bg american fund_7866_0413_sc

BAILLIE GIFFORD

This presentation has been prepared for use by professional advisers and intermediaries only. It is not intended for use by retail clients.

Baillie Gifford American Fund

April 2013

Baillie Gifford Baillie Gifford American Fund April 2013

BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361

This is a marketing communication and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. This presentation contains information on investments which does not constitute independent investment research. Accordingly, it is not subject to the protections afforded to independent research and Baillie Gifford and its staff may have dealt in the investments concerned. Investment markets and conditions can change rapidly and as such the views expressed should not be taken as statements of fact nor should reliance be placed on these views when making investment decisions. The Fund’s share price can be volatile due to movements in the prices of the underlying holdings and the basis on which the Fund is priced.

As with any investment, your clients capital is at risk. Past performance is not a guide to future returns.

Important Information and Risk Factors

Registered Office: Baillie Gifford & Co LimitedCalton Square, 1 Greenside Row, Edinburgh EH1 3ANTelephone 0800 917 4752 Fax: 0131 275 3955 www.bailliegifford.com/intermediariesYour call may be recorded for training or monitoring purposes.

Copyright © Baillie Gifford & Co 2009. Authorised and regulated by the Financial Services Authority.

April 2013

BG American Fund 7866 0413.indd Ref: Intermediaries PRE OC 0361 1

Baillie Gifford Baillie Gifford American Fund

A Differentiated Approach – North American Equities

Long-term, bottom-up, growth investors with a quality bias

Performance: — +1.9% p.a. relative to S&P 500 Composite Index since launch

Appointed by Vanguard in 2008Source: FE, Baillie Gifford American Fund (B Inc), annualised, 31st July 1997 to 31st March 2013, in sterling, total return.

April 2013



Specialist Mandates


Baillie Gifford North American Equity Pension Fund

Baillie Gifford Worldwide North American Fund

Vanguard

Two other segregated clients

North American AUM

£bn

1 Firmwide 17.9

2 Managed by Team 2.9

3 Specialist Mandates 0.7

Source: Baillie Gifford & Co.As at 31st March 2013.

Committed US equity investors with growing client base

April 2013



Our Philosophy

Active management — Beating the index means differing from it

Growth is rewarded — Superior compounding profits growth leads to long-run outperformance – searching for under-appreciated growth

Quality is valuable — The market struggles to assess the long-term value of a ‘wide moat’ business or superior capital allocation by a management team

Long Term — Investment not speculation; we seek to turn time and volatility to our advantage

Global Perspective — Global insights benefit regional stock picking

The Decline in Active Management Across the Industry in the USA

Source: Cremers and Petajisto. The share of US all-equity mutual fund assets in each active share category in 1980–2009.

80–100% 60–80% 40–60%

20–40% 0–20%

19881980 19961992 2000 2004 20081984

Year

Active Share Over Time

Sha

re o

f mut

ual f

und

ass

ets

(%)

0

60

40

80

100

20

90

70

50

30

10

April 2013



Genuinely Long-term

The market — New York Stock Exchange turnover around 100% per annum — Wall Street preoccupied with short-term trends, has persistent tendency to undervalue sustainable earnings growth

Our approach — Longer-term perspective, turnover averages < 30% per annum — Fundamental research, with a focus on business characteristics, to identify companies with above average, sustainable earnings growth

— We believe Baillie Gifford’s partnership structure is a crucial advantage

Exploitable opportunities for longer-term investors

Turnover

Rolling annual turnover to 31st March 2013

%

Mar05

Mar06

Mar07

Mar08

Mar09

Mar10

Mar11

Mar12

Mar13

Mar04

0

20

40

60

80

100

Mar02

Mar03

Source: Baillie Gifford & Co

5



Genuinely Active

Equity market inefficiencies exist and are exploitable for the benefit of our clients through active managementActive Share

