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After years of stellar returns turned sour in 2021 have the hugely successful Baillie Gifford tech growth funds past their sell-by-date?

For years, Baillie Gifford’s technology funds have been driving outsized returns for the mainly…
The post After years of stellar returns turned sour in 2021 have the hugely successful Baillie Gifford tech growth funds past their sell-by-date? first…

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For years, Baillie Gifford’s technology funds have been driving outsized returns for the mainly British retail investors. The Edinburgh-based asset manager’s flagship fund, the £20 billion Scottish Mortgage Investment Trust, has returned almost 325% over the past five years. That headline grabbing performance, backed up by impressive gains across the rest of its portfolio, has attracted £10 billion of capital from mainly UK-based retail investors.

The success of its tech-centric investment products has seen Baillie Gifford become the UK’s most popular investment manager over recent years. But it now finds itself in the unaccustomed position of approaching the end of 2021 as one of the year’s worst performing investment managers.

scottish mortgage investment

The Baillie Gifford American fund aims to

“outperform (after deduction of costs) the S&P 500 Index, as stated in Sterling, by at least 1.5% per annum over rolling five-year periods.”

While Baillie Gifford, with some justification, would argue there is a reason why the stated aim is outperformance over any given five year period and not year-to-year, 2021 has undoubtedly been a disappointment for investors in the fund. They’ve lost 0.5% for the year-to-date while the S&P 500 has returned almost 25% over the same period.

The performance of the investment manager’s UK-focused equity funds, UK Equity Focus, and UK Equity Alpha, hasn’t been much better. They are down 1% and 3% respectively against a market up 15%. But the worst of the bunch has been the Global Discovery fund which has lost investors 20% in 2021 while global equities have gained 22%.

The hugely popular Baillie Gifford investment trusts have also had a terrible year. The flagship Scottish Mortgage trust, which can invest up to 30% of its portfolio in private companies, is up 10.3% for the year. But its benchmark index, the FTSE All-World Index, is up by almost 14%.

The US Growth Trust, which counts e-commerce tech platform Shopify, payments solution Stripe, Amazon, Netflix and website hosting company Cloudflare among its top 10 holdings,  is down 2% while the tech-centric Nasdaq is up almost 20%. The Edinburgh Worldwide trust has lost 21% and Keystone Positive Change Investment Trust is worth 6% less than it started the year.

baillie giffords

Source: The Telegraph

Despite a year during which Baillie Gifford has seen its performance flip from being one of the consistently best fund managers to become the worst-performing fund manager in the UK, its investment trusts and funds have remained popular. Interactive Investor, the UK’s second-largest DIY investment platform, reports 5 of the company’s investment trusts and 4 of its funds have remained on its list of most bought funds throughout the year.

What’s gone wrong for Baillie Gifford’s tech-centric funds?

Baillie Gifford funds have enjoyed huge success with a strategy of investing in young technology companies before they hit the big time. Some of its recent success stories include Tesla, Amazon and the vaccines biotech company Moderna. It only takes the valuations of a few of these companies going into the stratosphere every few years to generate big returns for the company’s investors.

But betting on young companies trying to successfully monetise cutting edge technology is intrinsically a risky business. While enough of Baillie Gifford’s bets have come off in recent years to make its funds and trusts’ stock pickers look like visionary geniuses incapable of putting a foot wrong, its luck has turned this year due to several major holdings suffering heavy falls. With the Fed expected to hike interest rates as many as three times next year, high risk investments of the kind the Baillie Gifford funds invest in could be set for a rockier ride. When cash becomes more expensive, markets tend to place more emphasis on income and profits today than their future prospects.

The U.S. online estate agent Zillow Group is among the biggest losers of Baillie Gifford holdings this year, having seen its value slump 57% while remaining a top 10 holding in its Edinburgh Worldwide and Global Discovery trusts, significantly influencing their poor performance. Zoom has been another drag. Shares in the video conferencing app, which rocketed in 2020 as remote work became the norm in the early part of the pandemic, are down almost 50% this year.

Big blows have also been inflicted by the plunging valuations of online public transport ticketing platform Trainline which has lost 42% of its value this year and British online groceries and robotics company Ocado.

zoom video communications

Is it time to sell out of Baillie Gifford funds?

The 2021 travails of the Baillie Gifford funds and trusts offer investors a lesson in why to avoid overexposure to any one dominant style of investing. Doing so inevitably introduces greater volatility, accentuating peaks and troughs in returns. However, one fallow year also doesn’t necessarily mean the wheels have come off for Baillie Gifford’s fund managers.

Especially in the tech stocks market that has done so well for Baillie Gifford investors, a level of volatility is to be expected. And over the longer term, most of the Baillie Gifford funds are still among the best performs in their sectors. The Global Discovery and American funds may have been among the worst performers this year but both are still in the top 2% of their sectors over the past ten years.

James Budden, Baillie Gifford’s director of Marketing and Distribution, comments:

“We are clear that we invest with five to 10-year horizons over which we expect our funds to beat the market. Our portfolios look nothing like the index and, as such, investors might expect volatility over short-term periods.”

Given their long term outperformance, investors in Baillie Gifford funds may be best advised to diversify, if their portfolios look too heavily weighted towards the holdings, but otherwise remain calm and focus on the next five to ten years.

2021’s best performing funds

It may have been an annus horribilis for Baillie Gifford’s funds but markets always have winners and losers so who were 2021’s winners? Supply chain issues and pent-up consumer demand being unleashed meant the commodities sector was the year’s best performer as prices of oil, gas and raw materials soared.

That’s helped the £500 million Schroder Global Energy fund return 48% to investors so far this year, making it the UK’s best performing major retail-facing fund. With most economists expecting the bull market for commodities to stretch well into 2022, the fund’s run may also still have some way to go.

The post After years of stellar returns turned sour in 2021 have the hugely successful Baillie Gifford tech growth funds past their sell-by-date? first appeared on Trading and Investment News.

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Economics

PopPay Platform Expands To Government-Backed Digital Currency

PopPay Platform Expands To Government-Backed Digital Currency
PR Newswire
PASADENA, Calif. and NASSAU, The Bahamas, May 19, 2022

For First Time Ever, Consumers Can Use Their Face To Make Purchases With A Central Bank Digital Currency
PASADENA, Cali…

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PopPay Platform Expands To Government-Backed Digital Currency

PR Newswire

For First Time Ever, Consumers Can Use Their Face To Make Purchases With A Central Bank Digital Currency

PASADENA, Calif. and NASSAU, The Bahamas, May 19, 2022 /PRNewswire/ -- PopID and SunCash announced today that for the first time in history, consumers can now use the PopPay face verification platform to purchase goods and services with a central bank digital currency (CBDC) – digital money issued and backed by a government. Bahamian consumers can now link their SunCash account to PopPay to enable face pay transactions using their Sand Dollars. They can then spend the digital currency at a network of SunCash merchants using just their face for authentication. Various local and global brands are or will be accepting digital Sand Dollars authenticated by PopPay through the SunCash platform.  

"PopPay's cutting edge technology provides a more consumer-friendly, seamless, and secure experience for SunCash's users," said Desmond Pyfrom, CEO of SunCash.  The existing apps for transacting in digital Sand Dollar generally require consumers' use of smart phones, QR codes, or various other codes to complete a transaction at the point of sale. "With the integration of the PopPay platform into the SunCash App, Bahamian consumers can now quickly, efficiently, and safely use the digital Sand Dollar to purchase food and other products even if the consumer does not have a functional smart phone or an internet connection," said Pyfrom, as is the case for thousands of Bahamians.1

The world is quickly moving towards central bank digital currencies—accelerated by the Covid-19 pandemic and the growth of cryptocurrencies. As of 2022, fourteen countries have launched CBDCs, or are in advanced pilots, and approximately 90 countries, accounting for over ninety percent of global GDP, are considering issuing CBDCs, according to the Atlantic Council.

The Bahamas was the first country to launch a CBDC when it deployed the Sand Dollar nationwide in October 2020. As part of that program, a limited number of supervised financial institutions were authorized to sponsor a mobile payment wallet for the digital dollar of the Bahamas. SunCash was one of the supervised financial institutions approved by the Central Bank of The Bahamas.

"The PopPay platform is designed to allow consumers to link any payment method to their face, including credit cards, debit cards, direct bank transfers, stablecoins, and CBDCs," said John Miller, CEO of PopID and Chairman of its holding company, Cali Group.  "With governments around the world increasingly implementing CBDCs to replace physical cash, PopPay serves the critical policy objective of ensuring that all people can transact with the currency."

"We applaud SunCash for its deployment of this solution that allows Bahamians to transact in Sand Dollar using only their face," said John Rolle, Governor of the Central Bank of The Bahamas. "Such security features are important to increasing personal comfort around the use of digital payments and advancing the Central Bank's goal of increasing financial inclusion among all segments of our society."

A face pay option is an important feature for any country with the goal of increasing financial inclusion with the adoption of a CBDC, as those that are unbanked, under-banked, or without smartphones or reliable internet tend to be the most vulnerable parts of society.

Keith Russell of AD+ECH GLOBAL facilitated the partnership between PopID and SunCash.

About PopID
PopID provides a comprehensive platform, PopPay, for revolutionizing digital interactions and payments using facial verification. PopPay gives consumers the option of identifying themselves in the most natural way possible – with their face – for ordering and payment – enabling more personalized, secure, and streamlined experiences. To learn more about PopPay, visit www.popid.com

About SunCash
SunCash is the largest digital payments, mobile money, and e-commerce service provider in The Bahamas. SunCash's proprietary technology provides financial solutions to all segments of society, including the banked, underbanked, and un-banked Bahamians, as well as non-resident populations in The Bahamas. SunCash has over 55,000 active wallet customers, accounting for approximately 1/7th of the total population of The Bahamas, and more than 1,000 merchants who accept SunCash payment solutions. Customers can also access SunCash services online, through the SunCash App, at local stores, or from more than 100 kiosk locations throughout The Bahamas. SunCash is licensed by both the Central Bank and Securities Commission of The Bahamas. To learn more about SunCash, visit www.mysuncash.com

PRESS CONTACT:  
Diane Zuniga 
Golin (for PopID) 
dzuniga@golin.com; (909) 510-0433 

1 Simon Kemp, "Digital 2022: The Bahamas" (Kepios 2022), https://datareportal.com/reports/digital-2022-bahamas.

 

View original content to download multimedia:https://www.prnewswire.com/news-releases/poppay-platform-expands-to-government-backed-digital-currency-301550808.html

SOURCE PopID

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Economics

The retailers that should weather the coming economic storm

Conditions are about to get tougher for retailers as they face a perfect storm of falling incomes, galloping inflation, and rising interest rates.  These…

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Conditions are about to get tougher for retailers as they face a perfect storm of falling incomes, galloping inflation, and rising interest rates.  These impacts will crimp the discretionary spending power of many people. The one exception could be the under 25-year-old Gen Z demographic, who have fewer non-discretionary costs than other age groups. The retailers who sell to them could fare better than most.

Over the last six months, discretionary retail stocks have been among the worst performers on the ASX, with the S&P/ASX 300 Retailers Accumulation Index underperforming the broader market index by 13 per cent over that period. Admittedly, this recent under performance merely unwinds the 20 per cent out performance of this index in the preceding 18 month period which coincided with the recovery in the market from the pandemic lows.

Over the last six months, only 1 of the 17 stocks in this index has managed to perform better than the broader market, JB HiFi, while four generated losses of over 50 per cent. Notably these stocks, Red Bubble, Kogan, City Chic and Temple & Webster, are all online retailers, and performed very strongly over the first year of the pandemic as they were perceived to be COVID winners.

Figure 1: Total return of retailing stocks between 16 Nov 2021 and 16 May 2022

Source: Bloomberg

The market is concerned that the combination of falling incomes – as households face rising inflation on a broad basis eating into real spending power, and rising interest rates – will reduce discretionary spending power. However, it is not as simple as this. 

While these factors are likely to lead to pressure on overall discretionary consumption, these factors do not affect all segments of the economy equally.

CBA’s economic team has released data for household income and spending growth for the March quarter of 2022. This data is broken down by age demographic.

In looking at the potential impact of spending from cycling the impact of large stimulus payments that were received by households in the prior year, CBA’s data suggests that the percentage of Millennials receiving some sort of government payment has fallen the most relative to the December quarter of 2021 followed by Generation X. Gen Z and Baby Boomers have experienced less of a reduction.

Offsetting the reduction in government benefits is an increase in the percentage of people receiving a salary. This is likely as a result of people returning to work post the pandemic and the current strong labour market.

Figure 2: Share of households receiving government benefits or salaries
(change between 4Q21 and 1Q22)
Source: CBA

This then feeds into the impact on each demographic’s growth in overall income over the last 12 months. This shows that Gen Z has benefited the most from the current strong employment market with increased employment and strong wage growth while the percentage receiving government benefits remains higher than other demographics and above pre-pandemic levels. 

Figure 3: Household income and spending – annual average % change in 1Q22
Source: CBA


Not surprisingly, it is also Gen Z that has shown the strongest spending growth in the March quarter. For the other generations, spending growth has exceeded income growth, implying that their savings rates have declined to fund that growth in spending.

But savings are still well above 2019 levels for all generations and still rising. This will provide a buffer against cost increases and slowing growth in the medium term as inflation and higher interest rates bite. Gen Z has the biggest savings buffer.

Figure 4: Household savings – average deposit and offset balancesSource: CBA

Not surprisingly, overall household wealth is considerably higher than at the end of 2019, primarily as a result of rocketing residential property prices on the back of emergency monetary policy settings. The wealth effect of housing prices is an important driver of discretionary spending in Australia and has benefited retailers over the last two years.

Figure 5: Household wealth – average per household

Source: CBA

Of course, what interest rates can give, they can also take away. With variable mortgage rates likely to increase 1-2 percentage points over the next year, residential property prices are expected to fall, reversing some of this wealth effect.

There is no doubt that conditions are set to tighten for retailers over the coming year. However, reversing wealth effects from falling property prices and falling discretionary income levels will primarily impact those generations that own most of the housing stock, namely the Baby Boomers, Gen X and to a lesser extent the Millennials. Baby Boomers are more likely to be impacted by falls in house prices while Millennials will be more impacted by the need to allocate more of their income toward mortgage repayments.

For those that rent rather than own their home, rents are also likely to rise, as property owners try to pass on rising mortgage, utility and maintenance costs to tenants.

Those with families will be more impacted by rising prices of non-discretionary goods and services like food and utilities. This impact will be concentrated on Millennials and Gen X.

While not immune, the younger Gen Z demographic is likely to fare better than other generations given it faces fewer non-discretionary costs, and is not as exposed to property and wealth effects. At the same time, it is experiencing the strongest income growth and has had the most significant increase in its savings over the last two years.

Hence, we prefer retailers that cater to this younger demographic in the discretionary segment such and Universal Store and Accent Group.

The Montgomery Funds owns shares in City Chic, Universal Store and Accent Group. This article was prepared 18 May 2022 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Goodman Group you should seek financial advice.

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Spread & Containment

Diesel Costs Deliver Body Blow To Trucking Industry, Impacting Broader Economy

Diesel Costs Deliver Body Blow To Trucking Industry, Impacting Broader Economy

By Noi Mahoney of Freightwaves

With diesel prices remaining…

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Diesel Costs Deliver Body Blow To Trucking Industry, Impacting Broader Economy

By Noi Mahoney of Freightwaves

With diesel prices remaining elevated — forcing significant costs onto shippers and trucking companies — the impact of fuel costs on inflation could put a dent in consumer spending, according to experts.

Diesel pump prices averaged $5.61 a gallon nationwide, 51% higher than diesel prices across the country in January

Economist Anirban Basu said the elevated price of diesel fuel damages the near-term U.S. economic outlook and “renders the chance of recession in 2023 much greater.”

“These high diesel prices mean that despite the Federal Reserve’s early stage efforts to curb inflationary pressures, for now, inflationary pressures will run rampant through the economy,” Basu, CEO of Baltimore-based Sage Policy Group, told FreightWaves. 

Earlier this month, the Federal Reserve announced a half-percentage-point increase in interest rates, the largest hike in over two decades. The U.S. inflation rate is at 8.3%, near 40-year highs.

Basu said consumer spending remains strong, even with elevated diesel prices, but that could change as shippers and trucking companies eventually must pass higher fuel costs on to the public. 

“One of the things we’ve been seeing in the U.S., particularly on the East Coast, is that diesel fuel inventories have been shrinking, which suggests that despite all this inflationary pressure, there’s still a lot of consumer activity, still lots of trucks on the road and the supply is unable to keep up with demand,” Basu said. “The higher price of diesel fuel will become embedded in the cost of everything consumers purchase.” 

Prices of fresh produce rising

Jordan DeWart, a managing director at RedWood Mexico, based in Laredo, Texas, said the types of consumer goods that could be immediately affected by higher diesel prices include fresh produce. Redwood Mexico is part of Chicago-based Redwood Logistics.

“With produce, that’s typically more in the spot rate business, and any of those smaller trucking companies are going to be heavily impacted by fuel costs,” DeWart said.

The U.S. imported more than $15 billion in fresh produce from Mexico in 2021, including avocados, tomatoes, grapes, bell peppers and strawberries, according to the U.S. Department of Agriculture.

“Everything coming northbound from Mexico through Laredo, the rates have been very sustained, but fuel prices keep going up, presumably with any differences being absorbed by the trucking companies in the spot market,” DeWart said. “When we talk to asset-based truckers, especially the smaller companies, they’re really feeling the pinch.”

It’s not only cross-border operators feeling the pinch. Growers and shippers in Texas’ Rio Grande Valley are also suffering because of increased fuel costs, said Dante Galeazzi, president of the Texas International Produce Association (TIPA).

“Our growers, shippers, importers, distributors … basically our entire supply chain has been and continues to be impacted by rising fuel costs,” Galeazzi told FreightWaves. “Between one-third to one-half of the costs for fresh produce is the logistics; you can see how quickly increases in that expense category can impact the base price.”

The Rio Grande Valley is the epicenter of the Lone Star State’s fresh produce industry, stretching across the southeastern tip of Texas along the U.S.-Mexico border. More than 35 types of fruits and vegetables are grown in the valley, which contributes more than $1 billion to the state economy annually.

“More concerning is that this wave of fuel increases is in line with the statistic that our industry is paying anywhere from 70% to 150% more year-over-year for OTR shipping,” Galeazzi said. 

TIPA, which is based in Mission, Texas, represents growers, domestic shippers, import shippers, specialty shippers, distributors and material and service providers. 

Right now, Rio Grande Valley growers and shippers are absorbing higher input costs instead of passing them on to consumers, but that could soon change, Galeazzi said.

“While the fresh fruit and vegetable industry continues to experience rising input costs across the board (seed, agrochemicals, labor, fuel, packaging, etc.), we have yet to experience sufficient upstream returns associated with those expense increases,” Galeazzi said. “Our industry is citing an 18% to 22% anecdotal increase to overhead costs. Meanwhile food inflation for fresh produce is hovering around 7%. That means the costs are slowly being felt by consumers, but it’s not yet at a commensurate level with input expenses.”

Diesel fuel prices at all time highs

The cost of diesel continues to soar across the country. Diesel pump prices averaged $5.61 a gallon nationwide, according to weekly data from the Energy Information Administration (EIA). That’s 51% higher than diesel prices nationwide in January. 

California averaged the highest fuel prices across the U.S., at $6 per gallon of gas and $6.56 per gallon for diesel, according to AAA. Diesel prices are also at an all-time high of $6.41 in New York.

The higher prices of diesel fuel and gasoline are being caused by a combination of factors, including surging demand and reduced refining capacity, along with the disruption to global markets caused by COVID-19, the current lockdown in China and the ongoing Russia-Ukraine conflict, said Rory Johnston, a managing director at Toronto-based research firm Price Street.

“The overarching oil market is feeling much tighter because of the Russian-Ukraine situation,” Johnston, also writer of the newsletter Commodity Context, told FreightWaves. “What we’ve seen is a larger immediate impact from the loss of Russian refined products; in addition to exporting millions and millions of barrels a day of crude oil, Russia also exported a lot of refined products, most notably middle distillates, like gasoline or diesel.”

Several refineries on the East Coast — including facilities in Newfoundland and Labrador, Canada — scaled back during the early days of the pandemic, which has hurt diesel capacity, Johnston said.

“There was also a refinery in Philadelphia that exploded just prior to the COVID-19 period starting,” Johnston said. “There’s not enough refining capacity on the global level, and particularly in the West right now and particularly in the northeastern U.S.”

He said he doesn’t foresee any relief from increasing diesel prices over the next few months or more.

“Things are going to be really tight for at least the next year, barring any kind of economic recession and some kind of demand slowdown materially,” Johnston said. 

DeWart said trucking companies that don’t have a fuel surcharge component or contract in place and are depending on spot rates could be in big trouble over the next several months as diesel prices either keep rising or stay higher than average. 

“Their fuel costs keep going up, but they’re really not able to negotiate higher rates right now with a really tight spot market,” DeWart said. “It’s really impacting small trucking companies, anyone that decided to kind of play the spot market, rather than being locked in contracted rates. They’re really feeling the pain right now.”

DeWart said for trucking companies, it’s critical to get some type of fuel reimbursement program in place “just to protect themselves in case the cost of fuel goes even higher.”

Tyler Durden Wed, 05/18/2022 - 19:25

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