Global Alpha Quarterly Strategy Update

BAILLIE GIFFORD

Global Alpha Quarterly Update

30 June 2021

Contents 02 Executive Summary Baillie Gifford Investment Management (Europe) Limited 03 Commentary is a wholly owned subsidiary of Baillie Gifford Overseas Limited, which is wholly owned by Baillie Gifford & Co. 06 Performance Persons resident or domiciled outwith the UK should 12 Portfolio Overview consult with their professional advisers as to whether they require any governmental or other consents in order to enable 13 Governance Summary them to invest, and with their tax advisers for advice relevant to 15 Governance Engagement their own particular circumstances. This document contains information on investments which 19 Voting does not constitute independent research. Accordingly, it is not 20 Transaction Notes subject to the protections afforded to independent research and Baillie Gifford and its staff may have dealt in the investments 21 Legal Notices concerned. All information is based on a representative portfolio, new client portfolios may not mirror the representative portfolio This document is solely for the use of professional exactly. As at 30 June 2021, in US dollars and sourced from investors and should not be relied upon by any other Baillie Gifford & Co unless otherwise stated. person. It is not intended for use by retail clients. Canada Important Information and Risk Factors Baillie Gifford International LLC is wholly owned by Baillie Baillie Gifford Overseas Limited provides investment Gifford Overseas Limited; it was formed in Delaware in 2005 management and advisory services to non-UK and is registered with the SEC. It is the legal entity through Professional/Institutional clients only. Baillie Gifford Overseas which Baillie Gifford Overseas Limited provides client service Limited is wholly owned by Baillie Gifford & Co. Baillie and marketing functions in North America. Baillie Gifford Gifford & Co and Baillie Gifford Overseas Limited are Overseas Limited is registered with the SEC in the United authorised and regulated by the Financial Conduct Authority. States of America. Baillie Gifford Asia (Hong Kong) Limited The Manager is not resident in Canada, its head office and 柏基亞洲(香港)有限公司 is wholly owned by Baillie Gifford principal place of business is in Edinburgh, Scotland. Baillie Overseas Limited and holds a Type 1 and Type 2 licence from Gifford Overseas Limited is regulated in Canada as a portfolio the Securities & Futures Commission of Hong Kong to market manager and exempt market dealer with the Ontario Securities and distribute Baillie Gifford’s range of collective investment Commission ('OSC'). Its portfolio manager licence is currently schemes to professional investors in Hong Kong. Baillie passported into Alberta, Quebec, Saskatchewan, Manitoba and Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 Newfoundland & Labrador whereas the exempt market dealer can be contacted at Suites 2713-2715, Two International licence is passported across all Canadian provinces and Finance Centre, 8 Finance Street, Central, Hong Kong, territories. Baillie Gifford International LLC is regulated by the Telephone +852 3756 5700. OSC as an exempt market and its licence is passported across Baillie Gifford Investment Management (Europe) Limited all Canadian provinces and territories. Baillie Gifford provides investment management and advisory services to Investment Management (Europe) Limited (‘BGE’) relies on European (excluding UK) clients. It was incorporated in the International Investment Fund Manager Exemption in the Ireland in May 2018 and is authorised by the Central Bank of provinces of Ontario and Quebec. Ireland. Through its MiFID passport, it has established Baillie Gifford Investment Management (Europe) Limited (Frankfurt South Africa Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in Baillie Gifford Overseas Limited is registered as a Foreign Germany. Similarly, it has established Baillie Gifford Financial Services Provider with the Financial Sector Conduct Investment Management (Europe) Limited (Amsterdam Authority in South Africa. Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in Japan The Netherlands. Baillie Gifford Investment Management (Europe) Limited Mitsubishi UFJ Baillie Gifford Asset Management Limited also has a representative office in Zurich, Switzerland pursuant (‘MUBGAM’) is a joint venture company between Mitsubishi to Art. 58 of the Federal Act on Financial Institutions UFJ Trust & Banking Corporation and Baillie Gifford ("FinIA"). It does not constitute a branch and therefore does Overseas Limited. MUBGAM is authorised and regulated by not have authority to commit Baillie Gifford Investment the Financial Conduct Authority. Management (Europe) Limited. It is the intention to ask for the authorisation by the Swiss Financial Market Supervisory South Korea Authority (FINMA) to maintain this representative office of a foreign asset manager of collective assets in Switzerland Baillie Gifford Overseas Limited is licensed with the Financial pursuant to the applicable transitional provisions of FinIA. Services Commission in South Korea as a cross border Calton Square, 1 Greenside Row, Edinburgh EH1 3AN Telephone +44 (0)131 275 2000 bailliegifford.com Copyright © Baillie Gifford & Co 2009. Ref: 53271 INS QR 0242