Source: APT, Baillie Gifford & Co

Predicted Tracking Error

%

Year

Mar13

0

1

2

3

4

5

6

8

Predicted TE: Barra Predicted TE: APT

7

Mar12

Mar01

Mar02

Mar03

Mar04

Mar05

Mar06

Mar07

Mar08

Mar09

Mar10

Mar11

Active Share vs S&P 500

%

Year

0

20

30

40

50

60

70

80

90

100

10

Mar13

Mar07

Mar08

Mar09

Mar10

Mar11

Mar12

Mar06

Mar01

Mar02

Mar03

Mar04

Mar05

Source: APT, Baillie Gifford & Co

6



Genuinely Global

46%* of S&P 500 revenues were derived from outside the US

The global context to competitive position and industry backdrop is often crucial

Global insights benefit regional stock picking

Global investment firm with a culture of information sharing*2011.

Global investors, regional specialists

Foreign sales as % of S&P 500 total sales

2003 2004 2005 2006 2007 2008 2009 2010 2011

%

40

41

42

43

44

45

46

47

48

49

50

Foreign Sales as % of S&P 500 Total Sales

Source: Standard and Poors/William Blair International Ltd.

7



Regional Stock Selection: Global Insight

Global Research

North American Research

Single location – culture of debate – shared insight

Annual review of North American materials sector

August 2012

Brazilian Agriculture Sector Company meetings review

February 2011

What happens in the agricultural sector when

1.3bn people change their diets?

October 2011Visit to Monsanto’s R&D facility

October 2012

Meeting at Baillie Gifford with Syngenta CFO

February 2013

Monsanto’s research report and stock discussion

September 2011

View on the biggest growth opportunities in the biotech

seed industry

October 2011

8



Price relative to S&P 500 Composite – Price IndexPrice

160

140

100

60

20

02012

120

80

40

201120102009200820072006200520042003

Monsanto

Price and Price Relative Chart

Source: Thomson Datastream, March 2003 – March 2013.

Original Purchase Additions

Reductions

Additions

April 2013



The Team

Experienced team with consistent approach

Generalists with sector responsibilities

Strong internal relationships with global investment teams and research groups

Team approach to research, individual decision making for conviction stock picking

Ian Tabberer

Investment Manager

— 12 years’ experience — 5 years with Baillie Gifford

Gary Robinson

Investment Manager


Mick Brewis

Head of North American Equities


+ 2 graduates/analysts

April 2013



From Idea Generation to Ownership

1. Discovery 2. Debate 3. Decision

— US universe >5,000 companies — Focus on Market Cap of >$1.5bn,

c.1,000 companies — Attractive businesses proposed for the focus list

— Detailed research and monitoring – focus list 125-150 companies

— Benefit from diversity of views — Continuous process

US Equity Portfolios

NorthAmericanFocus List

North AmericanTeam

GlobalSector

Analysts

GlobalTeams

Stock Review Meeting

North American Team

Invitees:

— Product Specialists

— Global Sector Analysts

— Global Investment Managers

Investment Manager

— Individual accountability for: — Stock selection — Portfolio shape — Position sizes — Performance

Stock Review Meeting

11



Portfolio

Source: Baillie Gifford & Co, as at 31st March 2013.Total may not sum due to rounding.

Stock Name Weight (%)

Progressive 4.5

Monsanto 4.2

eBay 4.0

First Republic Bank 4.0

US Bancorp 3.9

Colgate-Palmolive 3.9

Berkshire Hathaway 3.8

Brown-Forman 3.6

United Parcel Service 3.5

Johnson & Johnson 3.2

M&T Bank 3.2

Harley-Davidson 3.2

Pfizer 3.2

Watsco 3.2

TripAdvisor 3.1

Life Technologies 3.0

Google 2.8

Exxon Mobil 2.6

Xilinx 2.6

CarMax 2.5

Analog Devices 2.5

Stock Name Weight (%)

Apache 2.2

Fairfax Financial 2.0

Waters 1.9

Beam 1.7

Linear Technology 1.7

O'Reilly Automotive 1.6

Altera 1.5

Home Depot 1.5

Markel 1.4

Danaher 1.4

Bristol Myers Squibb 1.4

Rockwell Automation 1.3

Omnicom 1.3

Seattle Genetics 1.2

Martin Marietta Materials 0.9

Idexx Laboratories 0.9

F5 Networks 0.8

EOG Resources 0.7

Teradata 0.6

Cash 3.7

100.0

Sector Analysis

Source: Baillie Gifford & Co, as at 31st March 2013.Total may not sum due to rounding.

