BAILLIE GIFFORD - RBKC

BAILLIE GIFFORD

Royal Borough of Kensington and Chelsea Pension Fund

Report for the quarter ended 30 June 2019

Contents

01 Summary

02 Commentary

06 Statistics Summary

07 Market Background

08 Performance

10 Portfolio Overview

12 Transactions

14 Portfolio Characteristics

15 List of Holdings

17 Governance

28 Trading

32 Valuation

33 Fund Reconciliation

34 Legal Notices

35 Report Recipients

Contacts

Lynn Dewar [email protected] Tel: +44 (0)131 275 2724

Tom Wright [email protected] Tel: +44 (0)131 275 2726

Verity Goddin (Administrator Contact) [email protected] Tel: +44 (0)131 275 2357

Online Reporting

You can access all your reports and other up-to-date portfolio information via our secure Online Client Service site https://clients.bailliegifford.com

Aquatics Centre, London. © Baillie Gifford & Co

https://clients.bailliegifford.com/

Executive Summary Report for the quarter ended 30 June 2019 01

All investment strategies have the potential for profit and loss. Past performance is not a guide to future returns.

Performance to 30 June (%)

Fund Gross

Fund Net

Benchmark

Ten Years (p.a) 17.0 16.7 13.0

Five Years (p.a.) 16.5 16.2 12.6

One Year 9.8 9.5 9.7

Quarter 7.5 7.5 6.1

Source: StatPro, FTSE, MSCI

The underlying progress of the companies in your portfolio continues to be strong

We are encouraged by a strong pipeline of new ideas competing for space in the portfolio

As part of our 2019 Research Agenda, we have been focusing on generating alternative insights and taking steps to improve our working practices and environment

Valuation

31 March 2019

GBP 234,460,991

30 June 2019

GBP 252,124,826

Commentary Report for the quarter ended 30 June 2019 02

Background

As anyone who has seen our recent ‘Actual Investors’ advertising campaign may know, we focus on the future, not the past. Our investment process is forward looking, optimistic and is designed to help us try to identify technologies and societal shifts which will result in significant change over our investment horizon and beyond. We believe that focusing our attention in this way gives us the best chance of identifying that small sub-set of companies which are likely to become multiples of their current size and make a material difference to our clients’ wealth as a result. The rapidly developing area of Artificial Intelligence (AI) is one such area.

The pace of change in machine learning

is staggering.

Google (using its AI algorithm) returns 2.36 billion search results for a given search term in 0.57 seconds. AI clearly means different things to different people and, as such, the term is arguably unhelpful. A more useful definition is probably the concept of machine learning, where algorithms are trained to perform better using vast datasets. Assessing to what extent the resulting

predictions are accurate allows the machine to learn and adapt. Advances in this field are being driven by parallel technologies. Continued increases in computing power are certainly part of this (Moore’s law is alive and well!), but it is the proliferation of a huge variety of sensors that is providing the opportunity to collect, store and analyse huge amounts of data, thus providing the raw material from which ‘machines’ can learn. We talk a lot about innovation, but the spread of sensors throughout our environment is more akin to a process of ‘innervation’, the creation of a physical interface with the world to complement the artificial mind of the computer.

The pace of change in machine learning is staggering. In 1997, in what is considered one of the defining moments in the history of AI, IBM’s Deep Blue computer defeated chess grandmaster Garry Kasparov. His book Deep Thinking contains some interesting reflections on this event, including the fact that his defeat was only the second part of a three-game series in which Kasparov had won the first match a year earlier (IBM refused to play the third). Now the free chess app available on the iPhone is far more powerful than Deep Blue’s chess programme in 1997. Readers who find themselves talking to Alexa (Amazon’s personal assistant available through its Echo device) on a regular basis, may reflect on how far the technology has advanced since the days of Microsoft’s ‘Clippy the Paperclip’.


Trying to understand the economic and investment implications of these advances may seem a daunting task. This is because AI is what is referred to as a ‘general purpose technology’. This means that, rather than being specific to any one industry or process, it has very broad applications across the entire economy. Previous examples of general-purpose technologies, such as steam power, electricity and computing, have defined entire industrial eras. If each of these three are thought of as a discrete industrial age, then the ongoing advances in AI may well represent the start of the fourth industrial age: one which will see the fusing of the physical, the digital and the biological.

The implications of this fourth industrial age are likely to be equally far-reaching and transformational. We are already starting to see its applications in our daily lives. Netflix, for example, uses machine learning and a sophisticated algorithm to assess viewing habits to provide personalised recommendations. The more times it observes if you choose to watch or ignore said recommendation, the better the suggestions it provides in the future. It also changes the imagery used for the same show on the platform, based on what it thinks would be more likely to make you choose that title. Of course, this data of viewing habits also feeds into the platform’s development of future blockbuster films and series. In the field of payments, Visa and Mastercard rely on machine learning algorithms to help check for any indications of fraud across millions of transactions simultaneously and in real time, and to deliver approval in milliseconds.

Less visible applications are already being rolled out across a whole range of industries. In finance, lenders are able to consider a much wider range of data points when assessing credit risk. When someone searches for a loan on their cell phone for instance, the application can take

note of the remaining battery life. Low-battery life is correlated with poor planning and hence an increased risk of default. In education, we see what’s called ‘adaptive-learning’ where online questions can be tailored to a pupil’s level of understanding and comprehension. Over the longer term, facial recognition technology could assess levels of alertness or distraction to ensure that key points are not missed. In real estate, virtual reality can help buyers of property envisage what their new apartment will look like or what the view from their balcony might be before a brick has even been laid.

So how do we approach such a broad and varied area and decide what we should be looking at now? In this, as in other areas, our Research Agenda is a helpful way of focusing our efforts. Three topics from this year’s Research Agenda – Healthcare, Innovation turns industrial and Seeing what others don’t – are of relevance.

Healthcare

Healthcare, in particular, is an area of very active research for us. It’s a huge industry which is under tremendous strain and is desperate for change as ageing populations drive increasing demands. Machine learning driven advances in healthcare are likely to be a significant part of the potential solution to these challenges, helping to reduce cost and improve outcomes for patients.

Gene sequencing company, Illumina, is at the heart of such developments. At the beginning of the 2000s, the cost to sequence a human genome was around US$100 million; this has now fallen to around US$1,000. Such a vast reduction in cost has opened up huge new areas of application for gene sequencing: areas such as non-invasive pre-natal testing, rare disease diagnosis, oncology, population genomics, and popular consumer applications such Ancestry.com and 23andme. The potential for machine learning to extract insights from the enormous resulting genetic make-up data pool holds the promise of truly personalised medicine and is likely to underpin research into potential treatments for an array of genetic diseases.

Another new purchase, Sysmex, is also an enabler in taking costs out of healthcare systems, and is benefiting from increasing volumes of available data. Sysmex is a Japanese manufacturer of reagents and equipment for clinical tests. The company is leveraging improvements in genomic science and immunochemistry to develop ‘liquid biopsy’ tests – blood tests rather than more invasive organ-tissue extraction. This testing could lead to the earlier detection of cancers and Alzheimer’s and provide an effective way to monitor treatment efficacy. © Shutterstock/Evannovostro.


…we are encouraged by progress to

date in the context of this year’s Research Agenda…

Innovation turns industrial

Axon is a US company best known for selling non-lethal weapons (tasers) and body cameras to US law enforcement. Our investment case for future growth assumes that there is much modernisation to come in law enforcement. The company’s rebrand in 2017 (from TASER International) signalled the start of a shift from a hardware company to a service provider – including software. Evidence.com and Axon Records provide storage and processing for all body-camera-video footage and associated reports, along with criminal records. Indeed, Axon is now the biggest user of Microsoft Azure cloud storage in the world. Axon’s recent partnership with Verizon and AT&T is focused on providing live streaming of all body cameras to give a better feedback loop for users; station commanders can see what is happening on the front line (replacing radio) and front-line officers will receive better support and information in real time. Future developments may include augmented reality provision in the field, such as weapon identification, facial recognition and license plate

scanning – all carried out by Axon AI analysis of video footage happening in the background. Axon is rapidly building the only dataset capable of providing this analysis (having recently taken part in a deal with one of the world’s largest CCTV companies, Milestone, to integrate video from more than 6,000 cameras into Evidence.com).

