Baillie Gifford Monthly Income Fund
Baillie Gifford Monthly Income Fund: retirement income for the long term
Investment manager Steven Hay discusses the latest trends and opportunities in income investing, offering insights into achieving long-term financial goals
Watch the interview
A well-defined purpose and broad investment universe offer an income solution for investors looking for a resilient long-term income stream. The Baillie Gifford Monthly Income Fund has a simple and clear solution to multi-asset investing that provides stable and resilient income sources and inflation protection. The solution is natural income: the income derived from dividends, interest, or rent from a diversified portfolio of assets. Investment managers Steven and Nicoleta emphasise that by prioritising income stability over short-term capital volatility and chasing the highest current yield, which comes with greater risk, the fund aims to provide investors with a more stable and predictable monthly income stream. The Monthly Income Fund has about a third invested in equities, a third in bonds and a third in real assets with a focus on property and infrastructure; and through the recent market volatility, these diversification benefits are now shining through. In this content portal, we explore the team’s approach to diversifying across asset classes, look at resilience through the lens of retirement, and offer exclusive access to manager insight on risks and opportunities and more.
Resilient income for long-term protection
Steven Hay, Investment manager
Baillie Gifford Monthly Income Fund Investment manager Nicoleta Dumitru, discusses how stock selection has shaped performance in the second quarter and where income growth could go from here.
Diversification bolsters income resilience in a volatile quarter
Watch the video
Beyond the headlines and short-term trends, the Baillie Gifford Managed Fund focuses on fundamental analysis to find companies with enduring growth potential. Investment managers Iain McCombie and Steven Hay discuss the firm's bottom-up approach, highlighting key investments and how they are positioned for the future, including the evolving landscape of AI.
Growth that endures: Investing beyond the headlines
Read this article
Sequencing risk threatens retirement income when asset sales are forced during market downturns. With resilient income sources and inflation protection, the Baillie Gifford Monthly Income Fund aims to give retirees financial security throughout retirement.
Navigating retirement: combating sequencing risk
The Baillie Gifford Monthly Income Fund is designed to be a ‘one-stop’ solution for clients who need an attractive regular income from their investments. It was launched in 2018 with the fast-growing UK decumulation market in mind, as growing numbers of investors face the challenge of turning their pension pots into a dependable income stream.
Baillie Gifford Monthly Income Fund: an introduction
For long-term investors, its not about reacting to tricky environments, but to maintaining a steady long-term outlook. Watch the video for more on how the Managed Fund investment managers navigate uncertain terrain.
Perspectives on a difficult quarter
Following a very difficult 2022 and a choppy 2023-24 global bond markets have seen a resurgence in 2025. Yields on government bonds, BBB corporate debt, and emerging market local currency bonds, while still elevated, offer compelling opportunities compared to much of the past two decades. The question now: What will shape the outlook for bonds over the next three to five years, and beyond?
What could drive bond markets after the recent rally?
Nicoleta Dumitru, Investment manager
Learn more about the Baillie Gifford Monthly Income Fund
A well-defined purpose and broad investment universe offer an income solution for investors looking for a resilient long-term income stream. The Monthly Income Fund has a simple and clear solution to multiasset investing that provides stable and resilient income sources and inflation protection. The solution is natural income: The income derived from dividends, interest, or rent from a diversified portfolio of assets. Investment managers Steven and Nicoleta emphasise that by prioritising income stability over short-term capital volatility and chasing the highest current yield, which comes with greater risk, the fund aims to provide investors with a more stable and predictable monthly income stream. The Monthly Income Fund has about a third invested in equities, a third in bonds and a third in real assets with a focus on property and infrastructure; and through the recent market volatility, these diversification benefits are now shining through. In this content portal, we explore the team’s approach to diversifying across asset classes, we look at resilience through the lens of retirement, and offer exclusive access to manager insight on risks and opportunities and more.