Discretionary Investment Manager and Non-Discretionary Israel Investment Adviser. Baillie Gifford Overseas is not licensed under Israel’s Australia Regulation of Investment Advising, Investment Marketing and Portfolio Management Law, 5755-1995 (the Advice Law) and Baillie Gifford Overseas Limited (ARBN 118 567 178) is does not carry insurance pursuant to the Advice Law. This registered as a foreign company under the Corporations Act document is only intended for those categories of Israeli 2001 (Cth) and holds Foreign Australian Financial Services residents who are qualified clients listed on the First Licence No 528911. This material is provided to you on the Addendum to the Advice Law. basis that you are a “wholesale client” within the meaning of section 761G of the Corporations Act 2001 (Cth) (“Corporations Act”). Please advise Baillie Gifford Overseas Limited immediately if you are not a wholesale client. In no Past Performance circumstances may this document be made available to a “retail client” within the meaning of section 761G of the Corporations Past performance is not a guide to future returns. Changes in Act. This material contains general information only. It does investment strategies, contributions or withdrawals may not take into account any person’s objectives, financial materially alter the performance and results of the portfolio. situation or needs. Potential for Profit and Loss Qatar All investment strategies have the potential for profit and loss. The materials contained herein are not intended to constitute an Stock Examples offer or provision of investment management, investment and advisory services or other financial services under the laws of Any stock examples, or images, used in this paper are not Qatar. The services have not been and will not be authorised by intended to represent recommendations to buy or sell, neither is the Qatar Financial Markets Authority, the Qatar Financial it implied that they will prove profitable in the future. It is not Centre Regulatory Authority or the Qatar Central Bank in known whether they will feature in any future portfolio accordance with their regulations or any other regulations in produced by us. Any individual examples will represent only a Qatar. small part of the overall portfolio and are inserted purely to help illustrate our investment style. A full list of portfolio Oman holdings is available on request. Baillie Gifford Overseas Limited (“BGO”) neither has a registered business presence nor a representative office in Oman and does not undertake banking business or provide financial services in Oman. Consequently, BGO is not regulated by either the Central Bank of Oman or Oman’s Capital Market Authority. No authorization, licence or approval has been received from the Capital Market Authority of Oman or any other regulatory authority in Oman, to provide such advice or service within Oman. BGO does not solicit business in Oman and does not market, offer, sell or distribute any financial or investment products or services in Oman and no subscription to any securities, products or financial services may or will be consummated within Oman. The recipient of this document represents that it is a financial institution or a sophisticated investor (as described in Article 139 of the Executive Regulations of the Capital Market Law) and that its officers/employees have such experience in business and financial matters that they are capable of evaluating the merits and risks of investments.

Product Overview Global Alpha is a long-term, diversified, global equity strategy selecting growth stocks on a bottom up basis with a focus on fundamental analysis. The strategy combines the specialised knowledge of Baillie Gifford’s investment teams with the experience of some of our most senior investors.

Risk Analysis Key Statistics Number of Holdings 103 Typical Number of Holdings 70-120 Active Share 85%* Rolling One Year Turnover 17%

*Relative to MSCI AC World Index. Source: Baillie Gifford & Co, MSCI.

Structural forces are increasingly gaining traction over cyclical factors, such that historical reference points may no longer be relevant

The portfolio has increased its exposure to different types of online retail, where capital investment in logistics looks set to establish long-duration competitive advantages We have modestly reduced the weighting to some of the `big tech' platforms that have dominated returns in recent years. This reflects our view that returns are likely to be more diverse going forwards

Baillie Gifford Key Facts Assets under management and advice US$486.8bn Number of clients 730 Number of employees 1488 Number of investment professionals 300

Commentary 03

A hundred years ago, the world was emerging from the trauma of the First World War and the influenza pandemic which followed. Societies in North America and Europe proved keen to put these years of hardship behind them and embrace a future with greater social freedoms and wonderous new technologies. Exponential growth in the deployment and availability of cars, telephones, films, radio and electrical goods fundamentally changed how people travelled, communicated, entertained themselves and stored food. Advances in medical practices, developed rapidly in response to the human carnage on the battlefield, meant decades of healthcare progress were compressed into a few years. The future shone with promise. Although not on the same scale as events a century ago, might the recovery from the more recent pandemic, gradual and uneven though it is, trigger a similar sense of liberation and possibility? New technologies are changing the fabric of our economy and consumers appear eager to enjoy new freedoms. With the MSCI ACWI index having risen dramatically from its lows last March, stock markets around the world seem to be suggesting a period of champagne-fuelled optimism lies ahead. But are investors really poised to enjoy a 21st century re-run of the roaring 20s? While the recovery in markets over the last 15 months has been stark, it has also been somewhat uneven. Although this has lessened more recently, growth companies have benefitted disproportionately from the recovery, continuing a broad trend of outperformance over more value orientated parts of the index which has now persisted for years. For many market commentators, this situation presages a long overdue ‘reversion to the mean’. ‘Growth’ and ‘Value’ are typically seen as two ends of a spectrum and the market environment has often been thought of as a pendulum swinging between these two extremes. After a period in which growth companies had done well, valuation measures were likely to have diverged from their long-term averages and the pendulum could be relied upon to swing back again to correct this anomaly. However, in our vision of the roaring 20s, structural forces across increasingly wide areas of our economy are now starting to dominate over cyclical factors, the landscape of industries is being permanently © Jim West/Alamy Stock Photo. altered and historical reference points may no longer be relevant.

