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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"The strategy continues to capture strong structural upside through dominant semiconductor holdings while prudently recycling profits into overlooked Chinese industrial giants and temporarily depressed Brazilian compounders. The manager maintains a highly constructive view, emphasizing that emerging markets are deeply under-owned despite housing the world's most vital technological and logistical infrastructure."
Baillie Gifford's Emerging Markets strategy delivered strong outperformance in Q2 2026, driven primarily by long-standing overweight allocations to semiconductor leaders like TSMC, Samsung Electronics, and SK Hynix. The investment team's core thesis centers on backing world-class businesses that control crucial industry bottlenecks, a structural trend that has positioned the fund well ahead of the artificial intelligence infrastructure boom. While acknowledging the cyclical nature of hardware manufacturing and predicting future 'air pockets' during implementation phases, the manager believes current valuations remain highly rational because profit growth has matched share price appreciation. To mitigate rising concentration risks—with three major hardware names representing roughly 40 percent of the portfolio—the team is taking profits and recycling capital into other high-conviction areas. Most notably, they are targeting China, which has pivotally transitioned toward manufacturing self-sufficiency, and Brazil, where near-term macro headwinds have depressed the valuations of strong operators like MercadoLibre, Petrobras, and B3. Ultimately, the team views emerging markets as deeply undervalued and highly innovative, warning that the primary risk to investors is having insufficient exposure.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
A 0.70 conviction score reflects the fund's massive, long-standing conviction in major semiconductor holdings (representing ~40% of the portfolio), while acknowledging that it maintains a diversified multi-cap emerging markets mandate with systematic profit-taking.
Growth Outlook
Market outlook is constructive at 0.75. The manager rejects the view of emerging markets as a simplistic economic cycle play, noting they are structurally undervalued, under-owned, and home to global innovation leaders.
Risk Appetite
Risk appetite is scored at 0.75. The fund maintains highly concentrated overweight tech exposure and actively reinvests all harvested proceeds into emerging market equities without raising defensive cash buffers or adding broad hedges.
Capital Deployment
Capital deployment is rated at a net-neutral 0.50. The letter details that new purchases and allocations (specifically into China and supporting positions in Brazil) are funded by recycling profits from outperforming semiconductor holdings, indicating a stable cash balance.
Forward Guidance
Forward guidance is scored at 0.75. The team is executing a clear strategy of harvesting capital from elevated technology stocks and actively reallocating those proceeds into undervalued, structurally sound areas like Chinese and Latin American equities.
Language Signal
The language signal is 0.75, characterized by highly optimistic descriptions of 'world-class innovators' and the assertion that not owning enough emerging markets is the largest risk. This is appropriately balanced by analytical discussions of macro hurdles.
Perceived Risk
Perceived risk is scored at 0.55. Although geopolitical tension, regulatory shifts, and high interest rates are identified, the manager views these conditions as long-term structural catalysts rather than terminal threats to their compounders.
Opportunity Density
Opportunity density is rated 0.80. The manager notes that they continue to find exciting opportunities across a wide array of sectors, highlighting the highly attractive valuation entry points created by macro selloffs in China and Brazil.
Time Horizon
The fund operates with an outstanding 0.85 time horizon score, holding key bottleneck companies continuously since the 2000s and actively defending high-conviction positions through multi-quarter periods of margin pressure or macro cyclicality.