As the long period of stock market dominance recedes, multi-assets show there is life beyond equities. Watch the video for more on how the Monthly Income Fund team is allocating across fixed income, real assets, and quality equities.
The latest pension regulation changes are allowing advisers to offer tailored insights to clients without crossing advice barriers. Investment manager Steven Hay explores how these regulatory changes are impacting retirement sector solutions.
Decumulation decoded: how pension reform is reshaping retirement income
Jon Stewart explores how investing in undervalued real estate investment trusts (REITs) helps secure better returns and capital appreciation for investors
Property hunting: turning market sell-offs into income opportunities
For diversified portfolios seeking both income and breadth, emerging market local currency debt offers a compelling combination of yield, fundamentals and resilience.
Why now is a good time to add EM local currency debt
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As with any investment strategy, your capital is at risk and any income isn’t guaranteed. We recognise that retirement should be a period of enjoyment and security, not financial anxiety. To provide that peace of mind, our strategy aims to deliver consistent monthly income designed explicitly to keep pace with inflation. To achieve this goal we carefully select investments that consistently pay dividends or bond interest, aiming for a dependable and predictable monthly payout. The Baillie Gifford Monthly Income Fund is designed with practical and clearly defined objectives to meet the need of retirees filling the gap where their salary once was – currently yielding approximately 4.5 per cent, with income distributions projected to grow at over 5 per cent next year – comfortably ahead of the anticipated UK inflation rate. Monthly Income brings together the best of Baillie Gifford’s income ideas. The Fund directly invests in 250-300 income-generating assets across three broad classes: equities, bonds and real assets. It currently has approximately one-third in each, along with a (typically small) cash balance. The real assets exposure is entirely through listed property and infrastructure companies, so the underlying investments are all highly liquid.
Stability and Simplicity
Iain McCombie, Investment manager
Annual Discrete Performance to 31 December each year (%)
Past performance is not a guide to future returns.
Sector data based on B-Acc share class performance. Source: FE, Revolution. Total return net of charges, in sterling. Share class returns calculated using 10am prices, while the Index is calculated close-to-close. *IA Mixed Investment 40-85% Shares Sector. The manager believes an appropriate comparison for this Fund is the Investment Association Mixed Investment 40 – 85% Shares sector median given the investment policy of the Fund and the approach taken by the manager when investing.
Class B-Acc
Sector Median*
2020
33.9
5.1
2021
4.3
11.1
2022
-24.3
-9.5
2023
10.7
8.1
2024
8.9
9.1
Important information You or your clients' capital is at risk. This article does not constitute, and is not subject to the protections afforded to, independent research. Baillie Gifford and its staff may have dealt in the investments concerned. The views expressed are not statements of fact and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. Bonds issued by companies and governments may be adversely affected by changes in interest rates, expectations of inflation and a decline in the creditworthiness of the bond issuer. The issuers of bonds in which the Fund invests, particularly in emerging markets, may not be able to pay the bond income as promised or could fail to repay the capital amount. 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. Baillie Gifford & Co Limited is authorised and regulated by the Financial Conduct Authority. Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs. All data is sourced from Baillie Gifford & Co unless otherwise stated.
That’s how we manage currency risk. Now consider the impact of ‘Sequencing risk’ (Read the full article here) – one of retirement’s greatest hidden dangers, along with longevity risk and inflation risk. Take two hypothetical retirees, Jane and Sarah, who each retire with identical pension pots but just one year apart. Jane retired in 1974, an uncommon year when both equity and bond markets simultaneously faced sharp downturns (similar to 2022). This early loss significantly depleted her savings, which unfortunately ran out after 25 years. Sarah retired in 1975, during a market rebound, and experienced substantial growth in her pension pot. We believe retirees shouldn’t have to rely on chance or perfect timing to ensure financial security. We believe the best way to avoid this is to prioritise income volatility over capital volatility. This approach means our retiree doesn’t have to make up for an income shortfall by selling their investments at inopportune moments.
