford investment manager reveals some of the standouts he’s recently met, including a firm using AI to forecast the weather more accurately and another helping people with disabilities get hired.Background:Brian Lum became lead manager of Baillie Gifford Shin Nippon investment trust and joint manager of our Japanese Smaller Companies Fund in May. In this episode, he shares stories from a busy trip to the country, his first in his new roles. And he explains why Japan enjoys some of the world’s best conditions to nurture innovative and disruptive growth businesses.Companies discussed include:Weathernews – a business safeguarding ships and planes from storms and helping convenience stores anticipate which goods will experience surges in demand.LITALICO – a firm that specialises in providing training to people with mental and physical disabilities.Soracom – a company blending generative AI with Internet of Things sensors.Seria – the retailer obsessing over every detail to make a profit from selling goods for the equivalent of 50p (65 cents).Kohoku Kogyo – the manufacturer demonstrating high craftsmanship to ensure electric cars run safely and smoothly. Resources:Baillie Gifford Shin NipponDisruption WeekJapanese Smaller Companies FundQuantum Computing Since DemocritusShort Briefings on Long Term ThinkingSWCC Showa: rewiring JapanVirtual visionaries: Japan’s Cover Corp rules the VTubing realm Companies mentioned include:Kohoku KogyoLITALICONikkisoPsiQuantumSeriaSoracomSWCCWeathernews   Timecodes:00:00 Introduction01:55   Japanese influences02:25  A focus on smaller companies03:55  The Galápagos Syndrome06:25  Learned lessons08:00  Face-to-face meetings08:55  LITALICO training workers with disabilities12:55   Weathernews and climate change15:00   AI-enhanced weather forecasts16:35   Soracom mixes generative AI with the Internet of Things20:40  Seria’s detail-obsessed 100-yen shops23:15   Kohoku Kogyo’s crafted components25:30  The long-term perspective26:30  A niche, overlooked opportunity28:30  Book choice

“If you’re trying to find the very best growth businesses on the planet – a benchmark isn’t a sensible place to start.” Baillie Gifford’s chief executive Tim Campbell explains the advantages of our style of active investing, the importance of long-termism and how AI fits into our process. Background:In April, Tim Campbell became Baillie Gifford’s chief executive and one of its managing partners. Earlier in his career, he was an investment manager before switching to Client Services, where he led our Emerging Markets Clients Team.In this podcast, he explores how our investment teams adopted a conviction-led approach that centres on each company's merits, regardless of its weighting in benchmark stock indices. He describes what we mean by long-termism and the importance of having the right incentives in place. And he explains why being “out of step” with some market trends helps us serve both society and our clients’ interests.The second half of the show focuses on changes afoot, ranging from further private company investments – including a recent holding in AI lab Anthropic – to our own adoption of artificial intelligence technologies and an exploration of new ways to access our strategies. Resources:Baillie Gifford: Actual investorsDisruption WeekDrayton and MackenzieOne Useful Thing: Ethan Mollick’s blogOur historyPrivate company investmentsShort Briefings on Long Term ThinkingThe Friction Project Companies mentioned include:AnthropicAmazonMercadoLibreNVIDIARunway AITimecodes00:00 Introduction02:10 From music in the Middle East to investing in Edinburgh03:15 Making the move to Client Services05:00 Rewriting the investment playbook06:30 Client hunger for benchmark agnosticism07:40 Active versus passive investing10:20 A mutual understanding with clients11:55 Drawdowns and hold discipline14:30 Defining long-termism17:00 Private company investments19:30 Investing in Anthropic and Runway AI24:55 ‘The mission doesn’t change’27:35 Book choice

Jenny Davis, an investment manager at Baillie Gifford, dives into the hidden power of persistence in business growth. She reveals how inside ownership, such as family stakes and long-term backers, fosters resilience in companies. Using examples like Ryanair and Discovery, she illustrates how effective leadership drives innovation and cost control. Davis also explores the significance of family influence in business success, especially in luxury markets, and discusses the pivotal role of long-term strategies in healthcare with company Demant and its philanthropic backing.

