The best funds to complement Baillie Gifford Responsible Global Equity Income

The ESG fund has been popular this year, attracting £446m in new inflows over the past six months, but its growth-focused strategy could skew the diversification of investors’ portfolios.

While portfolios across many sectors have suffered exits this year as investors frown, the Baillie Gifford Responsible Global Equity Income fund has received £446m of new capital in the past six months.

With income-paying funds looking increasingly attractive in this highly inflationary environment, investors may wonder what can be held in addition to the fund to enhance the performance of their portfolios.

It proved more popular at that time than the non-environmental, social and governance (ESG) version Baillie Gifford Global Income Growth.

Both wallets have the same management team, made up of James Dow, Toby Ross and Ross Mathison, but the durable version has been the best performer, beating its stablemate by 4.2 percentage points since its launch in late 2018.

Yields rose 64.6% over the period, also beating the IA Global Equity Income average by 27.9 percentage points, but Louis Tambe, senior investment analyst at City Asset Management, said the preference for investors for this fund compared to the sister fund is largely due to its ESG. mandate.

Total fund return vs. industry since inception

Source: FE Analytics

He said: “One of the reasons why the responsible fund has received more inflows recently is probably a continuation of the growing number of investors demanding greater attention to ESG criteria from fund managers, despite some negative headlines this year.”

That being said, both funds contain the same nine assets in their top 10 holdings, just with slightly different allocations, so investors can expect similar performance from both.

Here, Trustnet asks industry experts which funds will complement Baillie Gifford Responsible Global Equity Income and, by association, the Baillie Gifford Global Income Growth portfolio.

A good diversifier could be the Dodge & Cox Global Stock fund, as its value-oriented approach offers a distinct alternative to Baillie Gifford’s growth-oriented strategy.

Although the value has been out of favor for much of the past decade, the fund still managed to beat its peers in the IA Global sector by 52.3 percentage points, generating a total return of 224.7%.

Total return of the fund relative to the sector over the past 10 years

Source: FE Analytics

Similarly, the fund is up 7.3% so far in 2022, while the rest of the sector is down 8% on average as market volatility has sent growth funds tumbling.

Tambe added that he “has delivered strong risk-adjusted returns but with a different style of investing, increasing your portfolio diversification without sacrificing returns.”

Alternatively, the Artemis Positive Future could be a good partner alongside Baillie Gifford funds, according to Juliet Schooling Latter, research director at Chelsea Asset Management, although its ESG angle makes it a solid option for those who want to do good with their money.

The relatively young fund, which launched in April last year, is down 28.5% since inception, but its mid-cap bias means there is little overlap in holdings.

Schooling Latter added, “The sustainable approach offers an additional inclination for non-cyclical growth companies as it favors those that are tied to the long-term beneficiaries of changing consumer attitudes.”

Tom Sparke, investment manager at GDIM, said another good match for ethical investors could be with another fund from the same company, Baillie Gifford Positive Change.

The £2.6 billion portfolio managed by FE fundinfo Alpha managers Kate Fox and Lee Qian was launched almost two years before the Responsible Global Equity Income portfolio and its total return of 201.1% is more three times the IA Global industry average.

Total fund return versus benchmark and sector since inception

Source: FE Analytics

Although they are ESG funds from the same asset manager, they have only one common stock and their investment strategies differ significantly, according to Sparke.

He said: “It has a strong focus on tangible positive ESG results and complements its stablemate very well, displaying relatively high volatility and a high growth equity portfolio.”

Sparke added that the Positive Change fund contains a well-diversified portfolio of strong assets and can be held as a core holding in investors’ portfolios.

Tertius Bonnin, deputy director at EQ Investors, said he does not hold Baillie Gifford Responsible Global Equity Income and would instead suggest investors look to the Trojan Ethical Global Income fund, rather than backing the Baillie Gifford fund in the first place. .

The portfolio was launched in January last year as an ESG alternative to the Trojan Global Income fund, which lead manager James Harries has run since 2016.

Although a relatively new fund, it has outperformed the IA Global Equity Income sector since launch with a total return of 3%.

Total fund return vs. industry since inception

Source: FE Analytics

Bonnin said he likes Harries’ proven model, which has helped the Trojan Global Income fund rank in the top quartile over the past five years.

He said: “The fund gives exposure to a global portfolio of high-quality companies that must stand up to scrutiny after rigid analysis of financially material ESG factors and breakdown of revenue implications to ensure that revenues are long-term.”

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