Commentary 04

This relentless organic evolution has been particularly +17) is strong evidence of the transformative nature of prominent in the area of retail. Ecommerce penetration this offering. In each of these examples there is no has risen inexorably over the last 20 years, before being reversion to the mean. We are not returning to a world super-charged by the recent enforced periods of domestic where individuals shop for vinyl records on the high confinement. This trend is seemingly well understood street, nor one where they are forced to pick from a and is not, therefore, insight. However, looking at the limited selection of furniture before trying to fit a table average level of ecommerce penetration as a percentage into their car to get it home. of total retail spending hides enormous dispersion In contrast to retail, the automobile industry still between different categories and we believe that huge reflects the contours which were developed a century opportunities remain. Amazon has done a fantastic job of ago. An industry based on the mass-production of cars changing the way we shop for many items. The company powered by the internal combustion engine would be has invested huge amounts of capital, continually instantly recognisable to Henry Ford. While the rest of deepening its advantages of lower prices, wider choice the industry has reacted with various stages of dismissal, and greater convenience, all underpinned by an mockery, anger and finally fear, Tesla has almost single- unrivalled logistics capability. This logistics expertise, handedly delivered a vision of a very different future. however, is not all encompassing. It relies on fulfilment To complement the portfolios exposure to Tesla, we have centres and delivering things that can be neatly shipped in also taken a new holding in Chinese electric vehicle (EV) boxes. Not all items we now order on our phones can be manufacturer, Li Auto. Wikipedia lists 85 EV brands delivered in this way. You can’t post a pizza. in China (which is probably a very significant We believe there are a number of different categories undercounting), but we believe that only a very small of online spending which require a dedicated and number of these truly understand the radical implications specialist logistics capability to support them. Companies of an electric, and almost certainly autonomous, future. which have spent years building out the required The transition to EVs isn’t merely about swapping out the capabilities may well enjoy long-duration, Amazon-esque engine. More importantly, it marks the shift from a competitive advantages in their respective categories, as functional product to a smart one, analogous to the shift well as the potential for rising profitability as they from a functional mobile phone to a smartphone. Software increase utilisation. Earlier this year we added to the will be fundamental to the quality of the product and in portfolio, Doordash, the food delivery platform, which turn it will transform the value-chain. We have met CEO we believe fits this hypothesis. More recently we have Li Xiang on several occasions and understand their culture also increased the portfolios investment in online to be both pragmatic and innovative, qualities which are furniture retailer Wayfair. Our conviction in the upside likely to prove valuable as the EV revolution continues. opportunity here has increased as Wayfair continues to More quietly humming than roaring 20s. evolve and is no longer just an online retailer of home One source of funding for these purchases has been a furnishings. It is an online home retailer, utilising its small reduction in the portfolios holding in Amazon. scale and logistics expertise to improve the structural While we retain enormous respect for this business, we operations of the market overall; from inbound and consider that the sheer scale of previous success, as well outbound logistics and ocean freight, to providing tools as the handing over of the CEO role from visionary for suppliers to better showcase their products. More founder Jeff Bezos to successor Andy Jassy, has reduced efficient suppliers and operations means lower costs for the probability of outlier returns from here. A smaller Wayfair, leading to a better customer experience, an holding size is therefore appropriate. We have also made increased likelihood of repeat purchasing and the a complete sale of the holding in SoftBank. Having only establishment of Wayfair as the starting point in shopping purchased the business in February of last year, this for the home. In financial terms this means strong represents an unusually short holding period for Global revenue growth, improvements in cost structure and Alpha. The investment case was based on two rising margins. We have also purchased a new holding in interconnected factors: a change in management attitudes Carvana, the US online used car retailer. The investment (investing at the right point in the ‘hubris cycle’) and the case is similar: a company offering the simple ‘one-click’ potential for a narrowing of the discount to the value of buying experience consumers have come to expect, the the underlying holdings, dominated by the stake in widest selection of vehicles, reliable quality, low prices Chinese ecommerce giant, Alibaba. These factors have and convenient, speedy delivery. largely played out as we might have hoped, with CEO In an industry that some see as notorious for cheap suits Masayoshi Son having initially focused on realising the and hard sell tactics, Carvana’s extraordinary net value of companies in the portfolio, returning cash to promoter score of +82 (the next best in the industry is shareholders, hence narrowing the discount. However,