Health Care14.8%

Information Technology 16.4%

Consumer Staples9.2%

Financials 22.8%

Consumer Discretionary

13.2%

Industrials 9.4%

Energy 5.5%

Materials 5.1%Cash 3.6%

12



Outlook

Two key points for a low growth world economy — America has advantages that mean it should do relatively well

— Innovation, enterprise culture, efficiency, demographics, functioning banking system, deep capital markets, reserve currency, energy resource

— Quality growth stocks with idiosyncratic, sustainable growth drivers should do well

— Exceptional management and competitive advantages lead to market share gains. Selective secular growth opportunities

13



Top Ten Holdings – Growth Drivers

Progressive Innovative Snapshot usage based technology disrupting the auto insurance market

Monsanto Unmatched seed and biotech advantages in young growth industry. Large Latin American opportunity

eBay Major beneficiary of e-commerce growth, including transition to mobile

First Republic Bank Undiscovered gem with unique customer service offering in high growth niche

US Bancorp Market share gains from weaker banks. A cheap housing play

Colgate-Palmolive Emerging market consumer play with best-in-class developed market management

Berkshire Hathaway Strong business franchises with domestic bias, and growth helped by re-investment of prodigious cashflow

Brown-Forman Iconic Jack Daniel’s brand in reinvigorated bourbon category

UPS Finally starting to benefit from competitive strengths and e-commerce trends

Johnson & Johnson Improving drug pipeline in sector with improving prospects

April 2013



Globalisation Creates American Opportunities

Examples of companies with world leading competitive positions

Information Technology Health Care Industrials Energy

Google Life Technologies Danaher Exxon Mobil

F5 Networks Waters Rockwell Automation EOG Resources

Xilinx Johnson & Johnson United Parcel Service

eBay Pfizer

TripAdvisor Seattle Genetics

Analog Devices

Agriculture Consumer Insurance Advertising

Monsanto Colgate-Palmolive Berkshire Hathaway Omnicom

Brown-Forman

Harley-Davidson

Beam

Source: Baillie Gifford & Co.

Winning in global markets through innovation, technological edge, service, market position and brand strength

April 2013




Source: FE, Baillie Gifford American Fund (B Inc), annualised periods to 31st March 2013, in sterling, total return.*Inception date: 31st July 1997.

19.1

11.9

10.9

8.3

5.1

15.1

12.512.1

9.2

7.0

1 year 3 years 5 years 10 years Since inception0

5

10

15

20

BG American B Inc S&P 500 Composite Index

% p

.a.

Annualised Performance

April 2013



Frequency of Outperformance

1 Year Periods 3 Year Periods 5 Year Periods

Periods Outperformed 124 145 124

Total Periods 187 151 127

% Outperformed 66 96 98

All 1, 3 and 5 year rolling periods measured monthly between 30th September 1997 and 31st March 2013.Source: FE, BG American B Inc compared to S&P 500, total return in sterling.

April 2013



Conclusion

Reasons to choose Baillie Gifford for US equities — Good long-term performance — Long-term, stock picking, quality growth approach works well in US — Committed US equity investors with growing client base — Partnership structure supports long-term perspective for effective decision making

— Culture of debate in global investment firm provides shared insights — Flexible approach to sectors – search for underappreciated future growth — Balanced portfolio means lower performance volatility — US stocks attractive in a global context — A great time for quality growth stocks — Focused selection of world class companies

Appendix

April 2013



What Makes Baillie Gifford Different?

