The retirement of James Anderson and his views on China

by | Aug 13, 2021 | Investing

James Anderson will retire next April as one of the great investment managers of recent decades.  He has spent his career since 1983 at a large Scottish-based investment management firm called Baillie Gifford, co-founded their Long-Term Global Growth Strategy back in 2003 and is currently Head of Global Equities.  Since 2000, he has managed Baillie Gifford’s Scottish Mortgage Investment Trust, the UK’s largest investment trust, and has delighted investors with early investments in names like China’s Alibaba and Tesla.[i]   

And oddly enough, he also did much of that stock picking in a Vanguard fund. While most of us think of Vanguard as an index fund manager, they also offer a number of actively managed strategies where an individual or a team of portfolio managers pick stocks by researching companies and analyzing securities in hopes of consistently outperforming a benchmark index like the S&P 500.

Vanguard’s International Growth Fund is one of these actively managed funds.  However, instead of managing the fund internally, Vanguard decided to hire outside managers to run it.  The primary manager for a large portion of the fund since 2003 and today overseeing 70% of it is Baillie Gifford.  Another large, well-regarded manager, Schroders, runs the other 30%.[ii]  

Vanguard International Growth provides global exposure to growth companies.  The underlying managers, like Baillie Gifford and Schroders, have been strong organizations with excellent track records, and Vanguard’s scale allowed for very low-cost access.  The Admiral share class charges just 0.33% in annual expenses.[iii]  

While we know it is very difficult for active equity managers to consistently outperform markets, there have been a few exceptions. As of July 31, the Vanguard International Growth Admiral share class has delivered a ten-year annualized return of 12.57%, well over its benchmark return of 5.42%.[iv]  Vanguard International Growth ranks in the 5th percentile against its peer funds for the last ten years through June 30.[v]   

It has been the rare active fund that not only beat its benchmark over time but more than doubled the benchmark return over ten years, an extraordinary feat.  And now Mr. Anderson is retiring.  His successors who take over on May 1, 2022, Tom Slater and Lawrence Burns, have been long-time co-managers with James.   

What’s going on in China?

The Chinese government has been much more in heavy regulatory mode over free market mode this past year, and sectors like technology and education have been hit particularly hard.   The Shenzhen Index, which is similar to our Nasdaq with large exposure to technology companies, is up about 7% over the last year (thru 8/6) while the Nasdaq is up 34.5%.[vi]  The regulatory fears are taking a toll. 

So what does James Anderson think about investing in China now?  In a recent interview in Barron’s Magazine, he said the following:

You are right; we have a lot of exposure to China. Regulators versus the powerful technology platforms has become an interesting narrative. The Chinese government believes that regulation is good for the economy, and it deeply dislikes the idea of anybody having more data than the government. But it is most unlikely that China wants to destroy its most powerful companies—companies that assert Chinese authority. At the same time, the valuations of these companies, given their prospects, are incredibly low. The degree of fear may exaggerate the danger to them.[vii]

In a recent essay posted on LinkedIn, Ray Dalio, the head of Bridgewater Associates, one the largest hedge funds in the US,  points to the long-term (40+ year) trend that China, “has clearly been [moving] so strongly toward developing a market economy with capital markets, with entrepreneurs and capitalists becoming rich.”  He continues, “It [the Chinese government] has been in support of a fast and steady development of capital markets, entrepreneurship, and openness to investment to foreign investors. So I encourage you to look at the trends and not misunderstand and over-focus on the wiggles…don’t expect this Chinese state-run capitalism to be exactly like Western capitalism.”[viii]

The likes of Anderson and Dalio see opportunity in what is clearly a different type of capitalist market system from our own.  While they may or may not be correct in their views, it is always interesting to consider the opinions of people like these two gentlemen, and at least realize that there are some reasons to think equities in China might perform well despite the current problems.  More will be revealed!  Enjoy the rest of your summer.

John Bussel

Principal, Chief Investment Officer

 

[i] the Guardian. 2021. Star stock-picker James Anderson retires from Baillie Gifford. [online] Available at: <https://www.theguardian.com/business/2021/mar/19/star-stock-picker-james-anderson-retires-baillie-gifford> [Accessed 9 August 2021].

[ii] Vanguard.com. 2021. [online] Available at: <https://www.vanguard.com/pub/Pdf/p081.pdf> [Accessed 9 August 2021].

[iii] Investor.vanguard.com. 2021. Vanguard Mutual Fund Profile | Vanguard. [online] Available at: <https://investor.vanguard.com/mutual-funds/profile/fees/vwilx> [Accessed 9 August 2021].

[iv] Investor.vanguard.com. 2021. Vanguard Mutual Fund Profile | Vanguard. [online] Available at: <https://investor.vanguard.com/mutual-funds/profile/performance/vwilx> [Accessed 9 August 2021].

[v] Callan IAG, data as of 6/30/2021

[vi] Source: Morningstar and Yahoo Finance. Data as of 8/6/2021.

[vii] Rublin, L., 2021. Stocks Are Pricey. 42 Bargains From Barron’s Investing Experts. [online] Barrons.com. Available at: <https://www.barrons.com/articles/stock-picks-barrons-midyear-roundtable-51626480538?mod=past_editions> [Accessed 9 August 2021].

[viii] Dalio, R., 2021. Understanding China’s Recent Moves in Its Capital Markets. [online] Linkedin.com. Available at: <https://www.linkedin.com/pulse/understanding-chinas-recent-moves-its-capital-markets-ray-dalio/?trackingId=yzsLQuTcGDWt8nc5XL6dtA%3D%3D> [Accessed 9 August 2021].

 

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