Seeing what others don’t

In furthering our research, our approach is to start from a position of humility, by recognising how much we don’t know. No matter how many people we hire, how good our recruitment process or how much time we spend on research, there will always be far more insight and expertise outside of Baillie Gifford than there is within. What we can do is try to identify who the experts are in any given field and see if they are willing to share their insights with us. In this regard, academic partnerships are a much more important part of our investment research process than other more traditional inputs to the investment management industry which carry a much narrower (and more insistent) range of views. Examples of such partnerships which are likely to help our thinking in the field of AI include organisations such as the Santa Fe Institute, which is looking at frameworks for how AI may learn from its environment, i.e. rather than being pre-programmed with instructions, it learns through


experimentation and feedback much in the same way that a child would learn. Another example is the Centre for the Future of Intelligence at Cambridge University, which is looking at the ethical and regulatory considerations that may be necessary to make sure that we get the best out of advances in AI.

With these partnerships we’re not aiming to identify new investment ideas, at least not directly. What we are trying to do is understand the right questions to ask and, in turn, sketch out what links take us from the abstract to the specific areas which might be relevant for your portfolio today. We believe this will help us to focus our research effort more effectively.

Outlook

As we pass the midpoint of 2019, we are encouraged by progress to date in the context of this year’s Research Agenda, both in relation to AI and more broadly. Indeed, competition for capital and the resulting bar for portfolio inclusion is as high as it’s ever been, as we continue to find a breadth of opportunities which we believe offer the potential of sustainable long-term growth. As ever, our outlook remains resolutely long-term and focused on fundamental, company-level progress in the context of our investment cases. Our concern for short-term market lurches extends only to reduced valuations for the businesses we admire, and the potential to purchase, add, or in some cases re-purchase on behalf of our clients. The combination of strong fundamental progress and a wealth of new ideas reinforces our optimism with respect to the portfolio, and our confidence in our ability to add value after fees for you, our clients, over the coming years.

Statistics Summary Report for the quarter ended 30 June 2019 06

Baillie Gifford Global Alpha Growth Fund

Product Overview

Baillie Gifford is primarily a bottom-up, active investor, seeking to invest in companies that it believes enjoy sustainable competitive advantages in their industries and which will grow earnings faster than the market average. This is based on our belief that share prices ultimately follow earnings. The aim of the Global Alpha investment process is to produce above average long-term performance by picking the best growth stocks available around the world by combining the specialised knowledge of Baillie Gifford’s investment teams with the experience of some of our most senior investors.

Risk Analysis Top Ten Holdings

Key Statistics

Number of Holdings 102

Number of Countries 21

Number of Sectors 10

Number of Industries 35

Active Share* 89%

Rolling One Year Turnover 17%

*Source: APT, MSCI

Asset Name % of Portfolio

Naspers 3.7

Prudential 3.6

Amazon.com 3.5

Alibaba 2.8

Anthem Inc 2.5

AIA Group 2.5

MasterCard 2.4

Moody's 2.3

Visa Inc-Class A Shares 2.1

SAP 2.0

New Purchases During Quarter

Asset Name

Abiomed

Axon Enterprise Inc

Broadridge Finl.Sltn.

Illumina

Sysmex Corp.

Complete Sales During Quarter

Asset Name

Baidu.com ADR

Fiat Chrysler Automobiles

First Republic Bank

MultiChoice Group Ltd

Verisk Analytics

Market Background Report for the quarter ended 30 June 2019 07

Index Information

Regional Returns Over One Year (%) Sector Returns Over One Year (%)

Regional Returns During Quarter (%) Sector Returns During Quarter (%)

% Change in GBP

Source: MSCI

Source: MSCI

1.7

3.9

5.4

8.2

10.3

14.0

0 5 10 15

UK

Developed Asia

Emerging Markets

Europe ex UK

MSCI AC World

North America

-3.5

4.3

8.0

8.5

10.9

14.0

14.3

14.4

15.0

17.9

19.1

-5 0 5 10 15 20 25

Energy

Materials

Financials

Consumer Discretionary

Industrials

Consumer Staples

Health Care

Information Technology

Real Estate

Communication Services

Utilities

3.1

3.3

4.9

6.3

6.8

9.0

0 5 10

Emerging Markets

UK

Developed Asia

MSCI AC World

North America

Europe ex UK

1.5

3.0

3.8

5.3

5.5

5.9

6.4

7.1

7.2

7.9

8.6

0 2 4 6 8 10

Energy

Real Estate

Health Care

Utilities

Consumer Staples

Communication Services

Materials

Consumer Discretionary

Industrials

Information Technology

Financials

Performance Report for the quarter ended 30 June 2019 08

Performance Objective

The Fund aims to outperform the MSCI AC World Index by at least 2.0% per annum (before management fees), over rolling five year periods.

Relative Performance

This table indicates the performance of the portfolio relative to the benchmark before fees.

Fund (%) Benchmark (%) Difference (%)

Ten Years (p.a) 17.0 13.0 4.1

Five Years (p.a.) 16.5 12.6 3.9

One Year 9.8 9.7 0.1

Quarter 7.5 6.1 1.5

StatPro, FTSE, MSCI

Long Term Returns*

Source: StatPro, FTSE, MSCI

*All Equity strategy from February 2003 until November 2010, then Global Alpha strategy thereafter.

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100

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300

400

500

600

700

800

900

Feb 03 Feb 05 Feb 07 Feb 09 Feb 11 Feb 13 Feb 15 Feb 17 Feb 19

Fund Benchmark

Performance Report for the quarter ended 30 June 2019 09

Stock Level Attribution

Top and Bottom Ten Contributors to Relative Performance

Since Reorganisation* to 30 June 2019

Asset Name Contribution (%)

Amazon.com 4.7

Naspers 2.7

Royal Caribbean Cruises 2.7

MasterCard 2.3

Moody's 2.0

Anthem Inc 1.8

NVIDIA 1.6

TSMC 1.3

Tesla Inc 1.1

Ferguson Plc 1.0

Apple -1.4

Ultra Petroleum Corp -1.4

OGX -1.3

Microsoft -1.2

INPEX -0.9

Bank of Ireland (Dublin) -0.9

Apache -0.8

Stericycle -0.8

Dia -0.7

DistributionNOW -0.7

*10 November 2010 Since initial investment in Global Alpha

Source: StatPro, MSCI

One Year to 30 June 2019

Asset Name Contribution (%)

Banco Bradesco 0.8

ICICI Bank 0.6

Shopify 'A' 0.5

MarketAxess Holdings 0.5

MasterCard 0.4

AIA 0.3

B3 S.A. 0.3

LendingTree 0.3

Ping An Insurance 0.3

Advanced Micro Devices 0.3

Apache -1.0

Baidu.com ADR -0.6

Ryanair -0.5

CyberAgent Inc -0.5

Alibaba -0.3

Zillow -0.3

EOG Resources -0.3

Bank of Ireland (Dublin) -0.3

Microsoft -0.3

GrubHub Inc -0.3

Portfolio Overview Report for the quarter ended 30 June 2019 10

Sector Weights (%)

1 Financials 26.3

2 Consumer Discretionary 17.5

3 Information Technology 13.0

4 Industrials 11.9

5 Health Care 11.5

6 Communication Services 8.6

7 Materials 4.7

8 Energy 3.3

9 Consumer Staples 1.9

10 Cash 0.9

11 Real Estate 0.4

Total 100.0

Regional Weights (%)

