- Baillie Gifford’s James Anderson says the end of carbon — illustrated by the historic oil crash in April — will have more lasting implications for the world than the coronavirus pandemic.
- In an exclusive interview, he explained the investing opportunity embedded in this energy transition and others he sees arising from the pandemic.
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Baillie Gifford prides itself in thinking in terms of decades instead of quarters.
For over a century, the $245 billion asset manager based in Edinburgh, Scotland has ingrained in clients and staff alike the idea that long-term investing produces superior results. Its early investments in present-day tech behemoths like Amazon and Facebook prove that its farsightedness has paid off.
The firm employs people like James Anderson, whose minds swivel between the past and the future. Anderson, who was a history major, joined the firm in 1983 and became a partner in 1987. He is now joint manager of the Scottish Mortgage Investment Trust, a growth fund that has beaten its FTSE benchmark by 150 percentage points over the last 10 years.
He says one of the sad realities of the coronavirus pandemic is that similar health crises are not all that rare. They have always been a risk factor — but this one has devastated people across the world and caused widespread economic pain.
Anderson’s knowledge of health crises informs his view that the pandemic is not the most consequential event of 2020 for investors. Instead, he flags the end of carbon — illustrated by the historic oil crash in April — as the event with the biggest long-term implications.
“I still absolutely believe that the pandemic is obscuring what’s been the most important development of the year, which is the changes in the energy area,” Anderson told Business Insider in an exclusive interview. “I still absolutely believe that when we look back, that will be considered much more a turning point than the pandemic.”
The end of carbon is bullish for Tesla
One thing he keeps in mind is that broad energy transitions are rarer than pandemics.
“We’ve effectively had no more than three energy transitions over the entirety of human history,” Anderson said.
He continued: “Energy transitions not just have direct effects, but they have very indirect effects on the way society operates and manages. I think we have a confidence level of around 90% — which is very unusually high for thinking about the stock market — that real change and real progress is being made at the same time.”
Given his views, it’s no surprise that Anderson and Baillie Gifford as a whole are bullish on Tesla. The firm owns more of the company’s shares than any outside investor, and Anderson’s fund owns a stake worth nearly $2 billion.
Anderson explained that his initial interest in the company was not based on some concrete forecast of when electric vehicles would become cheaper than internal combustion engine. What was more important was a high probability that the crossover will happen at some point in the future.
His conviction has played out through Tesla’s success — and he thinks other non-carbon technologies including solar and wind power are on a similar trajectory.
“I genuinely believe that this is a critical moment,” Anderson said. “The fact that most people are preoccupied with the pandemic excites me.”
But that’s not to say Anderson does not see any lasting implications that stem from the pandemic. He highlighted two areas that are ripe with investing opportunities.
Drawing from his knowledge of history again, Anderson said one of the first things people desire after a plague is “expenditure joy.” He means that people typically want to be more exuberant and showy after been repressed for several months.
There are also fundamental reasons to bet on luxury. These companies benefit if their competitors with lower-priced items do not survive. They also tend to be better capitalized and more capable of distributing products online, Anderson said.
The second opportunity on his radar is in education, due to the widespread shift to online learning. A company like TAL Education Group is already playing out this thesis, Anderson noted. The Chinese firm shifted its courses online and offered them at a discount earlier this year.
“We think it’s quite conceivable from university level onwards that you do start to see a change in the nature of who has the ability to get access to university education,” he said.