Commentary 05

as the incentive towards discipline created at the start performance. In his excellent book The Psychology of of the pandemic has dissipated, we have started to see Money, Morgan Housel suggests that volatility should be questions return with regards to the quality of the thought of as a fee, rather than a fine. While fines are to corporate governance at SoftBank. With our ability to be avoided and are only payable by those who get caught engage meaningfully with the company on this topic doing something wrong, a fee is simply the cost of limited and the discount at the point of sale substantially accessing something worthwhile. In this case, volatility, smaller than when we first invested, we have decided and the associated behavioural challenges it brings, are a to move on. The effect of these sales, coupled with natural part of long-term investing. Trying to avoid reductions to the holdings in Alphabet and Tesla earlier experiencing volatility is likely to translate into a lack of this year, is a slight flattening of the portfolio. This ambition and the erosion of future returns. reflects a recycling of capital into companies which we With the portfolio having had a somewhat exceptional believe are earlier in the lifecycle of their growth and period of performance since the onset of the pandemic, it consistent with our hypothesis, as outlined in our letter is quite possible that this reverses for a period. If this is to you last quarter, that there may be a more diverse the case, we will not let this distract us from our core task collection of stock market ‘winners’ than we have seen of the identification and patient, engaged ownership of over recent years. great businesses. The greater risk to the portfolio is not that value has a sustained period of outperformance over Outlook growth, or that our style of investing goes out of favour for a while. It is, as one of our colleagues at Baillie Our investment time horizon is five years and beyond. Gifford put it, that we fall prey to the perennial temptation Regardless of our enthusiasm for any individual holding of ‘distraction through seeking minor opportunities in or conviction in the strength of the supporting trends banal companies over short periods’. We will continue to which provide a tailwind to their growth, we take no view seek out businesses that have the potential to reliably as to the direction of share prices over shorter periods. grow their earnings at attractive rates over long periods of Global Alpha takes a very open-minded approach to time and where this potential isn’t well understood by the growth investing. While the examples mentioned above market. The original roaring 20s was a time of optimism fit primarily into our Rapid Growth profile, the variety of and discovery, of progress and development fuelling a holdings across our Stalwart, Cyclical and Latent profiles spirit of exuberance. The Global Alpha team aspires to ensure the portfolio has a range of companies where this same spirit in our approach. If we achieve this, then growth is likely to be at least somewhat uncorrelated. we can look forward to the coming years with confidence. Beyond this omnivorous approach to identifying great growth companies, however, we do not attempt to deliver The views expressed reflect the personal opinion of the smooth author and should not be considered as advice or a recommendation to buy, sell or hold a particular investment.

Performance - US Dollar 06

Performance Objective +2% to 3% p.a. over rolling 5 year periods vs benchmark.

The performance objective stated is in no way guaranteed. The performance target is aspirational and is not used for the purpose of determining or constraining the composition of the portfolio. Performance may vary between segregated accounts and pooled funds in different jurisdictions as each structure will bear a different set of costs. A single performance target may not be appropriate for all vehicles in all jurisdictions and for this reason our portfolio specific materials will often refer to ‘material’ outperformance of a benchmark.

Periodic Performance

Composite Net (%) Benchmark (%) Difference (%) 3 Months* 7.3 7.5 -0.3 YTD* 10.5 12.6 -2.0 1 Year* 45.3 39.9 5.4 3 Years 20.2 15.1 5.1 5 Years 21.2 15.2 6.0 10 Years 13.8 10.5 3.4 15 Years 10.6 8.0 2.6 Since Inception 11.4 8.6 2.8

Annualised periods ended 30 June 2021. *Not annualised. Inception date: 31 May 2005. Figures may not sum due to rounding. Benchmark is MSCI AC World Index (MSCI World prior to 31 March 2008). Source: StatPro, MSCI. US dollars.

Discrete Performance

30/06/16- 30/06/17- 30/06/18- 30/06/19- 30/06/20- 30/06/17 30/06/18 30/06/19 30/06/20 30/06/21 Composite Net (%) 27.8 17.6 4.9 14.0 45.3 Benchmark (%) 19.4 11.3 6.3 2.6 39.9

Benchmark is MSCI AC World Index Source: StatPro, MSCI. US dollars.

Performance - Euro 07

Performance Objective +2% to 3% p.a. over rolling 5 year periods vs benchmark.