1 North America 48.8

2 Emerging Markets 19.0

3 Europe (ex UK) 14.9

4 Developed Asia Pacific 10.9

5 UK 5.5

6 Cash and Deposits 0.9

Total 100.0

1

2

3

4

5

6

78

Top Ten Holdings

Company Name Description of Business % of Portfolio

Naspers Media and e-commerce company 3.7

Prudential International life insurer 3.6

Amazon.com Online retail and computing infrastructure 3.5

Alibaba Online commerce company 2.8

Anthem Healthcare insurer 2.5

AIA Asian life insurer 2.5

MasterCard Global electronic payments network and related services 2.4

Moody's Credit rating agency 2.3

Visa Global electronic payments network and related services 2.1

SAP Enterprise software provider 2.0

Total 27.4

1

2

3

4

5

Portfolio by Growth Bucket Report for the quarter ended 30 June 2019 11


Holding

Size %

Growth Stalwarts 30.5

Rapid Growth 37.9

Cyclical Growth 19.2

Latent Growth 11.5

Total %

~2.0%

Prudential

Anthem

AIA

MasterCard

Moody's

Visa

SAP

Pernod Ricard

Naspers

Amazon.com

Alibaba

Alphabet

Ping An Insurance

32.7

~1.0%

Thermo Fisher Scientific

Microsoft

AJ Gallagher

ResMed

Service Corporation

International

Schindler

Olympus

Waters

Bureau Veritas

HDFC

Facebook

MarketAxess

ICICI Bank

Reliance Industries

Zillow

Shopify

Seattle Genetics

B3

Ryanair

CRH

Banco Bradesco

Martin Marietta Materials

TSMC

Royal Caribbean Cruises

Markel

Advantest

EOG Resources

Richemont

SMC

Atlas Copco

Deutsche Boerse

Apache

MS&AD Insurance

Kirby Corp

BHP Billiton

Fairfax Financial

Sberbank

Sumitomo Mitsui Trust

Signify

42.3

~0.5%

Broadridge Financial Solutions

Sysmex

Schibsted

Chipotle Mexican Grill

LendingTree

Netflix

CyberAgent

Grubhub

Ctrip.com International

58.com

Illumina

Autohome

Myriad Genetics

Tesla Inc

Axon Enterprise

Interactive Brokers Group

Meituan Dianping

Abiomed

The Trade Desk

NovoCure

Genmab

Chegg

Spotify

Alnylam Pharmaceuticals

Mail.ru Group

Infineon

Just Eat

Adevinta

TD Ameritrade

Teradyne

Wabtec

SiteOne Landscape Supply

Jardine Matheson

Jefferies Financial Group

Epiroc

Orica

Persol Holdings

Ritchie Bros. Auctioneers

Sands China

Hays

Albemarle

Bank of Ireland

A.P. Møller - Mærsk

Stericycle

Howard Hughes

Tsingtao Brewery

Now Inc

Brilliance China Automotive

24.1

Source: Baillie Gifford & Co, as at 30 June 2019. Cash: 0.9%. Totals may not sum due to rounding.

Transaction Notes Report for the quarter ended 30 June 2019 12

New Purchases

Stock Name Transaction Rationale

Abiomed Abiomed is a leading provider of temporary heart pumps - The Impella Pumps - which allow a patient's heart to 'rest' during surgery by improving blood flow and/or performing the pumping of the heart. Global Alpha previously held Abiomed on your behalf between February 2017 and July 2018, opting to sell after the share price more than tripled during the holding period. At the point of sale, we continued to believe that Abiomed had much growth ahead - expanding end markets, a management team committed to international expansion, and new leading-edge devices deepening its moat. The shares have been weak of late, which has provided the opportunity to reinvest in a company we continue to admire.

Axon Enterprise Inc Formerly known as TASER International, Axon is a US company best known for selling non-lethal weapons (tasers) and body cameras to US law enforcement. In recent years, Axon has transitioned from a pure hardware company into a service provider - specifically software products. Evidence.com and Axon Records facilitate the storage and categorisation of body-camera footage and criminal records, which is allowing the company to build a unique data set. We believe that this data set can be used to implement further modernisation in law enforcement, cementing Axon's position as a 'trusted partner' for governments and police departments. We have taken an incubator-sized position for your portfolio.

Broadridge Financial Solutions

Based in New York, Broadridge manages vital infrastructure for the financial services industry. The company provides processing and distribution services for proxy voting and other corporate governance communications. Broadridge has built a near-monopolistic position in this market and benefits from deeply-embedded relationships with the world's largest financial institutions. We are attracted by the strength of these relationships and believe Broadridge will benefit from inflation-plus price rises over many years. Furthermore, the growing participation of retail investors in global markets, and an increased awareness of corporate governance more widely, will raise demand for Broadridge's communication services.

Illumina Illumina is the world leader in gene-sequencing technology. In 2002, the cost of sequencing a human genome was ~$100m which has now fallen to ~$1000. This rapid reduction in cost has increased the adoption of genome sequencing across a vast array of areas: non-invasive pre-natal testing, rare disease diagnosis, oncology, population genomics and consumer applications. We believe that the tipping point for more widespread adoption is in sight and have been impressed with management's ability to transform Illumina from a niche hardware company into a mass-market supplier.

Sysmex Corp. Sysmex is a Japanese manufacturer of clinical testing equipment with dominant market shares in urine and blood testing. 'Testing' continues to be an area ripe for innovation in order to improve patient outcomes at lower cost: earlier disease detection, more precise diagnosis and assessment of disease propensity. Sysmex enables the removal of costs from the healthcare system. Furthermore, early-stage investments in liquid-biopsy testing and robo-surgery provide additional upside. Following recent share price weakness, we have elected to add this high-quality, cash-generative business to your portfolio.

Transaction Notes Report for the quarter ended 30 June 2019 13

Complete Sales

Stock Name Transaction Rationale

Baidu.com ADR Baidu has been held by Global Alpha for almost a decade and has been a successful investment across that period. Since our initial investment, the addressable market for China's big three internet stocks (Baidu, Alibaba and Tencent) has materially changed as the internet continues to transform consumer-facing industries for an increasingly wealthy population. More recently, Baidu has failed to keep pace with its peers. Growth in its core search business has slowed materially and many of the investments made in online-to-offline (O2O) businesses proved unsuccessful. We have also grown concerned at the increasing turnover of senior management at the company. Therefore, we have chosen to sell the position on your behalf.

Fiat Chrysler Automobiles Fiat Chrysler owns a portfolio of brands including Dodge, Jeep, Maserati, and Alfa Romeo. We remain impressed by the management team and the stewardship of the Agnelli family, and we believe the turnaround implemented by the late CEO Sergio Marchionne to be largely complete. However, we have growing concerns around demand trends, increasing competition in the SUV market and uncertainties regarding the company's longer-term strategy and positioning in a world of electric vehicles. We have therefore decided to sell the remaining position.

First Republic Bank First Republic Bank has been a successful investment for your Global Alpha portfolio. The bank has successfully managed its expansion form its West-coast home (San Francisco) into lucrative high-net-worth markets such as Boston and New York. At the same time it has benefited from a US-cyclical recovery, stable (and moderately rising) interest rates and a growing market share in existing markets. First Republic Bank remains a high-quality, well-managed bank. However, we believe much of our initial enthusiasm is now reflected in the valuation. Therefore, we have elected to sell the position in favour of new ideas elsewhere.

MultiChoice Group Ltd MultiChoice was spun out of South-African media company Naspers in February 2019 and is listed in Johannesburg. It is one of the leading video entertainment operators in Africa and the business generates revenue via digital satellite TV, terrestrial TV and online streaming. We have little enthusiasm for MultiChoice's collection of mature businesses versus other holdings in the portfolio and have therefore elected to sell this small inherited position.

Verisk Analytics Verisk provides risk-bearing businesses (predominantly insurance companies) with data and analytics to help improve their underwriting capabilities. Thanks to its trusted database, which has been built up over many years, Verisk's customers include all 100 of the top P&C insurance providers in the U.S. The share price has performed well during the holding period. However, following recent work looking at the future upside, we find it more difficult to envisage a doubling of the share price from here. Therefore, we have elected the sell the position in favour of more exciting ideas elsewhere.

Portfolio Characteristics Report for the quarter ended 30 June 2019 14


Portfolio Characteristics

Key Statistics

Number of Holdings 102

Number of Countries 21

Number of Sectors 10

Number of Industries 35

Active Share* 89%

Rolling One Year Turnover 17%

*Source: APT, MSCI

Our long-term, active approach to investment is reflected in a consistently low level of turnover and a high degree of active share

Stocks selected for your portfolio represent a diverse range of growth opportunities, drivers and patterns, drawing upon a broad range of underlying business activities

We take a thoughtful approach to risk, including the use of appropriate measures and bespoke, in-depth analyses to provide meaningful challenge and review for your portfolio

Active Share (%)

Source: APT, MSCI Active Share – This is a measure of how actively managed a portfolio is. “Active Share” ranges from 0% to 100%. If the fund is exactly in line with the benchmark then

“Active Share” will be 0%. If the fund has no commonality with the benchmark then “Active Share” will be 100%. Active Share is calculated by taking 100 minus

“Common Money” (the % of the portfolio that overlaps with the index). For the calculation of “Common Money”, for each stock the smaller of either the portfolio or benchmark weight is taken, and these numbers are then summed.

Rolling One Year Turnover (%)

Rolling One Year Turnover is calculated as the lesser of the sum of all purchases and the sum of all sales in each month divided by the month end market value, summed over 12 months. Turnover is a measure of average investment horizon, the lower the turnover the longer the average investment horizon.