Stability and consistency Continuity of partnership, people, philosophy and process

Long-term investment horizon

Best ideas, actively managed portfolios

Global investment firm with single location and culture of debate

The market is increasingly short term

Portfolios differentiated from benchmarks

Global perspective and shared insights

April 2013



Portfolio Guidelines

Portfolio Guidelines — Style: Growth — 40–50 holdings — Max stock weighting + 7% vs S&P 500 Composite Index — Max/min sector weightings +/- 12% vs S&P 500 Composite Index — Market Cap >$1.5bn — Time horizon: 3–5 years — Active Money c.80% — Tracking Error Range (indicative) 4–8%

April 2013



Stock Research

Our primary research goal is to identify attractive growth companies with sustainable returns on capital

Industry backgroundCompetitive advantage

Potential(to achieve above average returns)

Financial strengthManagement attitudes

Delivery(capitalising on the opportunity)

Is it in the price?Valuation

Fundamental research covering qualitative factors and accounts analysis

April 2013



Industry Background: — Benificiary of cyclical upturn in consumer discretionary spending in the US. Under exploited opportunities internationally

Competitive Advantage: — Iconic brand with passionate and loyal customers

Management: — New CEO is dramatically improving the efficiency of manufacturing operations. Took tough but necessary decision to reduce dealer inventories to sensible levels

Financial Characteristics: — High return on equity. Rising operating margins mean substantial earnings growth should be possible as revenues recover

Valuation: Multiple fails to capture the significant scope for recovery in earnings, and the high quality nature of the underlying business

Harley-Davidson – Motorcycle Manufacturer

April 2013



Harley-Davidson – Motorcycle Manufacturer

Price and Price Relative Chart

Source: Thomson Datastream, March 2003 – March 2013.

80

70

50

30

10

02012

60

40

20

201120102009200820072006200520042003

Price relative to S&P 500 Composite – Price IndexPrice

Original Purchase Additions

April 2013



Industry Background: — Immature industry with substantial growth potential. One out of every two dollars spent online is in the travel sector

Competitive Advantage: — Leading player in the online travel review space and true ‘network effect’ business

Management: — CEO and founder Steve Kaufer manages the business for the long term

Financial Characteristics: — Low capital intensity drives very high margins and returns

TripAdvisor – Online Travel Website

Valuation: modest earnings multiple for a business with huge, underappreciated, long-term growth potential

April 2013



Size Analysis

Size Split – as at 31st March 2013

Source: Baillie Gifford & Co and UBS.

April 2013



Sell Discipline

Industry Background

Competitive Position

Management Financial Characteristics

Valuation

Q1 2012 Edwards Lifesciences ü ü

Intuitive Surgical ü

Pepsico ü ü

Q2 2012 Johnson Controls ü ü

Oracle ü ü

Schlumberger ü ü

Walgreen ü ü

Q3 2012 Ritchie Brothers Auctioneers

ü ü ü

Q4 2012 Praxair ü ü

Q1 2013 Apple ü ü ü ü

Techne ü

National Oilwell Varco ü ü ü

Cenovus ü ü

Bed, Bath & Beyond ü ü

Source: Baillie Gifford & Co. Does not include complete sales as a result of spin offs or takeovers.

April 2013



Portfolio Risk Monitoring Process

Baillie Gifford Risk Team North American Team

North American Portfolio

— Monthly active share and tracking error review

— Semi-annual Risk Review — Report to the Investment Risk Committee

— Monthly peer review by North American Team

— Portfolio presentation to Baillie Gifford investors and product specialists

A rigorous and consistent monitoring process

April 2013




Source: FE, Baillie Gifford American Fund (B Inc), cumulative performance to 31st March 2013, in sterling, total return.*Inception date: 31 July 1997.

19.1

40.2

67.9

121.9117.6

15.1

42.2

76.6

141.8

187.8

1 year 3 years 5 years 10 years Since inception0

50

100

150

200

BG American B Inc S&P 500 Composite Index

%

Cumulative Performance

bg american fund_7866_0413_sc

Business

price relative

baillie gifford

baillie gifford

31st march

31st july

thomson datastream

indd ref

inception