The active edge: the case for growth in uncertain times

A series of “extraordinary” events has made the environment more challenging for growth stocks. But “this level of trepidation can’t go on forever”, says Baillie Gifford partner Stuart Dunbar in this latest episode, suggesting that patient investors will benefit when stability returns and the markets value exceptional companies at a premium again. Stuart Dunbar is a director in Baillie Gifford’s Clients Department and is responsible for helping shape and communicate the firm’s investment philosophy. In this conversation, he considers how a succession of disruptive events – the most recent being the current war in the Middle East – has rattled markets and led investors to focus on companies’ short-term profits rather than their long-term potential. However, this period of flux will not last forever, he argues. And when we re-enter a period of stability, patience should be rewarded as markets recognise exceptional companies’ future earnings potential and price them accordingly. In the meantime, Baillie Gifford’s investment teams remain focused on finding and supporting businesses that will prosper from change and supporting their management to take the long view. And as Dunbar reveals, as the sources of growth broaden out, we are backing some companies that come as a surprise. Portfolio companies discussed include: Astera Labs – the semiconductor chip designer, whose products tackle data bottlenecks in AI datacentres IREN – the datacentre operator whose clients include Microsoft Medpace – a contract research organisation that biotech and pharmaceutical companies hire to run their clinical trials Nu Holdings – owner of the Latin American fintech Nubank Spotify – the audio streaming platform that lets people listen to music, podcasts and audiobooks WillScot – North America’s largest provider of temporary space rentals, leasing out modular offices, portable storage containers and classroom units Resources: Actual investors hub Actual investing revisited Baillie Gifford podcasts Private growth investing The Compound and Friends podcast The Success Equation Companies mentioned include: AJ Bell Amazon Anthropic Astera Labs ByteDance IREN Medpace Microsoft Nu Holdings NVIDIA Spotify WillScot Timecodes: 00:00 Introduction 02:00 Active v passive 03:35 “Know what we own” 06:15 Building relationships with company leaders 07:55 Causes and effects of uncertainty 11:05 Beyond the Magnificent 7 12:45 A period of relative stability 17:50 Compressed valuations 19:25 Nubank and Medpace’s promise 23:10 Meetings with clients 25:40 Broader sources of growth 28:15 Private equity growth 31:25 Better-informed stock picking 33:25 Staying independent and standalone 35:45 “Wait until the market comes to its senses” 37:10 Book choice Glossary of terms (in order of mention): Latent heat: energy absorbed or released during a change of state, like ice melting, without a change in temperature. Active investing: trying to beat the market by choosing investments based on research and judgement. Passive funds: investment funds that track a market index rather than picking stocks actively. Quantitative approaches: investment methods that use data, models and statistics to make decisions. Market capitalisation weights: an index method that gives bigger companies a larger influence based on their total market value. Alignment of incentives: making sure different parties are rewarded in ways that encourage the same goals. Drawdowns: significant falls in the value of an investment from a previous peak. R&D: research and development – spending on innovation and new products or technologies. Backdate options: setting share-option dates retrospectively to make them more valuable, often controversially. Shareholder registers: the official records of who owns a company’s shares. Benchmark: a standard, often an index, used to compare investment performance. Magnificent 7 / Mag 7: the seven giant US tech stocks that have dominated market performance in recent years. GPU: gra

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