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List of Holdings Report for the quarter ended 30 June 2019 15

Asset Name Fund %

Equities

Naspers 3.68

Prudential 3.61

Amazon.com 3.45

Alibaba 2.85

Anthem Inc 2.50

AIA Group 2.45

MasterCard 2.42

Moody's 2.34

Visa Inc-Class A Shares 2.12

SAP 2.02

Alphabet Inc Class C 1.83

Ping An Insurance 1.76

Pernod Ricard SA 1.64

HDFC Corp 1.47

Thermo Fisher Scientific 1.41

Facebook 1.40

CRH 1.39

Apache 1.39

Microsoft 1.36

Banco Bradesco Pref 1.34

Martin Marietta Materials 1.33

MS&AD Insurance 1.31

Kirby 1.27

AJ Gallagher & Co 1.25

MarketAxess Holdings 1.24

ICICI Bank ADR 1.23

ResMed 1.20

BHP Billiton 1.15

Service Corp.Intl. 1.13

Schindler 1.12

TSMC ADR 1.12

Royal Caribbean Cruises 1.10

Olympus 1.09

Waters 1.03

Markel 1.02

Reliance Inds. GDR 1.01

Zillow Group Inc Class C 1.00

Advantest Corp 0.98

Shopify 'A' 0.98

Fairfax Financial Holdings 0.95

Seattle Genetics 0.90

EOG Resources 0.89

Asset Name Fund %

Sberbank Spon ADR 0.89

Richemont 0.89

Sumitomo Mitsui Trust 0.88

SMC 0.86

Bureau Veritas 0.82

Signify NV 0.82

Atlas Copco B 0.80

B3 S.A. 0.79

Ryanair 0.78

Deutsche Boerse 0.77

TD Ameritrade Holding Corp 0.74

Chipotle Mexican Grill 0.72

LendingTree 0.69

Teradyne 0.67

Netflix Inc 0.67

CyberAgent Inc 0.67

GrubHub Inc 0.66

Ctrip.com International 0.61

58.Com Inc Adr 0.61

Wabtec 0.59

Bank of Ireland (Dublin) 0.58

Illumina 0.57

Autohome Inc - ADR 0.57

SiteOne Landscape Supply 0.57

Myriad Genetics Inc 0.56

Tesla Inc 0.56

AP Moller Maersk B 0.54

Jardine Matheson 0.54

Schibsted 0.53

Stericycle 0.53

Jefferies Financial 0.52

Epiroc B 0.51

Axon Enterprise Inc 0.51

Orica 0.50

Broadridge Finl.Sltn. 0.50

Interactive Brokers Group 0.50

Meituan Dianping 0.49

Abiomed 0.48

Persol Holdings 0.48

Ritchie Bros Auctioneers (USA) 0.46

Sysmex Corp. 0.46

Howard Hughes 0.44

The Trade Desk 0.43

List of Holdings Report for the quarter ended 30 June 2019 16

Asset Name Fund %

Novocure Ltd 0.43

Genmab 0.43

Chegg 0.42

Spotify Technology SA 0.41

Alnylam Pharmaceuticals 0.41

Sands China 0.40

Hays 0.37

Mail.ru Group GDR 0.37

Infineon Technologies AG 0.36

Just Eat 0.35

Albemarle 0.33

Tsingtao Brewery 'H' 0.29

Now Inc 0.28

Brilliance China Automotive 0.22

Adevinta Asa A 0.22

Schibsted B 0.19

Adevinta Asa B 0.11

Total Equities 99.09

Total Cash and Deposits 0.91

Total Fund 100.00

Governance Summary Report for the quarter ended 30 June 2019 17

Voting Activity

Votes Cast in Favour

Companies 69

Resolutions 853

Votes Cast Against

Companies 21

Resolutions 49

Votes Abstained/Withheld

Companies 4

Resolutions 12

Not a day goes by without commentators, politicians and the media commenting on the social responsibilities and negative impact of technology companies

In the increasingly heated public debate, we must not lose sight of the many upsides to technology

The challenge for the sector will be ensuring that content is socially responsible and appropriate

Company Engagement

Engagement Type Company

Corporate Governance Amazon.com, Inc., Just Eat plc, Netflix, Inc., Orica Limited, Pernod Ricard SA, Service Corporation International, Tesla, Inc.

Environmental/Social Ryanair Holdings plc, Sysmex Corporation

AGM or EGM Proposals Just Eat plc, MarketAxess Holdings Inc., Martin Marietta Materials, Inc., Persol Holdings Co.,Ltd., SMC Corporation, Sysmex Corporation

Executive Remuneration BHP Group Plc, CRH plc, Kirby Corporation, Stericycle, Inc.

Notes on company engagements highlighted in blue can be found in this report. Notes on other company

engagements are available on request.


Big tech and the inevitable rise of content stewardship

As you will be aware, your Global Alpha portfolio has holdings in many of the large technology platforms – Amazon, Alphabet, Facebook, Alibaba and Netflix, to name a few. These are all companies that didn’t exist 25 years ago but have grown at unprecedented rates to become some of the largest listed companies in the world and with customer bases often measured in the billions. However, not a day goes by without introspection from commentators, politicians and the media about the social responsibilities and negative impact of ‘big tech’. It is currently the most common ESG question for our Governance and Sustainability team. At a recent US governance forum for institutional investors, an entire breakout session gave the stage to technology sector employees talking about a range of issues. Opinion formers’ views range from advocating relatively minor changes to the operating models of technology platforms through to US Democratic Senator Elizabeth Warren’s call for the break-up of Alphabet and Facebook.

However, it was not that long ago that technology companies were universally feted by politicians and development agencies. They were seen to be exactly the right sort of company to have set up shop in your jurisdiction: 21st century businesses that employed high numbers of tax paying professionals, and provided innovative and socially-useful services. In a short space

of time, the prevailing wind has definitively changed direction, at least for many of the global platforms. This has been driven by changing attitudes to data privacy, ‘fake news’ concerns, and evidence of underhand political influence in elections. Aggressive tax optimisation across a sector that can choose to place its registered offices and intellectual property wherever it suits, and discomfort with some of the emerging stories about the historic lack of willingness to confront sexual harassment issues in the sector also haven’t helped. However, the biggest systemic issue now confronting the operating companies is what might be dubbed ‘content stewardship’.

In the early days of the internet, there was a working assumption that the new platform companies were not responsible for the accuracy, quality and appropriateness of the content on their sites, be that comments or products. The idea that different rules prevailed online held until surprisingly recently, but the last few years have seen some remarkable reversals of this position, and it is a global trend:

Instagram has been pressured into addressing self harm images on the site and is also under pressure to address issues such as the promotion of eating disorders on the platform

Baidu is addressing the issue of adverts for highly questionable medical products and procedures

Facebook, Twitter, YouTube and Google executives testify to US House Judiciary Committee hearing on content filtering practices, July 2018 in Washington, DC.

© Getty Images North America.


The UK takeaway food delivery platform Just Eat has pledged to remove (legally compliant) outlets with low hygiene ratings

Microblogging site Tumblr removed ‘adult content’ from its site and promptly lost 30% of traffic

Airbnb has committed to addressing the issue of racial ‘guest profiling’ by property owners

Property sales and rentals platform Zoopla has pledged to address listings which discriminate against tenants receiving welfare support

Chinese gaming giant Tencent has introduced age-based time restrictions for players on its platform

Uber is pledging to do more to vet drivers listed on its app, in an effort to improve passenger safety

Alphabet, Amazon and Facebook have all pledged to significantly increase their use of artificial intelligence (AI) to rapidly identify and remove distasteful and illegal content, most recently following the tragic mass shooting in New Zealand

Some of the changes have been prompted by regulation, but most have been voluntary moves in an effort to stay ahead of changing user attitudes and public opinion. Looking down this list, it might seem that the outlook is gloomy for technology platforms. This is far from the case, with overall usage continuing to rise, while more and more daily tasks are becoming inextricably bound up with the online world. The increasing complexity and regulatory burden of managing online platforms will also probably benefit the incumbents if they are agile enough to move with the times.

In the increasingly heated public debate, we must also not lose sight of the very many positive upsides to technology: unprecedented access to information; almost free global communications (which have empowered civil society activism on a range of issues); and disintermediation of many incumbent sectors that were not doing a good job for their customers – from banks and insurers to estate agents and utility providers.

Technology also supports more diverse participation in the workforce, and (if used with restraint) can greatly improve work-life balance. Smart sensors, connected devices, AI and the cloud all have the potential to significantly improve the efficiency of resource usage as the global population grows.