The left chart demonstrates the consistent and reassuring growth of the Fund’s income per share since its inception, consistently outpacing inflation rates. The Fund sits in the IA Mixed Investment 40-85% Shares sector. The chart on the right shows returns since inception are ahead of the peer group average. Additionally, transparency of direct holdings and cost-efficiency are essential aspects of our approach. Our fees are competitive - Ongoing Charges Figure (OCF) of just 0.56 per cent. Significantly, these fees are deducted from capital, ensuring that monthly income distributions remain fully protected. In conclusion, we believe the Baillie Gifford Monthly Income Fund specifically addresses the needs of retirees, offering financial stability, resilience to inflation and mitigation of some of the risks around volatility. Our carefully managed approach enables retirees to spend their retirement years focused on enjoying life rather than worrying about finances.
© Markus Mainka/Shutterstock.
Our beliefs on investing in retirement
Source: Bloomberg. April 2025.
Income volatility can be more important than capital volatility
Income distribution history and forecast (B Inc)
Monthly Income Fund distributions shown in pence per share. December 2025 figure is estimated. Monthly Income March 2025.
Total return since inception* versus peer group
5
4
3
2
1
0
Rolling 12m periods end of quarter
Dec 20
Dec 21
Dec 22
Dec 23
Dec 24
Dec 25
3.8
3.9
4.1
4.2
4.4
4.6
“Retirees shouldn’t have to rely on chance or perfect timing to ensure financial security. We believe the best way to avoid this is to prioritise income volatility over capital volatility”
Reliability and transparency are the cornerstone of our strategy. Our rigorous approach to risk management aims to ensure that monthly income distributions will not decrease by more than 10 per cent in any given year, even amid challenging market conditions. Our direct investment model and in-house forecasting tool provides clear visibility on future income streams, allowing us to set the distribution levels as high as possible for the first 10 months of the financial year (without distributing more than is available), and then typically making higher distribution payments in May and June. We deeply understand the emotional strain financial uncertainty can impose on retirees. This understanding shapes our approach to delivering income stability and predictable growth. Additionally, we actively aim to mitigate currency risk specifically for UK-based investors. By hedging our international investments back into sterling as far as practically possible, we protect purchasing power from fluctuations in foreign exchange rates.
Annual past performance to 31 March each year (net%)
Important information and past performance
Source: FE, Revolution. Net of fees, total return in sterling. *Investment Association Mixed Investment 40-85% Shares Sector
Sector Average*
21.2
26.4
7.4
5.2
-3.9
-4.5
6.4
10.2
2025
2.3
3.4
The Fund has no target. However you may wish to assess the performance of both income and capital against inflation (UK CPI) over a five-year period. In addition, the manager believes an appropriate performance comparison for this Fund is the Investment Association Mixed Investment 40-85% Shares Sector. The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions. This communication contains information on investments which does not constitute independent 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. Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs. Investment markets can go down as well as up and market conditions can change rapidly. The value of an investment in the Fund, and any income from it, can fall as well as rise and investors may not get back the amount invested. 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. Further details of the risks associated with investing in the Fund can be found in the Key Investor Information Document or the Prospectus, copies of which are available at bailliegifford.com.
Source: FE. Monthly Income Fund B Inc share class. Rebased to 100. Sterling. *Data from 31 August 2018 to 31 March 2025.
Monthly Income Fund
IA Mixed Investment 40-85% Shares
Investment manager Steven Hay discusses the latest trends and opportunities in income investing, offering insights into achieving long-term financial goals.
This recording was produced and approved in May 2025 and has not been updated subsequently. It represents views held at the time and may not reflect current thinking.
