5 Minutes With: Baillie Gifford’s Lucy Isles

This week Lucy Isles, co-manager of the Baillie Gifford’s European High Yield Bond fund, reveals how going undercover gave her an investment idea and admits investing can turn your hair grey

Annalisa Esposito 27 September, 2019 | 9:55AM
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lucy isles

Lucy Isles, 31, joined Baillie Gifford in 2012 as an analyst and was promoted to fund manager of the Bronze-rated Baillie Gifford’s European High Yield Bond fund in 2018. The fund aims to produce a high income by targeting primarily sub-investment grade bonds, also known as junk bonds. This includes bonds issued by streamer Netflix and food retailer and insurance provider Co-Operative Group.

What does the fund do?

Invests predominantly in what we think are underappreciated businesses with a three-to-five-year investment horizon. Our aim is to deliver sustainable long-term income, not just a short-term yield.

Why invest in high-yield bonds?

They still provide a consistent income stream that few other asset classes can match – high yield investments deliver not only high level of income, but also capital growth.

What’s your favourite position in the portfolio currently?

Darling Ingredients (DAR) is one of the most sustainable companies we lend to. It’s based in Texas and repurposes animal carcasses that would otherwise go to waste or pollute the plant into the most diverse array of end products, from bone china to renewable fuel and animal feed. That reduces carbon emissions at various stages of the chain.

What is your best ever investment?

Hurtigruten, a Norwegian cruise company centred along the Norwegian coast and polar waters. We invested when the company first issued a high-yield bond in 2015 and it delivered around four times the return of the market over our holding period.

And you worst?

I suggested a position in Thomas Cook bonds in May 2018. The business has not been able to deal with external threats, creating the perfect storm we are all familiar with. We sold the bond at €0.65 and [before the company collapsed] they traded at €0.05. Monitoring the deterioration of the bond was good, but my initial analysis to buy it in the first place was not.

What’s the bond you wish you bought but didn’t?

I went undercover to a Herbalife event – the dietary supplement company - where they explained how to become a distributor and it gave me conviction in the company. I wanted to invest in a bond the firm issued in 2015 but couldn’t convince the team (I was an analyst at the time).

What’s the most important lesson you’ve learned?

To always maintain perspective. Certain positions can feel painful and irrecoverable, they can make you lose sleep and turn your hair grey, but they can turn out to be valuable in the end.

What’s the think you like the most about the job?

The tangibility of it. Moving from analyst to fund manager has added colour to my work life. As an analyst you can get lost in philosophising and researching things, but now I have more face-to-face interactions with clients.

And if you weren’t a fund manager?

I would be a professional tennis player. Ok, that would be my dream, I'm not sure whether I would actually make it as a professional.

What do you do in your spare time?

I like being outdoors, anywhere you can be active – either in the hills, on the water, skiing, mountain biking. Anywhere outdoors that is a bit thrilling.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Annalisa Esposito  is a data journalist for Morningstar.co.uk

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