But there is now increasing acceptance that we are about 25 years into a great social experiment, where technology is not just providing smart new tools, but is also gradually changing society, sometimes in ways that we don’t yet fully understand. Daily screen time amongst teenagers has doubled in the past decade alone, and there appears to be a connection between higher levels of online activity and anxiety and depression, even if causality is unproven. There also appears to be a connection between extremism and the known issue of the echo chamber of online communities of like-minded people.

On a more day to day level, ‘life editing’ by selective posting on social media and image filtering is driving the illusion that everyone is happier and more fulfilled than ever, despite growing evidence to the contrary. Just connecting people in the online world isn’t necessarily a net positive for society, and some of the early optimism of the platforms now looks somewhat naïve.

All of the new-found circumspection about technology doesn’t present an existential crisis for the industry, but it is part of the coming of age for the technology platforms. One analogy that resonates is that the technology sector today may be akin to the widespread increase of car ownership after World War II, but before the advent of seat belts: an amazing new technology brought unprecedented personal mobility and connectivity, but until society figured out some safety refinements, it came at a social cost. The online world will increasingly dominate the physical world, and there will be unbridled opportunity for growth. However, with increasing power will come increasing responsibility.

Until recently, the prevailing view was that data privacy is the defining issue for the technology sector, but privacy considerations will in time be addressed by clearer regulation, better education and user consent. The much bigger challenge for the sector will be ensuring that content is socially responsible and appropriate, in a complex world of diverse views, cultural nuances and polarising opinions. A highly developed and thoughtful approach to content stewardship will be key to long-term success. For all of the above reasons, we generally factor social-licence considerations into our investment decisions (every platform is different, and some business models are much more suited to the new operating environment), and we are engaging with technology holdings to ensure that management teams are fully addressing the rapidly evolving challenges confronting the sector.

Governance Engagement Report for the quarter ended 30 June 2019 20

Company Engagement Report

Amazon.com, Inc. We had a call to discuss changes to the board and this year's annual shareholder meeting. The board has been strengthened by adding Rosalind Brewer, current COO of Starbucks, who will support learning about physical retail. Her appointment is part of a board refreshment process, with other new directors expected. Experience in consumer goods and cloud computing have been identified as desirable, although current levels of leadership and executive experience are satisfactory. Consistent with the company's willingness to engage openly with us, we were offered a meeting with lead independent director, Jonathan Rubenstein. We intend to take up the offer later in the year. This direct access to the board is valuable in developing our relationship and understanding of the non-executive leadership team and their governance of the business. We touched on the 2019 annual shareholder meeting. The agenda contained several shareholder proposals, focused on environmental, social and governance topics. We opposed most resolutions as the requested changes were of limited value to the business. We voted in favour of two resolutions promoting a thoughtful approach to climate change and gender pay equality. Following the meeting, we met non-executive director, Jamie Gorelick. We discussed Amazon's plans for its 2019 Sustainability Report and the demand from a broad range of stakeholders for improved disclosure on working conditions and pay rates. Our engagement is ongoing and we plan to have further discussions over the coming months.

Just Eat plc In April we engaged again with Mike Evans, chairman, to further our understanding of management changes announced in the first quarter of the year. We discussed the background to the changes, the search process to identify new board candidates and the skillsets being sought. We also talked about the attention the company has attracted from an activist shareholder and how that is being managed to reduce the risk of it distracting the board. In May, we attended the Just Eat AGM at which all resolutions were passed with over 96% support. Towards the end of the quarter we had a further call with the chairman for an update on new board appointments and the activist's activity.

Kirby Corporation Kirby Corporation operates domestic tank barges in the United States. Ahead of the AGM we had a call with the company to discuss a one-time payment made to former CEO Joe Pyne. The award, made as part of Pyne's transition from executive to non-executive chairman, consisted of $15 million cash and acceleration of vesting attached to outstanding equity awards. The special payment was to recognise his 20-year contribution as CEO to the growth of the business, and was conditional upon him signing a non-compete agreement. After discussing the award with the company we decided to oppose the executive compensation resolution and the re-election of the chair of the compensation committee. Whilst we acknowledge and appreciate Pyne's contribution to the business, as well as his knowledge of the broader marine transportation industry, we felt the award was excessive. We believe Mr Pyne was suitably rewarded for his performance as CEO and able to share in the value created for Kirby shareholders. We object to the use of consultants and relative pay assessments which seek retroactive pay awards and uplifts when absolute pay levels in the first instance were already generous. We do not think the decision is indicative of an independent, externally-aware compensation committee. We outlined our belief that ongoing board refreshment should focus on adding directors with relevant skills, experience and cognitive diversity to ensure effective oversight of management and support for Kirby's long-term strategy. We will monitor progress and engage with the company later in the year.



Netflix, Inc. Netflix has a bespoke governance structure, maintaining policies and provisions which are not considered best practice. It has also refused to adopt shareholder proposals for changes, which have received majority support at previous AGMs. Our call helped us better understand its corporate governance. Netflix recognises that, as the business matures, its governance practices must evolve to remain appropriate. However, the board believes existing practices, such as a classified board and supermajority voting requirements, protect the business from short-term market pressures. Specifically, it is fulfilling its fiduciary duties by rejecting pressure to conform to a prescriptive list of best practices that it does not consider supportive of growth. The board has been strengthened in recent years and operates in a manner which ensures knowledgeable and nimble decision making. There is also greater corporate consciousness as to how the business maintains its relationships with stakeholders. Our research and engagement indicate that Netflix's governance is pragmatic and supportive of the long-term strategy. Accordingly, we were happy to take a different view from the market and voted at the AGM to maintain the current structure, including the rejection of two shareholder proposals to amend voting standards and corporate political disclosures. As responsible stewards of your capital, we will continue to engage with the company to ensure its governance practices remain appropriate.

Orica Limited We met Chairman Malcolm Broomhead at our Edinburgh offices as part of a governance roadshow. We had recently met the CEO and this was a good opportunity to hear the chairman's perspective. Broomhead was very complimentary about the job management has done and was pleased with the appointment of new CFO Vince Nicoletti, describing him as having a stronger, broader skill-set than his predecessor. Board refreshment is ongoing, with the recent addition of a new independent director who has financial and Asian expertise. Further appointments are expected in the coming year, particularly in mining and technology. The company is working to reduce its exposure to coal and is focused on developing its technology offering. The board has established a technology sub-committee to assist management. We also discussed the company's approach to climate change and how it might affect the business. Broomhead outlined Calderon's view that coal remains a cheap source of fuel and that he is cognisant of the International Energy Agency's forecasts as society transitions to a low carbon economy. Broomhead is more cautious, and mindful of public sentiment and political decisions which could accelerate transition risks for the business. Together, the two perspectives appear to be a healthy balance. Furthermore, the company's efforts to diversify its operations are a sensible way to manage the risk and develop a more sustainable business.

Pernod Ricard SA After a call with the lead independent director last quarter, we suggested providing shareholders with direct access to the independent members of the board, rather than having to send correspondence via investor relations. It may seem a small point of process, but granting shareholders direct access to the senior independent director is a useful and important mechanism to ensure potential concerns can be raised and received. In France, face-to-face contact with independent members of the board is not standard process as shareholder engagement is not part of a director's legal duties and thus not necessarily required. We therefore see it is positive to have gained access to independent board members of our French holdings. Our meeting with Pernod's lead independent director was very helpful. However, we felt direct access would support shareholder engagement. We were pleased when the company advised us that it would implement our suggestion and the lead independent director's email address was circulated to shareholders. We see this as further progress from a company that is working to improve aspects of its governance processes and structures. We are currently feeding into the remuneration consultation ahead of the 2019 AGM. The company has tied more of the metrics in the annual bonus to its long-term strategy. We are considering whether the same approach could enhance the long-term incentive plan.



Ryanair Holdings plc The chief people officer visited our office, giving us the opportunity for an update on progress with employee negotiations following the company's decision to recognise trade unions last year. Negotiations with staff continue, with first stage agreements signed off across all markets and final agreements at varying stages of progress. We got his view on the events that caused the rostering issue last year which impacted 400,000 customers after flights were cancelled. The chief people officer was confident that the lessons on talent within key management positions and operational controls had been acted upon. Continued consolidation of the market, the new corporate structure with Michael O'Leary as group CEO, the impact of any further delays to the approval of the Boeing 737 max planes by the regulator and the options package which was granted to the CEO and members of the board were also discussed during the meeting. Our next engagement with the business is scheduled for August in Dublin where we are joining members of the Investor Forum to meet the senior independent director and chair of the remuneration committee. We will be meeting the CFO separately and are pleased that shareholders will have independent access to members of the board. Key topics will be the succession progress of the chairman and the senior independent director who are both stepping down in 2020, the rights attached to shares following Brexit, and employee relations.