We believe our Monthly Income Fund offers a comprehensive solution to mitigate sequencing risk. That solution is natural income: the income derived from dividends, interest, or rent from a diversified portfolio of assets, which allows investors to receive regular distributions without needing to sell the underlying capital. By doing so, the fund allows retirees to maintain their spending needs without being forced to liquidate investments at inopportune times. This can help preserve capital during market declines, leaving more assets in place to benefit from eventual recoveries. By prioritising income stability over short-term capital volatility and chasing the highest current yield, which often come with greater risks to capital, the fund aims to provide retirees with a more stable and predictable monthly income stream, reliably filling the void of their previous employment salary.
Both John and Sandra start with an investment sum of £500,000 and achieve an average rate of return of 5 per cent per annum over an eight-year period. The pattern of returns varies, but neither is drawing down on their savings.
Retirement, or the prospect of retirement, can be daunting for a whole host of reasons. Adding to this sometimes difficult transition is an investment phenomenon whereby two retirees with identical portfolios and average returns can end up with vastly different financial outcomes. This is due to the order of their investment returns. Sequencing risk, in essence, is the danger lurking in the timing of these returns. It occurs when markets fall early in a person’s retirement while they are taking a regular income from their pension.
Important information and risk factors This recording was produced and approved in May 2025 and has not been updated subsequently. It represents views held at the time and may not reflect current thinking. The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions. This communication contains information on investments which does not constitute independent 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. Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs. Investment markets can go down as well as up and market conditions can change rapidly. The value of an investment in the Fund, and any income from it, can fall as well as rise and investors may not get back the amount invested. Market values for illiquid securities which are difficult to trade, or value less frequently than the Fund, such as holdings in weekly or monthly dealt funds, may not be readily available. There can be no assurance that any value assigned to them will reflect the price the Fund might receive upon their sale. In certain circumstances it can be difficult to buy or sell the Fund’s holdings and even small purchases or sales can cause their prices to move significantly, affecting the value of the Fund and the price of shares in the Fund. Derivatives may be used to obtain, increase or reduce exposure to assets and may result in the Fund being leveraged. This may result in greater movements (down or up) in the price of shares in the Fund. It is not our intention that the use of derivatives will significantly alter the overall risk profile of the Fund. 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. Further details of the risks associated with investing in the Fund can be found in the Key Investor Information Document or the Prospectus, copies of which are available at bailliegifford.com
Baillie Gifford Monthly Income Fund B Inc
Scenario one: no withdrawals
Mitigating sequencing risk through natural income
David Rolland, Investment specialist
“Volatility becomes an enemy because if you are taking regular withdrawals during times when the market is down, it will lead to ‘pound cost ravaging”
When retirees begin withdrawing from their investment portfolios, the sequence of returns becomes crucial. If a retiree encounters a market downturn early on, they may be forced to sell assets (encash units) at depressed prices to meet their income needs. This can permanently impair the portfolio’s value, leaving less capital to recover and draw subsequent income from when markets rebound. In contrast, a retiree who experiences strong returns early in retirement may find themselves in a much more favourable financial position, having more capital to draw income from.
Understanding sequencing risk
Volatility is your friend in the accumulation phase as you build up your retirement pot. That’s because it facilitates the beneficial effects of ‘pound cost averaging,’ where the regular drip-feeding of payments into the fund helps mitigate the impact of market volatility and reduce the risk of making large investments at inopportune times. However, once you draw on your investments, it becomes an enemy because if you are taking regular withdrawals during times when the market is down, it will lead to ‘pound cost ravaging’. The greater the strategy’s volatility of the strategy, potentially, the greater the negative impact. Consider two retirees, John and Sandra, who both achieve the same average return over a decade. However, John faces a string of poor returns early in retirement, while Sandra enjoys strong returns from the start. Despite having the same average return, John may find himself in a significantly worse position. He may struggle to meet expenses, be worried about potential longer-term care costs and have less to pass on to his heirs. The extent of that difference is evident in the following two scenarios.
The impact of sequencing risk
Figures may not sum due to rounding.
