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Investment trust insider on Baillie Gifford China Growth

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Investment trust insider on Baillie Gifford China Growth – James Carthew: Underweight China? Here’s a close look at Baillie Gifford’s new trust

Baillie Gifford is in the driving seat at what was Witan Pacific and is now Baillie Gifford China Growth Trust (BGCG). Regular readers will be aware that I think China is going to form an increasingly important part of the global equity market. My suspicion is that most of us are structurally underweight the country now. Now we have a new way to address that.

BGCG fund managers Roderick Snell and Sophie Earnshaw point out that China makes up just 2.5% of the average global fund but is 18% of global stock markets. Part of the reason for this is that the big index providers, such as MSCI and FTSE Russell, only include a limited proportion of China’s domestic A-share market within their indices.

Too many fund managers, but fortunately not too many investment trust managers, are too afraid to deviate much from benchmark indices. They will eventually allocate substantially more cash to China, driving up stock prices, but only when it makes up a larger part of their benchmark.

To try to get ahead of the curve, Baillie Gifford has established an office in Shanghai, which now has five research staff. The fund managers will still be based in Edinburgh but, pandemic permitting, will make about four trips a year to visit companies. China is a vast country and the best opportunities are not all on the east coast. I think ‘boots on the ground’ are essential, given the need to do your own research.

The fund managers can also call on the services of third parties to help source and do due diligence on potential investment ideas. These include investigative firms such as Fathom Consulting, staffed by ex-journalists; economics experts such as Gavekal Dragonomics and academic input from the likes of SOAS University of London.

BGCG’s portfolio will be fairly similar to that of Baillie Gifford’s open-ended China fund. However…   read more here