Service Corporation International Ahead of the AGM we had a call with the company to discuss board refreshment and executive pay. There has been an effort in recent years to improve board tenure and diversity. However, there is still plenty of work to do. Directors have a long average tenure, with chairs of the audit and compensation committees serving 19 and 16 years respectfully. Furthermore, the lead independent director has been in place for 28 years. Reflecting our enthusiasm for fresh perspective and improved governance, we supported a shareholder resolution requesting the separation of chairman and CEO roles. On management remuneration, we checked that performance targets are aligned with our expectations. We were encouraged to hear that the board plans to implement a customer satisfaction review for future awards. We think this is important to incentivise customer centric behaviour. We have a call in August with the chair of the nomination and governance committee to develop our discussions on governance practices.

Stericycle, Inc. We have had several interactions with the company over the past 18 months, focusing on composition of the board and senior management. Both have been refreshed over this period. This quarter we had a call with a member of the compensation committee to discuss the executive remuneration plan. We have previously voted against the annual pay resolution over concerns that management's incentives were not aligned with shareholders' interests. On the call, we outlined our preference for extending the performance period attached to equity incentives from one to three years. We also advised the committee to adopt metrics which measure performance consistent with the fundamental drivers for the Stericycle's business, including the use of a customer satisfaction target which we see as important for focusing management's behaviour. Overall, we are encouraged by the enhancements made to the company's governance provisions and will maintain an ongoing dialogue to monitor their application.

Sysmex Corporation We had a call with IR at Sysmex to understand more about the company's approach to measuring and reporting the positive impact of its products. Its CSR reporting is already extensive and market leading, but it is now looking at how best to incorporate data relating to the impact of the business.

Tesla, Inc. Ahead of the AGM, we had a call with Chairwoman Robyn Denholm. We discussed the addition of new independent directors Larry Ellison and Kathleen Wilson-Thompson to the board. Wilson-Thompson is an executive at Walgreens, with an extensive career in human resources. She will focus on culture and talent management. Ellison is an accomplished entrepreneur and will serve as a mentor for CEO Musk, advising how to grow Tesla's business. Board refreshment is ongoing and additional directors with manufacturing and financial expertise are considered desirable. We were encouraged to learn that Denholm also plans to develop Tesla's governance practices in line with the company's status as a more mature business. We also provided constructive feedback on confusing market statements regarding the company's retail stores, vehicle pricing and capital requirements. The board is acutely aware of the need to do better in this area and are working on improved coordination of future communications. Denholm invited us to engage later in the year for more detailed discussion on her plans for Tesla's corporate governance. She is interested in our views and we look forward to continuing our dialogue.

Voting Report for the quarter ended 30 June 2019 23

Votes Cast in Favour

Company Meeting Details Resolution(s) Voting Rationale

Amazon.com Annual 22/05/19

11 We supported a shareholder proposal requesting that the company produce enhanced disclosure on their approach to managing carbon emissions and addressing climate change.


13 We supported a shareholder proposal requesting that the company produce enhanced disclosure on gender pay disparities across their business.

Facebook Annual 30/05/19

10 We supported a shareholder proposal requesting the company produce enhanced disclosure on gender pay disparities across their business.


7 We supported a shareholder resolution requesting the introduction of a majority voting standard for director elections.

MasterCard Annual 25/06/19

4 We supported a shareholder resolution requesting a report on the company's gender pay gap.

Service Corp.Intl. Annual 08/05/19

4 We supported a shareholder resolution requesting an independent board chairman as we think it is in shareholders' best interests.

Companies Voting Rationale

AIA Group, AJ Gallagher & Co, Advantest Corp, Albemarle, Alnylam Pharmaceuticals, Amazon.com, Anthem Inc, Apache, Atlas Copco B, B3 S.A., Bank of Ireland (Dublin), Brilliance China Automotive, Bureau Veritas, CRH, Chegg, Chipotle Mexican Grill, Deutsche Boerse, EOG Resources, Epiroc B, Facebook, Fairfax Financial Holdings, Fiat Chrysler Automobiles, First Republic Bank, GrubHub Inc, Howard Hughes, Interactive Brokers Group, Jardine Matheson, Just Eat, Kirby, LendingTree, MS&AD Insurance, Mail.ru Group GDR, Markel, MarketAxess Holdings, Martin Marietta Materials, MasterCard, Meituan Dianping, Moody's, Netflix Inc, Novocure Ltd, Now Inc, Olympus, Persol Holdings, Ping An Insurance, Prudential, Ritchie Bros Auctioneers (USA), Royal Caribbean Cruises, SAP, SMC, Sands China, Sberbank Spon ADR, Schibsted, Schibsted B, Seattle Genetics, Service Corp.Intl., Shopify 'A', Signify NV, SiteOne Landscape Supply, Spotify Technology SA, Stericycle, Sumitomo Mitsui Trust, TSMC ADR, Teradyne, Tesla Inc, Thermo Fisher Scientific, Tsingtao Brewery 'H', Verisk Analytics, Wabtec, Waters

We voted in favour of routine proposals at the aforementioned meeting(s).

Votes Cast Against



10 We opposed a shareholder proposal requesting a report on sexual harassment which we believed was too prescriptive.


12 We opposed a shareholder proposal which requested a directors' qualification matrix which we believed was too prescriptive.




14 We opposed a shareholder proposal to assess the feasibility of including sustainability as a performance measure within executive compensation which we believed was too prescriptive.


15 We opposed a shareholder proposal which requested vote counting to exclude abstentions which we believed was too prescriptive.


4 We opposed a shareholder proposal requesting a report on the management of food waste which we believed was too prescriptive.


5 We opposed a shareholder proposal requesting a reduction in the ownership threshold to call a special meeting as we are comfortable with the current approach at the company.


6 We opposed a shareholder proposal requesting to prohibit sales of facial recognition technologies to government agencies which we believed was too prescriptive.


7 We opposed a shareholder proposal requesting a report on the impact of the government use of facial recognition technology which we believed was too prescriptive.


8 We opposed a shareholder proposal requesting a report on products which promote hate speech which we believed was too prescriptive.


9 We opposed a shareholder proposal requesting an independent board chairman as we are comfortable with the current approach at the company.

Anthem Inc Annual 15/05/19

5 We opposed a shareholder resolution to declassify the board as the company has put forward its own resolution and already has adequate provisions in place.

B3 S.A. AGM 29/04/19

14 We opposed a proposal to confer our votes on unknown fiscal council members should the slate of fiscal council members change.

B3 S.A. AGM 29/04/19

6 We opposed a proposal to confer our votes on unknown directors should the slate of directors change.

CRH AGM 25/04/19

3 We opposed the executive remuneration report and policy as we do not believe the performance conditions are sufficiently stretching.

CRH AGM 25/04/19

4 We opposed the executive remuneration report and policy as we do not believe the performance conditions are sufficiently

CRH AGM 25/04/19

9 We opposed the resolution which sought authority to issue equity because we believe the potential level of issuance is not in the interests of shareholders.


5, 6, 8, 9, 11, 12

We opposed six shareholder resolutions regarding changes to the dual-class share structure, an independent board chairman, diversity reporting and long-term strategy. We did not consider these proposals to be in shareholders' best interests.



Kirby Annual 30/04/19

1b We opposed the executive compensation and the re-election of the Compensation Committee Chairman due to the award of a large one-off payment to the board Chairman which we do not believe was appropriate or aligned with shareholders' interests.

Kirby Annual 30/04/19

3 We opposed the executive compensation and the re-election of the Compensation Committee Chairman due to the award of a large one-off payment to the board Chairman. We do not believe this award was appropriate or aligned with shareholders' interests.

MasterCard Annual 25/06/19

5 We opposed a shareholder resolution to establish a human rights committee as believe it to be unnecessary.

Netflix Inc Annual 06/06/19

4, 5 We opposed two shareholder resolutions requesting a report on political contributions and elimination of supermajority voting requirements as we believe the company's current provisions are appropriate.

Royal Caribbean Cruises Annual 30/05/19

2 We opposed the executive compensation policy as the company granted retention awards during the year which we do not believe are aligned with shareholders' best interests.

Royal Caribbean Cruises Annual 30/05/19

4 We opposed a shareholder resolution requesting political contributions disclosure as we believe the company's current policy is satisfactory.