John's portfolio returns
Year
£450,000 (-10%)£427,500 (-5%)£470,250 (10%)£456,143 (-3%)£524,564 (15%)£561,283 (7%)£673,540 (20%)£713,952 (6%)
1 2 3 4 5 6 7 8
Sandra’s portfolio returns
£530,000 (6%)£636,000 (20%)£680,520 (7%)£782,598 (15%)£759,120 (-3%)£835,032 (10%)£793,280 (-5%)£713,952 (-10%)
Difference
£80,000 £208,500 £210,270 £326,456 £234,556 £273,749 £119,740 £0
Scenario two: with withdrawals
In this scenario, both John and Sandra withdraw £25,000 annually via a pension/retirement investment income stream. They start with the same balance and average return as in Scenario 1. John’s almost £100,000 shortfall after eight years underscores the importance of managing sequencing risk to help provide a secure and comfortable retirement.
£425,000 (-10%)£378,750 (-5%)£391,625 (10%)£354,876 (-3%)£383,108 (15%)£384,925 (7%)£436,910 (20%)£438,125 (6%)
£505,000 (6%)£581,000 (20%)£596,670 (7%)£661,171 (15%)£616,335 (-3%)£652,969 (10%)£595,320 (-5%)£533,288 (-10%)
£80,000 £202,250 £205,045 £306,294 £233,228 £268,044 £158,410 £95,164
Withdrawals
£25,000 £25,000 £25,000 £25,000 £25,000 £25,000 £25,000 £25,000
We focus on identifying companies and assets with resilient, growing income streams. That is why the fund’s holdings undergo rigorous analysis to assess their ability to maintain and grow income payments over the long term. This can help reduce the risk of dividend cuts or defaults that could exacerbate sequencing risk. As a stark reminder of how volatile income streams can be, FTSE UK companies slashed dividends by almost 50 per cent in 2020 during the Covid-19 pandemic. In 2020, although our income fell, it showed its resilient qualities and remained within our risk guideline that the fund's income production should not decline by more than 10 per cent in any given year. The Monthly Income Fund invests directly in around 250 holdings, enabling our Income Forecasting tool to provide an accurate monthly income forecast covering every month of the Fund’s current financial year and the following two years. This income line of sight is simply unattainable through the automated approach taken by a model portfolio service (MPS) or the lack of transparency inherent in a fund-of-fund approach to portfolio construction.
Focus on resilient income sources
While inflation may not seem directly related to sequencing risk, it plays an important role in long-term retirement income sustainability. The Monthly Income Fund seeks to grow both income and capital in line with inflation over time. While the bonds do much of the heavy lifting on income-generation, the fund's holdings in infrastructure and property assets often have rental agreements or service contracts linked to inflation, which also assist. These assets provide a natural hedge against rising prices, as their income tends to increase with inflation. When combined with the long-term growth potential of equities, they are an additional lever the fund deploys in its quest to maintain retirees' purchasing power throughout retirement, regardless of the economic environment.
Inflation protection for long-term income sustainability
“While inflation may not seem directly related to sequencing risk, it plays an important role in long-term retirement income sustainability”
This is all the more relevant in the current macro environment. At one point on Monday 7 April 2025, the S&P 500 surged 8.5 per cent in just 30 minutes after media commentary suggesting that President Trump might pause tariffs was misinterpreted. Within 15 minutes, as the initial statements were retracted, the index dropped 5.5 per cent from that intraday peak. In practical terms, what typically would represent annual movement unfolded in less than an hour. We believe higher short-term volatility is an inherent feature of markets, not a bug. Minimising the volatility on retirement income requires innovative solutions. Presently, retirees have several strategies at their disposal. Some approaches divide savings into segmented pots, others rely on encashing capital, some shift assets to lower-risk investments over time, and others provide a guaranteed income, albeit with limited flexibility. Each approach carries its own risks. These include the opportunity costs of having too much allocated to cash (and cash-like investments) for extended periods, reliance on market timing for withdrawals, or focusing on delivering a fixed as opposed to a growing income that also retains capital flexibility. The natural income approach does not completely eliminate sequencing risk. However, as we navigate these extraordinary times, the approach’s focus on delivering a resilient, growing income with some built-in protection against rising costs can help significantly reduce its impact. Every retiree’s goals will be different. For those looking for more stability and peace of mind, the Monthly Income Fund is designed as a one-stop solution to preserve capital and deliver a reliable monthly income. Ultimately, it seeks to help those entering the drawdown phase of their lives feel more secure about their financial future.
