Baillie Gifford manager to retire

TheShadow

https://www.sec.gov/Archives/edgar/data/1120543/000110465921038922/a21-10255_1497.htm

497 1 a21-10255_1497.htm 497

Filed pursuant to Rule 497(e)
under the Securities Act of 1933, as amended
Registration File No.: 333-200831


BAILLIE GIFFORD FUNDS

Baillie Gifford International Concentrated Growth Equities Fund
Baillie Gifford International Growth Fund

Supplement dated March 19, 2021 to the Prospectuses dated April 29, 2020 as supplemented or revised from time to time

James Anderson is expected to retire from the Manager and cease to serve as Portfolio Manager for Baillie Gifford International Concentrated Growth Equities Fund and Baillie Gifford International Growth Fund effective on or about April 30, 2022. Therefore, effective immediately, the following sentence is added to the first row in the table in the section titled “Baillie Gifford International Concentrated Growth Equities Fund Team” and the first row in the table in the section titled “Baillie Gifford International Growth Fund Team” each under “Investment Teams” in the Prospectuses:

Mr. Anderson is expected to retire from the Manager and cease to serve as Portfolio Manager for the Fund effective on or about April 30, 2022.



PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE



1

msf

ISTM we can reasonably expect a similar supplement to the VWIGX prospectus.

Observant1

The Vanguard International Growth Fund is subadvised by Baillie Gifford and Schroders.
James Anderson leads Baillie Gifford's efforts on the fund alongside Tom Coutts and Lawrence Burns.
Mr. Burns is slated to succeed Mr. Anderson.
These three gentlemen head up the portfolio construction group whose seven members average more than 19 years with Baillie Gifford.

Observant1

Barron’s Roundtable Member James Anderson to Retire from Baillie Gifford
Link

Sven

Interesting that Baillie Gifford also manages Harbor International Growth fund, HAIGX, with a different management team. None of the three managers used in Vanguard are used in Harbor fund. The top 10 holdings are also different and without the high growth stocks including Tesla. This is to be expected since Schroeders is the other co-managing team at Vanguard International Growth fund.

msf

It's not uncommon for investment management firms to have separate teams for different strategies. For example, here are RW Baird's equity teams:
https://www.bairdassetmanagement.com/baird-equity-asset-management/team#GrowthTeam

Those divide along growth/value/int'l lines. For a company like Baillie Gifford that focuses on growth, its dividing lines are finer. Growth: large cap, or small cap, or all cap; "rapid" growth: broad or concentrated. Five different int'l teams with sometimes subtly different styles.

HAIGX pulls from the all cap growth team, while VWIGX and BGESX pull from the rapid growth (broad) team, and BTLSX is managed by the rapid growth (concentrated) team.

Here's BG's blurb on its five international equity strategies and teams;
https://www.bailliegifford.com/en/usa/professional-investor/literature-library/funds/mutual-funds/baillie-gifford-international-equity-strategies/

While some of the difference between HAIGX and VWIGX comes from Schroeders, much of it is due to the different BG teams managing the funds. You can test this by looking at the overlap between VWIGX and BGESX. The major (>2%) holdings of VWIGX that aren't in BGESX are Tesla (5.51%) and Illumina (2.30%). VWIGX has 13 holdings above 2%. All data from M* instant x-ray.

Likewise, you can look at the overlap between VWIGX and SCIEX (for the Schroeder team). The pure Schroeder fund doesn't hold Tesla or Illumina. So maybe these holdings in VWIGX came from the Schroeder team, thoujgh Schroeders is less growth oriented than BG. We may never know.

I'm glad you brought up HAIGX, because it serves to highlight an obscure attribute. Like many fund families, Harbor funds hire an in-house management company (Harbor Capital Advisors, Inc.) to manage the funds, to select and oversee the subadviser third party management firms (here, Baille Gifford Overseas Ltd.), and in the case of multiple subadvisers, to decide who manages what percentage of the funds.
2021 Prospectus, p. 41 (pdf p. 44)

When a Vanguard fund is managed by Vanguard, it hires The Vanguard Group as the management company. Though unlike Harbor, when a Vanguard fund outsources the day-to-day management of the fund it typically outsources the full management job. For these funds, the third parties are not subadvisors, but the actual advisors. The oversight responsibility is retained by the fund's board, as is the responsibility of deciding which advisory firm gets to manage how much of the fund.
2020 Prospectus, p. 16 (pdf p. 18)

This also means that what happens to VWIGX when Anderson retires in a year is up to the Vanguard fund's board. It could, for example, live with the remaining less experienced (by 16 or more years) BG fund managers while allocating a greater fraction of the portfolio to Schroeders. In that case, one might say that Schroeders would be the successor to Anderson.