Sands China AGM 24/05/19

8 We opposed a resolution to approve the new equity incentive scheme due to a lack of performance conditions.

Schibsted AGM 03/05/19

8.A, 8.B We opposed two resolutions regarding remuneration as we have concerns about the stringency of the policy and its alignment with shareholders.

Schibsted B AGM 03/05/19

8.A, 8.B We opposed two resolutions regarding remuneration as we have concerns about the stringency of the policy and its alignment with shareholders.

Seattle Genetics Annual 20/05/19

4 We opposed executive compensation due to a large increase in the CEO's pay during the year.

Stericycle Annual 22/05/19

4 We opposed a shareholder resolution to amend the threshold for calling a special meeting as we consider the current provisions appropriate.

Tesla Inc Annual 11/06/19

7, 8 We opposed two shareholder resolutions regarding a public policy committee and elimination of supermajority voting requirements as we considered them to be unnecessary.

Thermo Fisher Scientific Annual 22/05/19

2 We opposed executive compensation as we have concerns regarding the structure of the long-term incentive plan and overall quantum awarded.

Verisk Analytics Annual 15/05/19

2 We opposed the vote on executive compensation as we do not believe the targets in the long term incentive plan are sufficiently stretching,


Companies Voting Rationale

AJ Gallagher & Co, Waters We opposed the executive compensation policy as we do not believe the performance conditions are sufficiently stretching

SMC We opposed the low dividend payment as we believe the company's capital strategy is not in the interests of shareholders.

Bureau Veritas We opposed the resolution which sought authority to issue equity because the potential dilution levels are not in the interests of shareholders.

Votes Abstained


Albemarle Annual 07/05/19

1 We abstained on the executive compensation policy as we do not believe the performance conditions are sufficiently stretching.

Persol Holdings AGM 25/06/19

2.1 We abstained on the company's President given less than one third of the Board is made up of independent outsiders.

Sberbank Spon ADR AGM 24/05/19

5.3, 5.5-5.7, 5.11, 5.12, 5.14

We withheld support from seven non-independent directors and voted in favour of the election of six independent non-executive directors and the Chief Executive. Since the election of the directors was held by cumulative voting, we were able to concentrate our votes on the independent non-executive directors, increasing the likelihood that they will be elected to the board.

SMC AGM 27/06/19

2.1, 2.7, 2.8 We abstained on the company's Chairman and two new inside directors given less than one third of the Board is made up of independent outsiders.

Votes Withheld We did not withhold on any resolutions during the period.

Summary Transaction Listing Report for the quarter ended 30 June 2019 27

No Data To Report

Costs and Charges Report for the quarter ended 30 June 2019 28

Some of the information on this page is confidential and is therefore not for public disclosure.

Invoiced Fees

(%) (£)

Baillie Gifford Global Alpha Growth Fund C Acc 0.28 182,500 These are reported on an ‘invoiced basis and not on an accrual basis. Therefore, the fees incurred relate to a prior quarter. If you are invested in a Life Company

Pension Fund this may include provision for custody charges. This also includes VAT if applicable.

Fees Paid from NAV and Explicit Transaction Costs

Fees Paid from NAV (%) Explicit Transaction Costs (%)

Manager’s Fees

Expenses

Custody Transaction

Fee

Total

Other Indirect

Fees

Transaction Taxes

Broker Commissions

Baillie Gifford Global Alpha Growth Fund C Acc 0.00 0.03 0.00 0.03 0.00 0.02 0.02 If Manager’s Fee is not charged within the Pooled Fund’s NAV and is invoiced and paid separately the above table will reflect a value of 0.00%.

As a signatory to the Local Government Pension Scheme (LGPS) Investment Code of Transparency ('Code'), we are required to provide you with information on costs and charges annually through the prescribed template. The Code's costs and charges requirements are closely aligned with that of Europe's Markets in Financial Instruments Directive II (MiFID II). As such and to ensure consistency with the information you will receive annually, the costs above have been calculated in accordance with MiFID II guidance available at the time of this report.

Fees Paid from NAV and Explicit Transaction Costs are disclosed as a % of the Pooled Fund(s) on a historical rolling 12 month basis and will only include Pooled Fund(s) held at the end of the quarter. These have been rounded to the nearest two decimal places. For a Pooled Fund that has not been in existence for at least a year, we will be reflecting actual incurred explicit transaction costs during the relevant period as opposed to annualised costs.

Invoiced Fees comprise all income derived by the manager except performance fee, if any, that is invoiced to the client and not deducted from the value of the Pooled Fund(s).

Manager's Fees represent the standard annual investment management fee for the Pooled Fund(s) listed and may not represent the fee actually paid by you. Please refer to either your Terms & Conditions or Management Agreement, as applicable.

Expenses include, but are not limited to, depositary fees, custody safe keeping fees, professional fees (e.g. audit fees) and relevant expenses deducted from the net asset values of holdings of other open-ended pooled funds (indirect fees). MiFID II requires the inclusion of indirect fees for all investment products. Some of the companies which we identify as investment companies - rather than investment products - also produce cost disclosures. Although we view these expenses in the same category as expenses incurred by any listed company - rather than investment management costs, where these investment companies disclose costs we have included these in Fees Paid from NAV in the interest of transparency.

Custody Transaction Fees are charged by the custodian for transacting in a market. These flat fees vary by market being transacted. Please note these are different from the custody safe keeping fees, which are charged on a monthly basis and are included in Expenses.

Total is the sum of Manager's Fees, Expenses, and Custody Transaction Fees set out above. The investments held by the Pooled Fund(s) change from time to time and so the figure quoted is an estimate based on the latest available data and asset allocation.

Other Indirect Fees are expenses of investment companies that have not been included in Expenses.

Explicit Transaction Costs (Transaction Taxes and Broker Commissions) arise when buying or selling stocks in the market. Buying or selling of stocks may result from: individual stock considerations, portfolio changes due to broader implementation of Baillie Gifford's investment policy and from both investment inflows and outflows from the Pooled Fund(s). When the Pooled Fund(s) buys or sells investments in response to investment inflows and outflows an estimate of the Transaction Costs is passed onto the incoming/outgoing investor through the pricing mechanism by means of a dilution adjustment.

A more detailed Costs & Charges disclosure is available upon request.

Equity Trading Analysis Report for the quarter ended 30 June 2019 29



Counterparty Trading Analysis


Transactions Commissions Paid Estimated Split of Commission

(%) (GBP) Execution (GBP) Research (GBP)

Counterparty* Value

(GBP)

Net Negotiated

Rate

Other

Rates

Total

Paid

Negotiated

Rate

Other

Rates

Retained

by Broker

Paid to

3rd Parties

Retained

by Broker

Paid to

3rd Parties

1 42,260,249 0.0 0.0 100.0 11,671 0 11,671 11,671 0 0 0

2 37,875,428 0.0 0.0 100.0 18,938 0 18,938 18,938 0 0 0

3 34,324,116 0.0 0.0 100.0 7,497 0 7,497 7,497 0 0 0

4 32,248,596 0.0 0.0 100.0 16,124 0 16,124 16,124 0 0 0

5 30,666,496 0.0 0.0 100.0 9,612 0 9,612 9,612 0 0 0

6 28,680,795 0.0 0.0 100.0 5,736 0 5,736 5,736 0 0 0

7 26,691,152 0.0 0.0 100.0 13,346 0 13,346 13,346 0 0 0

8 20,781,201 0.0 0.0 100.0 12,467 0 12,467 12,467 0 0 0

9 20,494,762 0.0 0.0 100.0 10,247 0 10,247 10,247 0 0 0

10 20,487,687 0.0 0.0 100.0 10,244 0 10,244 10,244 0 0 0

11 81,621,977 0.0 0.0 100.0 31,899 0 31,899 31,899 0 0 0

Total 376,132,459 0.0 0.0 100.0 147,781 0 147,781 147,781 0 0 0

*The details of counterparties used during the period may be provided upon request.

Firm-Wide Comparators

Transactions Commissions Paid Estimated Split of Commission

(%) (%) Execution (%) Research (%)

Value

(%)

Net Negotiated

Rate

Other

Rates

Total

Paid

Negotiated

Rate

Other

Rates

Retained

by Broker

Paid to

3rd Parties

Retained

by Broker

Paid to

3rd Parties

Baillie Gifford Global Alpha

Growth Fund 100.0 0.0 0.0 100.0 100.0 0.0 100.0 100.0 0.0 0.0 0.0

BG Average * 100.0 5.0 0.0 95.0 100.0 0.0 100.0 100.0 0.0 0.0 0.0

Baillie Gifford Global Alpha Growth Fund Average Commission Rate 0.0393 %

BG Average * 0.0393 %

Total commission paid as a percentage of the value of the fund 0.0035 %

* Based on all global equity trading conducted with counterparties by Baillie Gifford.