The road ahead
The Fund has no target. However you may wish to assess the performance of both income and capital against inflation (UK CPI) over a five-year period. In addition, the manager believes an appropriate performance comparison for this Fund is the Investment Association Mixed Investment 40-85% Shares Sector.
Past performance
“What we're trying to do as bottom-up growth investors is to find great companies with underappreciated long-term prospects”
This recording was produced and approved in July 2025 and has not been updated subsequently. It represents views held at the time and may not reflect current thinking.
As with any investment strategy, your capital is at risk and any income isn’t guaranteed. The FCA’s December 2024 consultation paper – creatively titled CP24/27: Advice Guidance Boundary Review: Proposed Targeted Support Reforms for Pensions – paired with the upcoming Pensions Schemes Bill 2025, represents a regulatory double act poised to transform how retirement income solutions are delivered. This approach represents a critical evolution beyond existing Pension Freedoms (2015) legislation, where retirees frequently struggled with overwhelming choice, leading to premature withdrawals or complete indecision.
Baillie Gifford’s Monthly Income Fund aligns perfectly with these regulatory changes. Designed with simplicity, liquidity, and transparency in mind, it aims to provide stable, inflation-linked monthly income – a key requirement in this evolving regulatory landscape. Utilising our global investment outlook and flexible tactical asset allocation, the Fund seeks sustainable, long-term income growth rather than short-term yield chasing. This disciplined approach explicitly addresses regulatory concerns by focusing on reducing income volatility and delivering steady monthly payouts.
Our ‘Natural Income’ strategy offers an intuitive solution: Stable income: The fund’s natural income stream aims to serve as a safe withdrawal guide, eliminating guesswork. Predictability: Avoids reliance on volatile market performance or forced asset sales. Competitive edge: Offers superior predictability and simplicity compared to segmented pots, capital withdrawals, or cash buffer strategies, without the rigidity associated with annuities. Every retiree has unique goals, but for those prioritising stability, transparency, and simplicity, the Monthly Income Fund is designed as a one-stop solution. Already adopted by prominent platforms for their decumulation pathways, it’s specifically built to help retirees manage their financial future confidently.
“Every retiree has unique goals, but for those prioritising stability, transparency, and simplicity, the Monthly Income Fund is designed as a one-stop solution”
In tandem, the FCA’s CP24/27 introduces “targeted support” – a new regulatory concept offering tailored suggestions without crossing into regulated advice territory. Initially focused on pensions due to the significant risks involved in retirement decisions, the targeted support regime will eventually expand to other investment areas. For advisers, this means the ability to offer meaningful, tailored insights without crossing regulatory thresholds.
Annual past performance to 30 June each year (net%)
Baillie Gifford Monthly Income Fund B inc
17.0
17.3
-5.5
-7.2
4.0
3.3
6.7
11.8
5.8
5.5
The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions. This communication contains information on investments which does not constitute independent 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. Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs. Investment markets can go down as well as up and market conditions can change rapidly. The value of an investment in the Fund, and any income from it, can fall as well as rise and investors may not get back the amount invested. Market values for illiquid securities which are difficult to trade, or value less frequently than the Fund, such as holdings in weekly or monthly dealt funds, may not be readily available. There can be no assurance that any value assigned to them will reflect the price the Fund might receive upon their sale. In certain circumstances it can be difficult to buy or sell the Fund’s holdings and even small purchases or sales can cause their prices to move significantly, affecting the value of the Fund and the price of shares in the Fund. Derivatives may be used to obtain, increase or reduce exposure to assets and may result in the Fund being leveraged. This may result in greater movements (down or up) in the price of shares in the Fund. It is not our intention that the use of derivatives will significantly alter the overall risk profile of the Fund. 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. Further details of the risks associated with investing in the Fund can be found in the Key Investor Information Document or the Prospectus, copies of which are available at bailliegifford.com.
Targeted support: bridging the gap
Monthly Income Fund: a natural fit
The advantage of ‘natural income’
Will these regulatory initiatives fundamentally reshape retirement income markets? Undoubtedly. Will they create initial complexity? Probably. But amid these challenges, trustees and advisers can find clarity, confidence, and resilience through the Baillie Gifford Monthly Income Fund.
Ready for tomorrow
As with any investment strategy, your capital is at risk and any income isn’t guaranteed. If there is one thing a real estate investor loves, it’s a capital markets day. Bringing the investment community together allows a business to cut through the market noise and focus on longer term dynamics, or dive deeper into divisions they feel are poorly understood. Sometimes, it is an eye-opening experience that transforms your appreciation of a market or business. Sometimes it is just a thinly-veiled excuse to show off their newest, shiniest building. Only rarely is it something that causes a meaningful move in the share price. So when Equinix’s shares plunged nearly 20 per cent in a straight line on the back of their 2025 capital markets day – a massive price move for the normally staid, slow-moving real estate sector – our interest was piqued. First, an introduction. Equinix is a US-listed real estate investment trust (REIT) focused on the datacentre industry. Datacentres are buildings filled with computer servers that store and exchange data, essentially serving as the physical footprint of the internet. Businesses rely on data centres to securely handle their critical digital information. Equinix operates globally and is the world’s largest provider of specialised, interconnected facilities where networks, cloud providers and other businesses come together to exchange data. It’s a fantastic niche business that we have owned in the Monthly Income Fund since 2022, during which time the dividend has grown by 51 per cent. So, what did management say to prompt such a dramatic reaction? In short, they decided to put their foot on the accelerator to speed up the growth of the business. Recognising the massive opportunity presented to them by the advent of generative AI, they unveiled an ambition to double the size of the business in five years, funded by a 50 per cent increase in capital investment.
A similar example in our portfolio that is now approaching its endgame is Assura, a UK specialist healthcare REIT. In 2024, Assura acquired a portfolio of private hospitals and financed this by issuing a large block of shares to the seller. So far, so unremarkable. However, the market, expecting the seller to dump those shares at a discount once the six-month lock-up expired, aggressively sold Assura’s shares in anticipation, driving the dividend yield as high as 8 per cent. At this level, we viewed the business as effectively priced to go bust, something that to us made no sense given the substantial government backing to Assura’s rents and long-term, low-cost financing structure. So, expecting the share price drop to reverse once the selling pressure ended, we increased our position substantially, to the point where Assura is currently the largest property holding in the Monthly Income Fund. The payback came earlier this year when the company, still languishing at distressed pricing, became subject to a takeover battle between private equity and Assura’s listed peer, Primary Health Properties (PHP). The shares have subsequently delivered a 35 per cent total return in 2025 year-to-date. But the best part is, assuming PHP wins the battle, we not only enjoy those short-term gains, but also remain invested for the long-term in a business that will be larger, more cost efficient, and able to deliver the same compelling, growing, government-backed income that attracted us to Assura in the first place.