From microloans for farmers to free savings accounts for the ‘unbanked’ to customised insurance for gig workers to a cheaper, faster way for migrants to send money to loved ones: a growing range of services is helping many of the world’s least advantaged citizens increase their financial resilience. Previously, banks and other traditional lending institutions overlooked these customers. But as impact director Ed Whitten explains, by backing the companies now involved, you have an opportunity to improve people’s lives and achieve strong growth. Background:Ed Whitten is an impact director in Baillie Gifford’s Positive Change Strategy. Its dual objective is to provide our clients with attractive returns while contributing to a more inclusive, healthy world. Whitten’s role is to ensure that the companies it holds fulfil the second part of that pledge. In this episode, he explores the topic of financial inclusion, explaining why the companies involved need to do more than simply provide access to loans, insurance and money transfers. Topics include how firms can use data and apps to deliver customised services that address specific people’s needs while protecting them from indebtedness. Whitten also explains how conversations with the companies Positive Change backs can nudge them towards better outcomes, such as providing customers with better financial education. And he explores the importance of helping people gain financial resilience against the effects of climate change and other events that could otherwise devastate their livelihoods. Companies covered include: Nubank – the digital-only bank used by most Brazilian adults that’s also growing in Mexico and Colombia. Grab – the south-east Asian ride-hailing and delivery service that provides loans and insurance to drivers and merchants using its platform. Remitly – the remittance service offering migrants a quick, low-cost and reliable way to transfer money to family and friends. HDFC Bank – the Indian lender expanding its rural branch network to explain face-to-face how its services can put customers on a better financial path. Resources:Case study: MaligaNubank’s Beyond Access studyPositive Conversations 2024The Song of the CellTrip Notes: Brazil (UK version / Ex-UK version) Companies mentioned include:ChimeBank Rakyat IndonesiaGrabHDFC BankMercadoLibreNubankRemitly Timecodes:00:00 Introduction02:05  From the British Army to impact investing03:40  A sustainable, inclusive, healthy world04:25  The different types of financial inclusion05:40  Eyes open to the risks of indebtedness06:45  Volatile repayment rates07:35  Beyond accessibility: the personalisation of products09:05  Partnering with CGAP and other development bodies10:25   Nubank’s Caixinha money boxes12:45   Nubank’s Mexican banking licence14:15   Ensuring growth comes with impact15:20   Grab’s loans and insurance16:40   Grab’s data-driven approach to risk19:45   The fast growth of remittances 21:25   Remitly’s cheaper money transfers22:35  Gaining market share from Western Union23:40  HDFC Bank’s expanding rural branch network24:55  Financial inclusion in advanced economies26:55  The ‘lucrative customers of the future’28:15   Book choice 

Andrew Keiller, a partner at Baillie Gifford and an expert in emerging markets, dives into the transformative shifts reshaping the global economy. He discusses the surging demand for commodities and the explosive growth of the middle class in developing nations. Keiller highlights standout companies like lithium miner SQM and AI chipmaker SK Hynix, which are perfectly positioned to benefit from these trends. The potential of companies like Kazakhstan's super-app, Kaspi.kz, also showcases how digital innovation is revolutionizing the market landscape.

In this discussion, Iain McCombie, a partner at Baillie Gifford and head of UK equity, shares insights on the UK growth landscape. He highlights ambitious companies in advanced manufacturing and digital technologies, like Renishaw and Wayve, navigating tariff challenges. McCombie underscores the importance of adaptability, active investing strategies, and strong fundamentals. He emphasizes the potential within creative industries and fintech, while optimistic about delivering long-term returns despite economic turbulence.

Stephen Paice, a partner at Baillie Gifford and head of European Equities, dives into the undervalued landscape of European stocks. He discusses the potential for significant gains as outdated views shift. Key sectors like biopharmaceuticals, digital platforms such as Spotify, and the booming semiconductor industry are highlighted as ripe for investment. Paice also explores the resilience of certain companies amid trade tariffs, emphasizing the impactful role of culture and leadership in driving growth. His insights reveal a promising future for European innovation and investment.

Three technologies – quantum computing, reusable space rockets and nuclear fusion – could change the trajectory of human progress. Investment manager Luke Ward explains how a trio of private companies are bringing them closer to fruition. Background:Luke Ward is an investment manager in Baillie Gifford’s Private Companies Team and recently became co-manager of the Edinburgh Worldwide Investment Trust.In this episode of Short Briefings…, he discusses three companies developing groundbreaking technologies and building innovative businesses as they do so:PsiQuantum, which aims to create the world’s first useful quantum computersSpaceX, which is well on its way to developing the first fully reusable space rocket, with a view to ultimately transporting people to MarsSHINE Technologies, which is commercialising applications of nuclear fusion on the path to delivering a clean and safe energy source for the futureAmong the topics Ward covers are how photon-based quantum computers could drive progress in agriculture and batteries, among other industries. He also discusses how the Starlink satellite broadband provides a stepping stone to SpaceX’s larger ambitions. And he explains how SHINE’s work on detecting flaws in mission-critical aerospace components and making a new cancer treatment possible bring it closer to harnessing the reaction that powers the sun. Resources:PsiQuantum: making the leap to quantum computingPsiQuantum: stock storySHINE Technologies: an interview with chief executive Greg PieferSpaceX and other private company trailblazersStarlink: broadband from aboveEdinburgh Worldwide Investment TrustYour vote, EWIT’s futureEWIT: Saba vote  Companies mentioned include:PsiQuantumSHINE TechnologiesSpaceXTimecodes:00:00 Introduction01:50  From mechanical engineering to investment02:55  Technological innovation informing business innovation03:45  Quantum computing versus the ‘classical’ approach04:55  Using quantum computers to disrupt chemical fertilisers06:10  PsiQuantum’s semiconductor supply chain advantage07:20  A photonic approach to computing08:05  Signs that PsiQuantum could succeed09:45  PsiQuantum’s potential business model10:30  Partnering with Mitsubishi Chemical and Mercedes-Benz11:35  SpaceX: satellite launches and advanced rockets12:35  Starlink’s high-speed internet from orbit13:40  Connecting smartphones directly to Starlink15:05  The investment case for Mars16:55  Leading Baillie Gifford’s SpaceX investment in 201819:35  Considering other space industry investments10:21  Nuclear fusion v fission22:25  SHINE Technologies’ stepping stone approach23:20  From advanced imaging to radiopharmaceuticals24:15  Clinical trials for prostate cancer treatment Lutetium-17724:40  Recycling nuclear waste25:50  Saba vote: giving the public access to private companies27:35  Investing in geothermal energy28:30  Seeking inspiration in Silicon Valley

Stuart Dunbar, a client relationship director at Baillie Gifford, shares insights on transformative investment themes. He highlights the rise of robotics and intelligent drug design aimed at making healthcare more affordable. Dunbar discusses the crucial energy transition to renewables and the growth of digital payment infrastructures. He also delves into the advancements in automated transport, including driverless trucks and drones. These topics address the pressing challenges of aging populations and labor shortages, unlocking new investment opportunities.

The US’s transformational upgrade of its drainage, power and road networks is a long-term investment opportunity hiding in plain sight. In this podcast, Michael Taylor reveals some of the outstanding companies involved and makes the case that the markets have yet to fully appreciate the advantages working in their favour. Background: Michael Taylor is an investment manager in Baillie Gifford’s US Alpha strategy. In this Disruption Week briefing, he explains why years of neglect coupled with the destructive consequences of wild weather and our insatiable appetite for data-processing power have led the US to embark on a massive renewal of its physical infrastructure.  Taylor suggests that many of the companies creating long-term value benefit from supply advantages, which help them defend their commoditised products’ prices. These range from ownership of gravel quarries, which are difficult to get planning permission for, to the use of a gigantic, portable plastic drain-making machine. In addition, Taylor discusses what a second Trump presidency might mean for the sector and why finding standout companies involves travelling off the beaten track. Resources: Disruption WeekBuilding back: the great US infrastructure opportunitySpotting the winners from the great US infrastructure renaissance Companies mentioned include: Advanced Drainage SystemsEatonComfort Systems USAMartin MariettaNVIDIAStella-Jones Timecodes:00:00 Introduction1:35    Exceptional businesses confronting an exceptional problem3:20   The US v global infrastructure opportunity4:35   Donald Trump’s second presidency6:40   The benefits of patience7:35   Wild weather8:45   Investing in Advanced Drainage Systems11:05  Labour shortages12:15  Stella-Jones’s wooden telegraph poles14:05  Tree-spotter specialists16:15  Martin Marietta’s supply-side advantage18:55  Recycled aggregates’ limitations20:15  Finding US infrastructure investments21:45  Comfort Systems USA and keeping datacentres cool24:20  “Massive in terms of magnitude of spend and duration”