Non-Equity Trading Analysis Report for the quarter ended 30 June 2019 30



Direct Currency Transactions

Counterparty Spot Transaction Value* (GBP)

Forward Transaction Value (GBP)

Total (GBP)

Bank of New York Mellon (Custodian) 36,759,335 0 36,759,335

National Australia Bank 23,134,277 0 23,134,277

Northern Trust Company 22,649,625 0 22,649,625

State Street Bank 12,272,474 0 12,272,474

Brown Brothers Harriman 8,698,837 0 8,698,837

RBC Investor Services 5,700,418 0 5,700,418

Total 109,214,966 0 109,214,966

*Foreign exchange trading is on net basis; no commission paid.

IA Disclosure Report for the quarter ended 30 June 2019 31

IA Pension Fund Disclosure Code

(Third Edition) The Pension Fund Disclosure Code was first adopted in May 2002 and was drawn up by a Joint Working Party of

Members of the Investment Association (IA) and the National Association of Pension Funds (NAPF). The purpose of the Code is to promote accountability of fund managers to their clients through increased transparency and to assist

clients in their understanding of the charges and costs levied on the fund assets for which they have responsibility.

Under the Code, fund managers are required to provide clients with information on how they make choices between trading counterparties and trading venues, more detailed information on how the resulting commission spend is built up, and what services are met out of commission spend, in particular such execution and research services as are permitted by the Financial Conduct Authority (FCA). It also provides a comparison of client specific information on

costs and trading with similar firm-wide information.

Although the Code was initially drawn up with pension funds in mind, we provide the disclosures for all our clients in

compliance with relevant regulatory requirements.

There are two distinct types of disclosure required by the Code:-

Level 1 requires disclosure of Baillie Gifford’s policies, processes and procedures in relation to the management of trading costs incurred on behalf of clients. This disclosure is provided annually to clients and is called the “Trading

Procedures and Control Processes” document. This document is also available on request.

Level 2 requires client specific information to be provided and is contained within this quarterly report. Level 2 aims to provide comprehensive, clear and standardised disclosure of information from which clients and their advisers can compare and monitor trading costs incurred during the fund management process and the services received in exchange for these commissions.

We have included disclosure of transactions and commissions for Equities, Bonds, Currencies and Derivatives, where relevant.

Broker Commission This page gives information by geographic region on the commission paid by the fund on all commission bearing

transactions in directly held equities.

Equity Trading Analysis and

Commissions

The trading and commissions analysis on the previous pages represents trading and commissions incurred by the fund over the quarter. Portfolio transactions are analysed by counterparty and type of trade. Transactions listed under “Other Rates” include programme trades, direct market access or algorithmic trades where commission rates may be lower. Commissions have been shown by counterparty where the fund holds stocks directly and relate to the purchase of execution only (no payment for research services). Where the fund gains exposure to equities via Open Ended Investment Companies (OEICs), transactions and commission analysis have been provided at the total fund level. A full disaggregation by counterparty for each of these funds is available on request. Where relevant, the

proportion of commissions paid under directed or recapture arrangements is also shown.

The fund’s analysis of transactions and commissions paid is compared with Baillie Gifford’s total transactions and commissions paid across all trading in the same asset classes. The fund’s average commission rate is compared with Baillie Gifford’s average commission rate across all trading in the same asset classes. A similar analysis for OEIC

holdings is shown, at the total fund level.

Non-Equity Trading Analysis

The trading report for bonds shows trading volume by the fund over the quarter, analysed by counterparty. As all trades are executed on a net basis, no commission figures are available. Where derivative transactions are permitted, and executed, these are analysed by counterparty (executing broker) and show market value, underlying exposure and (execution) commission. Where the fund gains exposure to bonds via OEICs, transaction volume by

counterparty, is available for each of these funds on request.

All foreign exchange activity, for the entire portfolio is analysed by counterparty, distinguishing between spot and forward transactions. As all trades are executed on a net basis, no commission figures are available. Where the fund gains exposure to markets via OEICs, currency transaction volume by counterparty, is available for each of these

funds on request.

Income and Costs Summary This shows costs deducted from the fund on an actual basis. Fund management fees and VAT are included during the period when the invoice is raised. Custody costs are included when the sum is debited from the funds managed

by Baillie Gifford.

Any holdings of in-house pooled funds are shown together with their total expenses on a rolling yearly basis, expressed as a percentage of fund value. Expenses include broker commission on transactions dealt within the fund, bank charges, audit, registrar, depository and Regulatory fees. Any tax paid by the fund is not included. For A and B

class OEIC shares investment management fees are also included.

A dilution levy may also be charged on OEIC purchases and sales in the case of large transactions.

If the portfolio has a holding in a stock that is not covered by the code, such as third party funds or investment trusts, this is also shown.

Important Note - In view of the new disclosure requirements introduced by MiFID II, the IA has withdrawn the Code effective 3 January 2018. MiFID II requires new disclosures setting out how asset managers and AFMs achieve best execution for their clients. These disclosures are considerably more detailed than the existing order execution policies in the Code (“level one” disclosures). We intend to phase out the existing disclosures (as currently included in your quarterly report) and replace with revised disclosures. A more detailed Costs & Charges disclosure is available on request.

Valuation Report for the quarter ended 30 June 2019 32

Asset Name Nominal Holding

Market Price

Book Cost (GBP)

Market Value (GBP)

Fund (%)

Equities

Baillie Gifford Global Alpha Growth Fund C Acc

75,486,474.835 GBP 3.34 220,737,550 252,124,826 100.0

Total Equities 220,737,550 252,124,826 100.0

Total 220,737,550 252,124,826 100.0

Valuation of securities Holdings in Baillie Gifford Pooled Funds are valued at month end using a single price which reflects closing prices of the underlying assets in the funds. This month end price may differ from the price used for transactions in the funds which is calculated daily at 10am and uses intra-day prices. This provides a consistent basis for reporting.

Fund Reconciliation Report for the quarter ended 30 June 2019 33

Market Value 31 March 2019

(GBP)

Net Investment/ Disinvestment

(GBP)

Capital Gain/Loss

(GBP)

Market Value 30 June 2019

(GBP)

Equities

Baillie Gifford Global Alpha Growth Fund C Acc

234,460,991 0 17,663,835 252,124,826

Total Equities 234,460,991 0 17,663,835 252,124,826

Total 234,460,991 0 17,663,835 252,124,826

(GBP) Book Cost (GBP)

Market Value (GBP)

As at 31 March 2019

Equities 220,737,549.70 234,460,990.84

220,737,549.70 234,460,990.84

Change in Market Value of Investments 0.00 17,663,835.11

As at 30 June 2019 220,737,549.70 252,124,825.95

Of which:

Equities 220,737,549.70 252,124,825.95

Total 220,737,549.70 252,124,825.95

Legal Notices Report for the quarter ended 30 June 2019 34

Holdings Information Please note the fund portfolio information contained within this report is confidential, proprietary information and should be maintained as such and not disseminated. The content is intended for information purposes only and should not be disclosed to other third parties or used for the purposes of market timing or seeking to gain an unfair advantage

MSCI Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or re-disseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an "as is" basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the "MSCI Parties") expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages.

(www.msci.com)

FTSE Source: London Stock Exchange Group plc and its group undertakings (collectively, the "LSE Group"). © LSE Group 2019. FTSE Russell is a trading name of certain of the LSE Group companies. ["FTSE","Russell"] are a trade mark(s) of the relevant LSE Group companies and are used by any other LSE Group company under license. "TMX®" is a trade mark of TSX, Inc. and used by the LSE Group under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company's express written consent.

The LSE Group does not promote, sponsor or endorse the content of this communication.

Report Recipients Report for the quarter ended 30 June 2019 35

The report has been issued to the following recipients: Email

Recipient Organisation

Mr Scott Douglas Northern Trust

Ms Deborah Robinson Royal Borough of Kensington and Chelsea

Ms Yvonne Tompson-Hoyte Royal Borough of Kensington and Chelsea

Hard Copy

There are no hard copy recipients

Please notify the Administrator Contact (detailed on the contents page) if any of the above recipient details have changed.

BAILLIE GIFFORD - RBKC

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