“When Equinix’s shares plunged nearly 20 per cent in a straight line on the back of their 2025 capital markets day, our interest was piqued”
The sting is timing; because that capital has to be spent before it can generate income, this meant that earnings growth would be slightly lower in 2026 before recovering this ground, and more in subsequent years as those facilities filled up. So, slightly lower earnings today for higher earnings tomorrow. The scale of share price reaction would make sense if you thought that Equinix was permanently impairing its growth prospects. But that is categorically not the case – underlying revenue growth guidance was pretty much unchanged. Now, the decision to swing the bat much harder at the AI opportunity is not riskless. Demand needs to exist to fill those facilities once built. Market conditions need to allow for that to happen at viable rents. But in a datacentre market enjoying secular demand growth and with supply constrained by the finite availability of power, we feel that is a risk worth taking, especially given the compelling return on capital Equinix has consistently generated from its investments. From the perspective of our real estate holdings in the Monthly Income Fund, this is exactly the kind of short-term mispricing that we look to take advantage of. As Equinix is not a particularly high yielding stock, it created a window of opportunity to add to our holding at a more attractive price than we’d ordinarily expect. While it might now take a year or two for management to prove their strategy and the market to give them credit, we are patient and being paid to wait, collecting our steady dividend.
Jon Stewart, Investment manager
Value opportunities exposed by market short-termism
Important information and risk factors
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“The best part is we not only enjoy short-term gains, but also remain invested for the long-term in a business that will be larger, more cost efficient, and able to deliver the same income”
As with any investment strategy, your capital is at risk. Emerging Markets (EM) local currency debt is often overlooked. Yet today it offers high income at attractive valuations, benefitting from supportive fundamentals, favourable macroeconomic conditions, and long-term resilience. For multi-asset clients who need diversification and yield, it’s a timely opportunity to consider increasing allocations.
The macro picture across EMs has improved meaningfully. Many countries now run primary fiscal surpluses, have healthy foreign exchange reserves, and have brought inflation back to target – or are clearly moving that way. On average, debt sits around 54 per cent of GDP, versus more than 100 per cent in many developed economies. Mexico is a good example. It combines fiscal discipline, competitive manufacturing, and a prudent central bank. Market plumbing has improved too: better liquidity, longer maturities, and a bigger local investor base make markets less vulnerable to sudden outflows. A 10-year Mexican bond is yielding a little over 9 per cent today and inflation is 3.5 per cent.
“The large real-rate cushion helps protect against global rate volatility and is a key reason why we see this asset class as attractively valued”
'Emerging markets' is a catch-all name for a broad and well-diversified set of countries at different stages of development, from AA-rated Czech Republic to the BB-rated Dominican Republic. Yields in EM local currency bonds are much higher on average than in developed market bonds. However, it is our belief that this yield overcompensates for the risk of this investment-grade asset class. This yield can be enhanced by returns from capital as EM central banks continue their cutting cycles.
Sally Greig, Investment manager
Bottom line
Attractive yields with manageable risk
Strong and more predictable fundamentals
High real yields protect against volatility
The higher yield begs the question as to whether this is compensation for higher inflation in EMs. However, inflation-adjusted yields, or ‘real yields’ in EM local currency bonds are still well above those in developed markets. That large real-rate cushion helps protect against global rate volatility and is a key reason why we see this asset class as attractively valued. The volatility of EM local bonds is well below EM equities, and even lower than US high yield. Some markets, such as South Africa and the Dominican Republic, offer yields above 10 per cent while inflation is nearer 3 per cent – real yields of 7 per cent, versus close to 0 per cent in the UK.
EMs have shown resilience through recent global shocks. IMF programmes, independent central banks, deeper domestic markets have lowered external risks. These structural anchors help make the asset class more stable than many might expect. In 2024, about 73 per cent of EM sovereign rating changes were upgrades, while large, developed issuers such as the US and France saw downgrades. All this evidence of the benefits of EM local currency bonds has meant that flows are turning. After years of under-ownership during the strong-dollar period, investors are moving back into EM local debt. Fund inflows are at record levels, with strong interest in Asian and Global strategies.
Record inflows and improving resilience
The Baillie Gifford Monthly Income fund seeks diversified sources to deliver resilient, regular distributions for clients. EM local currency debt combines high yields, better fundamentals, attractive valuations, alongside improved resilience, and rightly merits renewed attention today.