Periodic Performance

Composite Net (%) Benchmark (%) Difference (%) 3 Months* 6.3 6.6 -0.3 YTD* 14.0 16.1 -2.1 1 Year* 37.6 32.5 5.1 3 Years 19.6 14.5 5.1 5 Years 19.6 13.7 5.9 10 Years 16.2 12.7 3.4 15 Years 11.1 8.5 2.6 Since Inception 11.7 8.8 2.9

Discrete Performance

30/06/16- 30/06/17- 30/06/18- 30/06/19- 30/06/20- 30/06/17 30/06/18 30/06/19 30/06/20 30/06/21 Composite Net (%) 24.5 14.9 7.6 15.6 37.6 Benchmark (%) 16.3 8.7 9.0 4.1 32.5

Benchmark is MSCI AC World Index Source: StatPro, MSCI. euro

Performance - Sterling 08

Performance Objective +2% to 3% p.a. over rolling 5 year periods vs benchmark.

Periodic Performance

Composite Net (%) Benchmark (%) Difference (%) 3 Months* 7.1 7.4 -0.3 YTD* 9.4 11.4 -2.0 1 Year* 30.0 25.1 4.9 3 Years 18.4 13.4 5.0 5 Years 20.4 14.4 5.9 10 Years 15.6 12.2 3.4 15 Years 12.8 10.1 2.7 Since Inception 13.3 10.4 2.9

Discrete Performance

30/06/16- 30/06/17- 30/06/18- 30/06/19- 30/06/20- 30/06/17 30/06/18 30/06/19 30/06/20 30/06/21 Composite Net (%) 31.5 15.7 8.8 17.5 30.0 Benchmark (%) 22.9 9.5 10.3 5.7 25.1

Benchmark is MSCI AC World Index Source: StatPro, MSCI. sterling

Performance – Canadian Dollar 09

Performance Objective +2% to 3% p.a. over rolling 5 year periods vs benchmark.

Periodic Performance

Composite Net (%) Benchmark (%) Difference (%) 3 Months* 5.7 5.9 -0.3 YTD* 7.4 9.4 -2.0 1 Year* 32.1 27.2 4.9 3 Years 17.8 12.8 5.0 5 Years 20.0 14.1 5.9 10 Years 16.7 13.3 3.5 15 Years 11.4 8.7 2.6 Since Inception 11.3 8.5 2.8

Discrete Performance

30/06/16- 30/06/17- 30/06/18- 30/06/19- 30/06/20- 30/06/17 30/06/18 30/06/19 30/06/20 30/06/21 Composite Net (%) 27.8 19.2 4.2 18.9 32.1 Benchmark (%) 19.4 12.7 5.6 7.0 27.2

Benchmark is MSCI AC World Index Source: StatPro, MSCI. Canadian dollars

Performance – Australian Dollar 10

Performance Objective +2% to 3% p.a. over rolling 5 year periods vs benchmark.

Periodic Performance

Composite Net (%) Benchmark (%) Difference (%) 3 Months* 8.8 9.1 -0.3 YTD* 13.6 15.7 -2.1 1 Year* 33.3 28.3 5.0 3 Years 19.6 14.5 5.1 5 Years 21.0 15.0 6.0 10 Years 18.0 14.5 3.5 15 Years 10.5 7.9 2.6 Since Inception 11.5 8.6 2.8

Discrete Performance

30/06/16- 30/06/17- 30/06/18- 30/06/19- 30/06/20- 30/06/17 30/06/18 30/06/19 30/06/20 30/06/21 Composite Net (%) 24.1 22.1 10.5 16.2 33.3 Benchmark (%) 15.9 15.6 11.9 4.6 28.3

Benchmark is MSCI AC World Index Source: StatPro, MSCI. Australian dollars

Performance – Attribution 11

Stock Level Attribution Top and Bottom Ten Contributors to Relative Performance

Quarter to 30 June 2021 One Year to 30 June 2021 Stock Name Contribution (%) Stock Name Contribution (%) Moderna 0.5 Tesla 1.6 Shopify 0.4 SEA 1.1 Novocure 0.4 Moderna 0.8 Cloudflare 0.4 Cloudflare 0.7 SEA 0.3 Novocure 0.6 Moody's 0.3 Zillow 0.6 Li Auto 0.2 SoftBank 0.4 ResMed 0.2 Meituan 0.4 Doordash 0.1 TSMC 0.4 Alphabet 0.1 Alphabet 0.4

Naspers -0.6 Naspers -0.6 Prudential -0.4 Olympus -0.5 Ping An Insurance -0.3 Teladoc -0.4 NVIDIA -0.2 Ping An Insurance -0.4 Brilliance China Automotive -0.2 SAP -0.3 Prosus N.V. -0.2 Apple -0.3 Tencent Music Entertainment -0.2 Alibaba -0.3 Ryanair -0.2 Ping An Healthcare & Tech -0.3 Olympus -0.2 Brilliance China Automotive -0.3 Apple -0.1 Seagen -0.3

Source: StatPro, MSCI. Global Alpha composite relative to MSCI AC World Index. Some stocks may have only been held for part of the period.

Portfolio Overview 12

Top Ten Largest Holdings Stock Name Description of Business % of Portfolio Naspers Media and e-commerce company 2.9 Moody's Credit rating agency 2.6 Shopify Cloud-based commerce platform provider 2.4 SEA Limited Online content, e-commerce and payments 2.3 Microsoft Software company 2.3 Alphabet Online search engine 2.3 TSMC Semiconductor manufacturer 2.0 Amazon.com Online retail and computing infrastructure 2.0 Anthem Healthcare insurer 2.0 Mastercard Global electronic payments network and related services 2.0 Total 22.7

Sector Weights (%) 1 Consumer Discretionary 19.2 1 7 2 Information Technology 16.8 3 Financials 15.0 6 4 Health Care 13.9 5 Communication Services 11.9 6 Industrials 8.9 2 7 Materials 7.2 5 8 Consumer Staples 2.8 9 Real Estate 1.8 10 Energy 1.4 4 3 11 Cash 1.1

Regional Weights (%) 5 1 North America 54.1 4 2 Emerging Markets 15.2 3 Europe (ex UK) 12.7 4 Developed Asia Pacific 10.3 5 UK 6.5 3 6 Cash 1.1 1

Figures may not sum due to rounding.

Voting 19

Voting Activity Votes Cast in Favour Votes Cast Against Votes Abstained/Withheld Companies 70 Companies 15 Companies 3 Resolutions 898 Resolutions 29 Resolutions 10

We have recently completed an inaugural portfolio-level climate audit It provides us with greater clarity on the underlying holdings' pace of change as we transition to a net zero wold The audit has flagged a list of companies who are a priority for climate-related engagement

Company Engagement Engagement Type Company Corporate Governance Cloudflare, Inc. Environmental/Social Alibaba Group Holding Limited, Booking Holdings Inc., CRH plc, Facebook, Inc., Martin Marietta Materials, Inc., Pernod Ricard SA, Ryanair Holdings plc, Service Corporation International, Shopify Inc., The Trade Desk, Inc., Wayfair Inc.

AGM or EGM Proposals Booking Holdings Inc., Sberbank of Russia, Schibsted ASA, Sysmex Corporation, The Charles Schwab Corporation

Executive Remuneration IAC/InterActiveCorp, Schibsted ASA

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

Governance Summary 13

In a few months the world’s attention will turn to Glasgow for the 26th United Nations Conference of the Parties (COP26), where we hope global leaders will grasp the Portfolio emissions opportunity to accelerate efforts to deliver a more sustainable world. Within Global Alpha, our work to Weighted Average Greenhouse Gas Intensity (WAGHGI) understand the portfolio’s climate preparedness has is a measure of a portfolio’s exposure to greenhouse continued apace, with the recent completion of a climate gas-intensive companies. This metric, incorporating audit. In addition to more granularity on the portfolio’s scope three emissions (upstream and downstream) on an carbon footprint, the audit has provided company level incremental basis, has been adopted by the European insight. We have outlined a summary of our findings Union’s Technical Expert Group, a body which has been below. This marks the next step in our stewardship work instrumental in both improving corporate disclosure on climate and we look forward to discussing further of climate-related information and constructing developments with you over the coming months and years. methodologies for climate benchmarks. If the equity assets managers don’t yet provide you with a portfolio- The objectives underpinning the audit were threefold: level WAGHGI, then prod them to do so. It is fast  Provide a snapshot of the portfolio’s footprint, becoming industry standard. including the location of greenhouse gas emissions The climate audit confirms previous carbon footprint and proportion which are covered by reduction work showing a WAGHGI for the Global Alpha portfolio targets. which is significantly below that of the MSCI All  Gain a more comprehensive understanding of the Country World Index. For clients invested in either our underlying holdings’ pace of change as we transition Choice or Paris-Aligned variants, this intensity metric is to a net-zero world. lower again. While it is important not to conflate  Pull together a list of companies who are a priority for emissions intensity with climate risk, the audit clearly climate-related engagement. shows that the portfolio has significantly less exposure to Let us now take each of these in turn. carbon intensive businesses than the broader market.

Governance Summary 13

Fourteen companies exceeded our expectations and At a company level, the audit revealed two interesting were thus awarded a top score. These include Alphabet, outputs that warrant further work. Firstly, ~40 per cent of Farfetch and Microsoft. The common factor here is a our holdings don’t currently disclose scope one and two genuine desire by management to embrace the low emissions – requiring estimates to be used in their place. carbon transition and make it a strategic imperative for This disclosure gap is much less severe when considered the business. But these 14 holdings only account for on a WAGHGI basis but it’s a timely reminder that the about a quarter of portfolio assets, which means there’s challenges of climate change can only be solved by first a long tail of companies where more action is required. understanding one’s starting point. Secondly, as expected, the majority of the portfolio’s emissions are located either Engagement upstream or downstream of the company’s operations. Scope three portfolio emissions are approximately five Among the cohort that fail to meet our, admittedly times larger than scope one and two emissions combined. stretching, expectations are a number of businesses that While scope three emissions are based on estimated data, we have flagged as a priority for climate-related their dominance of the overall WAGHGI gives some engagement. This is either because they fall down on indication of where the material climate risks are located. basic disclosure (a vital requirement in our view and a This portion of a company’s emission profile is more starting point rather than an end goal), don’t have difficult for them to influence. However, we intend to emission reduction targets in place and/or they have been engage with our holdings to encourage them to incorporate flagged for physical risk. You might expect them to be scope three emissions into their climate strategy and work heavy industrials with large carbon footprints but toward reducing emissions across the value chain. actually, this target list is very diverse, ranging from US health insurers to Asian-based ecommerce and gaming Pace of change platforms. Our discussions with these businesses will be a shared initiative within the Global Alpha team, as well Beyond a snapshot portfolio emissions exposure, we as a collaborative effort across the broader investment wanted to dig deeper and understand how the businesses floor. Our intention is not simply to improve disclosure we invest in are embracing, or otherwise, the low carbon or to establish targets. While these are tangible transition. To that end, a traffic light system was used to deliverables, our overarching ambition is to deepen our identify which companies have the plans in place to understanding of these businesses, the efforts they are achieve net-zero before 2050, by 2050 or will simply fall taking to mitigate climate risks and capitalise on short of the 1.5-degree warming scenario. opportunities. This information will be incorporated into our ongoing views on each business as part of integrating The parameters used for the scoring system included governance and sustainability within the investment extent of disclosure, whether a company has emission process. We look forward to sharing progress with you reduction targets in place and their alignment with various on this topic over coming quarters. warming scenarios, public commitments on carbon neutrality or net-zero before or by 2050, and a modelling of physical risks, based on an aggressive 1.5 degree scenario with a focus on coastal flooding and extreme heat. As a bottom-up stock-picker, we judge companies on a case-by-case basis. This applies equally to climate change, where there is a recognition that companies, and indeed countries, will decarbonise at differing speeds. Those that can move fast must do so, while those that cannot must be afforded leeway and support. However, for the purposes of this analysis, a level playing field was used to ensure broad comparability, in the full knowledge that our follow-on engagement will be more nuanced.

Governance Engagement 18

Company Engagement Report Alibaba Group Holding Limited A call with IR allowed us to discuss and better understand some of the company's strategies in cloud, grocery and logistics. We also covered Alibaba's continued commitment to being customer-focused and to developing services to support China's rural population. One of the objectives of this call was to encourage improvement in Alibaba's ESG reporting, which has been minimal since 2018. We were able to do this and offered our assistance going forward, receiving encouraging responses and commitments for comprehensive ESG reporting by next year. We also gained more insight into how sustainability is managed across the Group's vast businesses and hope to follow this up with further engagement this year. Booking Holdings Inc. Ahead of the company's annual meeting, we engaged to discuss the agenda resolutions. Booking received two climate related shareholder resolutions requesting a climate transition report and say-on-climate vote. We supported the former, explaining to the company that we want them to disclose emissions data and outline targets and a strategy to reduce its carbon footprint. The resolution passed with 56 per cent support and we look forward to the company's response. On the other hand, we opposed the proposal requesting a say-on-climate vote. While we agree with the importance and urgency for climate action, we don't consider an advisory vote an effective means of influencing climate preparedness at our holdings. Where we believe a company is not taking its commitments to climate change seriously, either through mitigating risk or capitalising on opportunities, our preference will be to communicate this directly to the company. If we remain unhappy with the company's response, our intention would be to take voting action against the re-election of directors responsible for this area. This shareholder proposal failed to receive majority support. We look forward to future engagement opportunities with the company. Cloudflare, Inc. Our meeting with co-founder and CEO Matthew Prince provided an opportunity to learn more about Cloudflare's corporate culture. For Prince, culture is essential for long-term growth. In order to build an enduring technology company, he believes Cloudflare's culture must promote relentless curiosity. Additionally, he believes that employees must also be principled, proactive and transparent. For example, Cloudflare has built a substantial public policy team to examine regulatory and/or governance hurdles that it might face in future, despite not having encountered any major issues as yet. With regards to recruitment, Prince and co-founder Michelle Zatlyn still spend a substantial amount of time in final interviews to ensure that all employees feel that senior management is accessible to them, thereby reducing friction to ideas within the company. We continue to learn about Cloudflare's culture and what it may mean for company behaviour and growth prospects. CRH plc We spoke to the newly appointed CFO to get an update on the company's decarbonisation strategy. When we spoke to CRH last year about doing a deeper dive on their carbon strategy, the company had taken reduction of carbon through their internal processes as far as they could but were continuing to try to innovate and monitoring technological developments in the industry, which could see material advancement in carbon reduction, such as carbon capture and storage. The company have continued to innovate, particularly with alternative fuels, which has enabled them to continue to reduce their carbon emissions. They have set a target to be carbon neutral by 2050. An industry roadmap is due to be published later in the year which is likely to provide greater clarity on the technological advancements that will be material for the cement industry achieving carbon neutrality. How CRH achieve their 2050 target is likely to become clearer after the roadmap is published. A key focus of our discussion was the role CRH can - and want to - play in the industry to support and adopt innovation. We reemphasised the materiality of transitioning and being a part of the solution to the long-term investment case and will follow up with the company after the industry roadmap is published.

Governance Engagement 18

Company Engagement Report Facebook, Inc. We spoke to CFO David Wehner and head of EMEA Nicola Mendelsohn to probe into Facebook's approach to society, climate change, and a range of related business factors. They highlighted various social initiatives such as population density mapping on behalf of government agencies to help tackle the Covid-19 pandemic and laying subsea cables to provide internet access to previously unserved regions in Africa. The company is cognisant of data privacy concerns and is keen to avoid prior mistakes as it works to diversify sources of revenue away from targeted advertising and towards virtual reality, enterprise services and ecommerce. There is also a recognition that Facebook's growth in such business areas will be largely organic, given heightened regulatory scrutiny of large acquisitions. On climate change, Wehner and Mendelsohn emphasised that Facebook's target to achieve net-zero emissions by 2030 is only feasible thanks to the steps the company has already taken over the past decade - notably datacentre construction, achieving 100 per cent renewable energy usage, and now examining its supply chains. It is not solely governmental and public scrutiny driving such environmental progress; it is also Facebook's selected business partners who are insistent on improvements.

Such initiatives represent management's strategy to regain public confidence following the societal challenges faced by the company in recent years. While seeking to develop new growth opportunities, Wehner and Mendelsohn feel it is important that Facebook both acts, and is perceived to act, above reproach. For us, we are encouraged by Facebook's demonstrable adaptability and positive changes relating to societal and environmental challenges. We will continue to engage with management on such issues. Martin Marietta Materials, Inc. We spoke to CEO Ward Nye, members of the senior management team and the head of sustainability about the company's recently published sustainability report. This discussion has become a regular annual exchange, where we provide constructive, direct feedback to the company on how we believe it can improve its reporting. We commend the company on the way they have taken these comments onboard, improving disclosure and target setting, particularly regarding environmental issues, over the past three years. We were pleased to see that the company reported its safest year on record and took important steps to ensure the health of its staff during the pandemic. Our discussion took place shortly after the company acquired Lehigh Hanson's West Region business. It was interesting to learn that Martin Marietta's inclination to sell the cement plants which came with deal is partly related to the higher environmental costs attached to managing carbon- intensive operations in California. While the company has made positive steps forward in its sustainability initiatives in recent years, including engaging at an industry level as part of the Portland Cement Association, they appear hesitant to step out on their own and lead, preferring to move and react in line with the industry, regulation and customer requirements. Our ongoing dialogue will include encouragement for taking risks and showing ambition, which will see Martin Marietta lead on environmental sustainability. Pernod Ricard SA We continued our ongoing dialogue with Pernod Ricard by speaking to the company as part of its ESG roadshow. We discussed plans to amend the executive remuneration plan so that the quantum and structure remains competitive relative to peers. Proposed changes include an increased maximum pay-out for CEO Alexandre Ricard and the inclusion of explicit environmental and social performance conditions. The company is progressing with establishing a standalone sustainability committee at the board level. This group will be responsible for oversight and direction of Pernod's approach to environmental and social initiatives. The committee will be led by senior independent director Patricia Barbizet, a non-executive director who we hold in high regard. We were very encouraged to learn that the company has strengthened its emissions reduction targets. It now aims to be net-zero for scope one and two emissions by 2030, as well as cutting scope three intensity by 50 per cent over the same period. These targets demonstrate the company's intention to reduce emissions across its value chain, contributing positively to our objective of limiting global warming to 1.5-degrees above pre-industrial levels.

Governance Engagement 18

Company Engagement Report Ryanair Holdings plc We had an encouraging call with the head of sustainability at Ryanair discussing the progress of the company's decarbonisation strategy since we last spoke, 18 months ago. The company submitted its carbon emissions data to the Carbon Disclosure Project (CDP) for external verification, which we recommended in our previous call, and committed to improving their score. The company has joined various third-party initiatives looking to develop sustainable decarbonisation technology within the aviation industry, and announced a sustainable aviation fuel target for 2030, as well as a partnership with Trinity University to research sustainable aviation fuel. The progress and proactive approach was evident from the discussion and was welcome, given the increasing cost carbon will have for those in the aviation industry. We discussed how they could improve and we recommended they improve the way they report their carbon emissions and the targets that they announce, which they agreed to work on. