Baillie Gifford is an Edinburgh investment partnership founded in 1908, famous for ultra-long-horizon, high-conviction growth investing — its early stakes in Amazon, Tesla and NIO are classics. Its "actual investors" philosophy holds world-changing companies on 5-10 year views; AUM is around $120bn. The Insights column carries its managers' investment views and thematic research.
This piece explains how Baillie Gifford's two strategies, Monks and SAINTS, find undervalued opportunities. They see the market reshaped by passive investing and the AI boom, but believe many good companies are mispriced. Monks likes NVIDIA (new chips every 18 months, stronger than market thinks), Samsara, and Shopify (seen as AI losers but have real advantages). SAINTS prefers cash-generating firms like Coca-Cola that pay steady dividends. Overall view: cautiously optimistic, with market pricing distortions.
One-sentence summary: The market is being reshaped by passive investing and the AI boom. Baillie Gifford's Monks and SAINTS strategies seek undervalued opportunities from the angles of "non-consensus growth" and "cash today, growth tomorrow," respectively. [Cautiously Optimistic]
A small number of companies drive the majority of returns, and Monks seeks "non-consensus" growth opportunities.
Monks investment specialist Richie Vernon notes that over the past decade, global market returns have been primarily driven by a handful of outlier companies, which delivered average returns of 6x and are not limited to tech stocks. He cites examples including Progressive (insurance), Cintas (workplace services), Dollarama (discount retail), and Petrobras (oil and gas), all of which share strong profit growth over the past ten years. Monks employs a "bold yet balanced" strategy, constructing a more resilient profit growth profile through three types of growth portfolios:
| Growth Type | Characteristics | Examples |
|---|---|---|
| Steady Growth | Industry leaders whose durability is underestimated by the market | Mastercard |
| Rapid Growth | Companies disrupting existing markets or creating new ones | MercadoLibre (Latin American e-commerce) |
| Cyclical Growth | Well-managed companies sensitive to economic/industry cycles | Martin Marietta (U.S. aggregates leader) |
Monks emphasizes "non-consensus understanding"—a clear divergence in views on a company compared to the market. Taking Spotify as an example, the market focuses on user growth (roughly 10% of global monthly active users), but Monks believes the more interesting opportunity lies in revenue per user: advertising, audiobooks, AI-driven DJ features, closer connections between users and artists, and future pricing power.
Vernon highlights two converging trends. The first is a shift in market structure: passive investment has risen from about 30% of the market 15 years ago to roughly 60% today. Meanwhile, the active investing side has also changed, with more algorithmic trading, hedge funds, retail investors, and thematic investors, leading to shorter time horizons and stock prices more susceptible to news, narratives, and capital flows. The second is the AI investment boom: by the end of 2027, U.S. tech giants are expected to spend over 3% of U.S. GDP on AI, roughly double the peak level of the internet bubble. Monks divides the market into three segments: AI hardware winners, digital service companies perceived as losers, and a neglected middle group.
Monks takes a selective approach to AI hardware, investing only in companies that can transcend the current hype. Vernon uses NVIDIA as an example: the market questions how long its growth can last, but Monks believes its product cycle—launching new chips every 18 months—places it in a stronger position than the market appreciates. The author's original statement: "Monks believes NVIDIA’s product cycle, with new chips every 18 months, puts it in a stronger position than the market appreciates." Similar underestimated durability is also seen in Taiwan's TSMC, South Korea's Samsung, and SK Hynix.
Monks argues that the market's assessment of AI's impact on digital companies is overly simplistic. Software, e-commerce, payments, and digital advertising companies viewed as AI losers have seen significant declines, but Monks does not believe all such companies will be affected in the same way. Potential winners include: Samsara (helping companies manage physical assets like buses and construction equipment), Shopify (connecting online merchants to the physical world through inventory and logistics services), and Adyen (managing payment complexity and fraud). Monks' stance is that some companies are priced as if disruption is inevitable, yet they possess entrenched advantages that may be harder to dislodge than the market assumes.
Beyond AI, Monks also focuses on physical bottleneck opportunities. For example, Tidewater (a supplier of offshore support vessels): after a 10-15 year difficult period in the industry, Tidewater has consolidated the market, with very few new vessels being built. If offshore oil and gas demand rises, its pricing power could be significant. Other examples include CATL (a global leader in lithium batteries, benefiting from growth in grid and electric vehicle applications) and Linde (an industrial gas company with new growth opportunities in areas like rocket fuel and chip manufacturing).
Monks' portfolio is diversified across chips, physical infrastructure, healthcare, and financials. Its holdings are expected to grow profits and revenue faster than the index over the next three years, while also boasting higher margins and lower debt. Historically, investors would have had to pay a higher premium for such a portfolio, but today Monks' price-to-earnings ratio is roughly in line with the index. Vernon believes this reflects the "non-consensus understanding." Institutional perspective bias note: As an active management fund, Monks' "non-consensus" narrative inherently contains a marketing element—emphasizing market mispricing to justify its stock-picking ability. Readers should be mindful of its long-only perspective and independently evaluate its reasoning.
Hodges argues that many investors, amid the rise of passive investing and increasing market concentration, are exposed to fewer scenarios than they realize. He notes that as the shift from active to passive investing accelerates, investors are increasingly allocated risk exposures rather than making their own selections. Meanwhile, market concentration has risen: 20 years ago, the world’s top ten companies came from diverse industries; today, Hodges says, nine out of the top ten are effectively technology firms. While most investors want exposure to AI, he questions allocating a large portion of a portfolio to companies whose cash flows lie far in the future, rather than to those generating cash today.
SAINTS aims to achieve both: invest in companies that generate cash today while reinvesting for tomorrow. Hodges describes this as a “cash today, growth tomorrow” policy. Today’s cash supports dividend yields, underpinned by the free cash flow of portfolio companies. But these companies do not distribute all their cash as dividends; instead, they reinvest at attractive returns, which should support future earnings and dividend growth.
The SAINTS strategy is rooted in its objective since its founding in 1873: reliable income and long-term growth of both income and capital. Baillie Gifford took over management in 2004, inheriting a strong record of dividend growth, which SAINTS has extended to 52 consecutive years. Hodges reiterates the trust’s three rules: generate cash, reinvest that cash at high rates of return, and share cash with shareholders.
He uses a can of Coca-Cola to illustrate this point. Coca-Cola has over 100 years of history, strong brand equity, and has generated an average of approximately $9 billion to $10 billion in free cash flow annually over the past five years. It efficiently converts earnings into cash, has relatively modest capital requirements, and has increased its dividend for 64 consecutive years. Hodges believes that habits compound over time, making Coca-Cola a stable, reliable growth company aligned with the SAINTS philosophy. The trust seeks such companies across industries and growth types:
Hodges believes it is this combination that gives SAINTS a broader and more resilient growth profile than the index.
Hodges points out that SAINTS’ portfolio is more cash-generative than the broad global market, with higher reinvestment returns, attractive dividends, faster dividend growth than the market, and without taking on excessive debt to achieve this. These characteristics are particularly appealing when capital becomes more expensive. Companies that can self-fund their growth have more freedom: they can continue to pay and increase dividends, make acquisitions, take advantage of weaker competitors, or reinvest in their own businesses.
For shareholders, SAINTS aims to provide long-term compounding of capital and income. Income can be spent today by those who need it, or reinvested by those seeking long-term compounding. SAINTS is not confined to a single theme, sector, or outcome. Its top ten holdings include technology companies, but also industrial stocks such as Atlas Copco and Schneider Electric, consumer stocks like Procter & Gamble and Coca-Cola, and healthcare stocks such as Roche.
Hodges’ ultimate metric is free cash flow yield—the amount of free cash flow generated relative to the price paid for the investment. According to his data, investing £100 in the SAINTS portfolio represents approximately £4.64 in free cash flow, compared to £3.59 for the market. This cash represents choice: it can fund dividends, acquisitions, or the next growth direction. Thus, while much of the market demands that investors pay today for cash flows far in the future, SAINTS seeks businesses that already generate cash while still reinvesting enough to achieve growth.
Hodges constructs a clear narrative for SAINTS: in a market driven by forward cash flows, holding assets that generate cash today offers defensiveness and flexibility. Readers should note that this is a perspective from the position holder, aimed at defending SAINTS’ dividend-oriented strategy and implying lower risk relative to pure growth strategies.
| Ticker | Direction | Author's One-Sentence View | Key Data |
|---|---|---|---|
| NVIDIA | Hold & Watch | Monks believes its 18-month new product cycle places it in a stronger position than the market perceives | New chip launched every 18 months |
| TSMC | Hold & Watch | Monks believes its durability is underestimated; SAINTS lists it as a fast-growing holding | Related to AI chips |
| Samsung | Hold & Watch | Monks believes its durability is underestimated | Mentioned alongside SK Hynix |
| SK Hynix | Hold & Watch | Monks believes its durability is underestimated | Mentioned alongside Samsung |
| Samsara | Hold & Watch | Monks believes the market's judgment on AI losers is too binary; Samsara is a potential winner | Helps enterprises manage physical assets |
| Shopify | Hold & Watch | Monks believes connecting the online and physical worlds through inventory and logistics could make it a winner | Same as above |
| Adyen | Hold & Watch | Monks believes its ability to manage payment complexity and fraud constitutes an existing advantage | Same as above |
| Tidewater | Hold & Watch | Monks focuses on its physical bottleneck opportunity; pricing power could be significant after industry consolidation | Offshore support vessel supplier, very few new vessels being built |
| CATL | Hold & Watch | Monks focuses on its benefit from growth in grid and electric vehicle applications | Global leading lithium battery supplier |
| Linde | Hold & Watch | Monks focuses on new growth opportunities in areas such as rocket fuel and chip manufacturing | Industrial gas company |
| Mastercard | Hold & Watch | Monks lists it as a representative of "steady growth" type; the market underestimates its durability | Industry leader |
| MercadoLibre | Hold & Watch | Monks lists it as a representative of "fast-growing" type; disrupting Latin American e-commerce market | Latin American e-commerce |
| Martin Marietta | Hold & Watch | Monks lists it as a representative of "cyclical growth" type; a well-managed U.S. aggregates leader | Sensitive to economic/industry cycles |
| Progressive | Hold & Watch | Monks cites it as an example of an outlier company with strong profit growth over the past decade | Insurance industry |
| Cintas | Hold & Watch | Monks cites it as an example of an outlier company with strong profit growth over the past decade | Workplace services |
| Dollarama | Hold & Watch | Monks cites it as an example of an outlier company with strong profit growth over the past decade | Discount retail |
| Petrobras | Hold & Watch | Monks cites it as an example of an outlier company with strong profit growth over the past decade | Oil & gas |
| Spotify | Hold & Watch | Monks believes the market focuses on user growth, but the more interesting opportunity lies in revenue per user | Approximately 10% of global monthly active users |
| Coca-Cola | Hold & Watch | SAINTS cites it as a model of "quiet compounding," with 64 consecutive years of dividend increases | Average annual free cash flow of approximately $9-10 billion over the past five years |
| Schneider Electric | Hold & Watch | SAINTS lists it as an accelerated growth company benefiting from electrification and energy efficiency | Industrial stock |
| L'Oréal | Hold & Watch | SAINTS lists it as a more stable and regular growth company | Consumer stock |
| Atlas Copco | Hold & Watch | Industrial stock among SAINTS' top ten holdings | Industrial stock |
| Procter & Gamble | Hold & Watch | Consumer stock among SAINTS' top ten holdings | Consumer stock |
| Roche | Hold & Watch | Healthcare stock among SAINTS' top ten holdings | Healthcare stock |