For example, this is what Vanguard did when Barrow retired from Barrow, Hanley, Mewhinney & Strauss:

Vanguard had been slowly redistributing Windsor II’s assets to other subadvisers in the years since BHMS founder Jim Barrow, who had managed the fund since its 1985 inception, announced he was stepping down at the end of 2015. At the time of Barrow’s retirement, BHMS managed about 60% of the overall portfolio. That number was nearly halved over the past four years, with the firm managing 37% of Windsor II’s assets at last report.

https://www.adviserinvestments.com/adviser-fund-update/vanguard-manager-firing-fails-to-fix-funds-faults/

A bit more on BG's international growth strategy and portfolio construction group:
https://www.bailliegifford.com/en/usa/professional-investor/literature-library/institutional-only-literature/philosophy-and-process/international-growth-philosophy-and-process/

Sven

@msf, I really appreciate that you took the time to explain the of James Anderson of Baillie Gifford. He has done well for VWIGX when the growth stocks were in favor, but several scenarios may unfold after his retirement. For now I will stay put until Vanguard's board finalizes their decision. I invested with HAIGX in the past and decided to consolidate funds with Vanguard once I found BG and VWIGX. Schroder is also a good management firm but certainly a less growth oriented company.

BTW Tesla was recommended by Anderson based on the Barron's article. Also this stock has been actively managed by its position moving up and down in the fund's top 10 holding. As of 2/28/2021, it moved down to #4 from #1 in their reporting as its stock price rises quickly.

ProtonAnalyst33

@msf Thank you so much for all the information on BG and their relationship with Vanguard. So I understand that BG is one of the actual advisors of VWILX and VWIGX. However, what I don't understand is - how is this relationship worth it for BG, who are fully in the active-management camp? Meaning, the advisory fee on VWILX and VWIGX is ~18 bps and the total TER is 33bps and 44 bps, respectively. BG's other Foreign Growth equity funds' management fees average around 40 bps and TERs around 50+ bps. This subadvisory relationship with Vanguard is sizeable (~$70bn between VWILX and VWIGX) but must be at incredibly low fee rates, guessing 50% of 18 bps? Given BG's already capacity constrained across a number of their strategies (high overlap?), I don't understand how this arrangement makes sense for them.

msf

I can't say how much BG is getting per dollar under management. But I can address the capacity question.

As of August 31, 2020, the two BG fund managers at the time (Anderson and Coutts) were managing a bit less than $110B, including four mutual funds, around a half dozen pooled investments, and nearly two score other accounts. Of that, over half, $57B, came from the Vanguard fund. And the Vanguard fund accounted for nearly all the money that carried performance-based fees.

Data is from SAI, p. B-70 (pdf p. 80)
https://personal.vanguard.com/pub/Pdf/sai023.pdf?2210175721

Vanguard is not adding to the management burden, it is the management burden for this strategy.

I suppose BG could subadvise for a different family instead and charge more. With Vanguard they can be reasonably confident that the fund will not push more money at them than they feel they can handle. Vanguard would either add another investment management firm or close the fund, immediately. (None of this "we're closing the fund in two months" at Vanguard.)

As an example of what could happen with other families is what happened at IVINX two decades ago. The fund wanted to reopen. The subadvisor and original manager, Hakan Castegren, felt capacity limited. The fund reopened over his objections and he walked away. Sometimes, money isn't everything. Shocking.
https://www.morningstar.com/articles/7158/ivy-international-replaces-castegren-with-former-scudder-kemper-manager

ProtonAnalyst33

@msf

You're a wealth of knowledge, as usual. Thanks so much for that link. $110bn managed by two portfolio managers. I assume the overlap on the various vehicles is pretty high. If so, that's a lot to manage without running into capacity constraints, no? If I recall correctly, Anderson typically has 35-40 stock portfolios? Has BG ever closed their "Foreign Large Growth" strategy to new flows across vehicles?

Im impressed with BG's recent turbo-charged growth and have read about their long history of private investing. But again, given their concentrated approach, i don't get how they don't have to close their growth strategies.

TheShadow

Found this article behind paywall:

https://citywireusa.com/professional-buyer/news/star-manager-to-step-off-70bn-vanguard-fund/a1483608