Jupiter fund manager Richard Curling has voiced his confidence in Baillie Gifford after the Edinburgh group’s disappointing investment performance so far this year.

The manager of the Jupiter Fund of Investment Trusts and Monthly Alternative Income fund says he continues to believe in the concentrated growth investing style deployed across Baillie Gifford’s range of funds, which has put them at the sharp end of an inflation-driven market rotation. 

A specialist in investment trusts, Curling tries to pick the cream of London’s closed-end fund market, though his portfolios have also been hit by widening discounts. 

Three Baillie Gifford funds appear in the top 10 holdings of his £121m open-ended Fund of Investment Trusts, including the flagship Scottish Mortgage (SMT ), Monks (MNKS ) and Baillie Gifford Japan (BGFD ), according to Morningstar data. Each has markedly underperformed its benchmark year to date.

‘I believe in the long-term story, I believe in the long-term case for investing in the way that [Baillie Gifford] invests and I believe in the long-term as a growth investor,’ said Curling (pictured).

The £10bn Scottish Mortgage has been the fund’s largest position for several years as Curling captured its meteoric rise, which accelerated after the onset of the Covid-19 pandemic. 

Scottish Mortgage shares effectively doubled in 2020, but are now barely barely 10% above where they were on the eve of the Covid crash that spring. Its holdings, many of which are fast-growing tech stocks making lower or no profits today, have sold off as rising inflation and interest rates cause investors to discount their future growth prospects. 

For Scottish Mortgage holders, losses have been exacerbated by the shares slipping to a 16% discount to the portfolio’s net asset value (NAV), according to the estimates of broker Numis, having frequently traded at a small premium in recent years. 

The position makes up 5.9% of total assets, an underweight relative to the UK investment companies sector, which, Curling notes, ‘is not much justification’.

The big backing for Baillie Gifford has hit the Jupiter fund’s performance. The portfolio was down 17.8% over 2022’s first five months, 8% below the Investment Association (IA) Global sector and 3.5% below the FTSE All Share Closed End Investments index.

Curling has made no changes to his position and remains confident in the trust despite the recent retirement of James Anderson, the fund manager who steered Scottish Mortgage to stratospheric highs, leaving long-time co-manager Tom Slater and newer deputy Lawrence Burns at the helm.

‘I think it’s unfortunate timing but no, I don’t think it’ll make any difference because I think they’ve laid out their stall as to what they do and they’re going to stick to it,’ he said.

Recently, Curling did trim his position in Monks, the fund’s third largest position at 3.6% of the portfolio. Its shares are also down by more than a third this year, with holdings like Moderna and Tesla overlapping with Scottish Mortgage.

Pershing Square (PSH ), the US hedge fund managed by Bill Ackman, is the fund’s second largest holding. Curling took advantage of the fall in share price after Ackman backed out of Netflix, losing $400m in three months.

As an owner of the trust at that point, Curling does not begrudge the move and believes Ackman did the right thing by reversing his decision.

‘That obviously wasn’t very clever, but at least he reversed out of it quickly. He could have held onto it and tried to justify it retrospectively, all becoming quite painful, long and drawn out. But better to say, “I made a mistake”, take the hit, cut it and move on. Good on him for doing that,’ he said.

However, Curling is more concerned by the trust’s 33.9% discount, which he called an ‘anomaly’.

‘I just don’t understand how a US hedge fund can go on trading at such a big discount to NAV when the NAV is in medium and big US equities that are easily tradeable. It just doesn’t make sense,’ he said.

The manager has also trimmed the Henderson Smaller Companies (HSL ) trust, which now holds a portfolio weighting of 3.3%. Other top 10 positions include Hipgnosis Songs Fund (SONG ) and Literacy Capital (BOOK ), a private equity fund which donates 0.9% of net assets every year in cash to UK literacy charities.

Opportunities in alternative income

Curling’s £236m Monthly Alternative Income fund gives investors the chance to put their money into assets that were previously mostly accessible to institutions, but can offer more inflation protection than shares. 

The 5%-yielding portfolio is made up of real estate investment trusts (Reits), renewable infrastructure, infrastructure, specialist lending, private equity and music. 

Supermarket Income Reit (SUPR ) is the portfolio’s largest position at 5.2% according to Morningstar, followed by Digital 9 Infrastructure (DGI9 ) and the ‘solid’ 7%-yielding Biopharma Credit (BPCR ). 

Curling has used up all his spare cash adding to the fund’s renewables exposure this year as ‘premiums evaporated’.

So far this year the portfolio has returned -0.8% to the end of May, compared to its CPI+3% lagged benchmark’s 8.2%. Over three years, it has returned 18.7% to the same point.

Meanwhile, the Fund of Investment Trusts returned 23.5% over the same time, versus 39.4% for the MSCI ACWI tracking global markets.