Baillie Gifford has emerged as the UK's worst-selling fund group for 2023, with investors pulling almost £4 billion from its strategies, according to new data from fund network Calastone.
Outflows accelerate amid growth stock struggles
The Edinburgh-based asset manager, known for its high-conviction growth investing and early backing of companies like Tesla and Amazon, saw net outflows of £3.9 billion across its UK-domiciled funds last year. The figure represents a sharp acceleration from the £1.4 billion of net redemptions recorded in 2022.
Calastone's Fund Flow Index, which tracks the buying and selling of funds by UK investors, showed that Baillie Gifford was the most sold fund group in 2023, surpassing other large players. The outflows were concentrated in its equity funds, particularly those focused on global growth and technology, which suffered from a prolonged period of underperformance as interest rates rose and investors rotated away from long-duration assets.
Industry-wide trends and market context
The data from Calastone, which processes around 60% of UK fund transactions, revealed that overall net inflows into UK funds reached £17.1 billion in 2023, up from £14.4 billion in 2022. However, the recovery was uneven, with money market funds and fixed income strategies attracting the bulk of new money, while equity funds saw net outflows of £4.6 billion.
Baillie Gifford's outflows were notably larger than those of other equity-focused managers. For instance, Liontrust and Jupiter each saw net outflows of around £1.5 billion, while smaller boutique firms also experienced redemptions. The firm's flagship funds, including the Baillie Gifford Positive Change fund and the Baillie Gifford Global Discovery fund, were among the most sold, according to Calastone.
Performance and investor sentiment
The outflows reflect a broader investor sentiment shift away from growth stocks, which had powered markets for much of the past decade. Baillie Gifford's strategies, heavily weighted towards technology and consumer platform companies, were particularly vulnerable to the sharp rise in interest rates that began in 2022. The firm's funds experienced significant drawdowns, with many of its largest holdings falling by more than 50% from their peaks.
According to data from Morningstar, the average Baillie Gifford equity fund lost 18% in 2022 and a further 8% in 2023, underperforming the global equity market by a wide margin. This underperformance prompted many investors to redeem, despite the firm's long-term track record of strong returns over the past decade.
Baillie Gifford's response and outlook
Baillie Gifford has acknowledged the challenges but has urged investors to maintain a long-term perspective. In a statement to Financial News, a spokesperson for the firm said: "We understand that recent performance has been disappointing for our clients, but we remain confident in the long-term growth prospects of the companies we invest in. Our investment philosophy is built on patience and conviction, and we believe that short-term market volatility does not reflect the underlying value of our portfolios."
The firm has also pointed to signs of recovery in its strategies, noting that several of its funds have outperformed their benchmarks in recent months as growth stocks have rebounded. However, analysts suggest that the outflows could continue if performance does not improve, particularly as investors increasingly favour lower-cost passive funds and income-generating strategies.
Implications for the wider fund industry
The Calastone data also highlights a broader shift in investor behaviour. In 2023, UK investors allocated £11.3 billion to money market funds, the highest level on record, as they sought safety in cash amid economic uncertainty. Bond funds attracted £7.2 billion, while equity funds saw outflows, with UK equity funds losing £2.9 billion and global equity funds losing £1.7 billion.
Edward Glyn, head of global markets at Calastone, commented: "Investors have been rebalancing their portfolios in response to higher interest rates, moving away from growth stocks and towards assets that offer more immediate returns. This has been particularly challenging for managers like Baillie Gifford, who have built their reputation on long-term growth investing."
Future prospects and strategic shifts
Looking ahead, Baillie Gifford is taking steps to address the outflows. The firm has launched new strategies in areas such as private equity and infrastructure, which are seen as more resilient to interest rate changes. It has also increased its focus on client communication and education, aiming to reassure investors about the long-term benefits of its approach.
Despite the recent outflows, Baillie Gifford remains one of the UK's largest asset managers, with over £230 billion in assets under management globally. The firm's partnership structure, which prioritises long-term decision-making over quarterly results, is designed to withstand periods of short-term underperformance.
However, industry observers warn that the competitive landscape is becoming more challenging. With the rise of passive investing and the growing popularity of private markets, active managers like Baillie Gifford must continue to demonstrate their ability to generate alpha. The next few years will be crucial in determining whether the firm can regain investor confidence and stem the tide of redemptions.
Conclusion
Baillie Gifford's position as the UK's worst-selling fund group in 2023 underscores the significant challenges facing growth-focused active managers in a higher interest rate environment. While the firm remains committed to its long-term investment philosophy, the scale of outflows highlights the need for improved performance and strategic adaptation. As the market evolves, investors will be watching closely to see whether Baillie Gifford can recover its standing and deliver the returns that made it a household name in the investment world.
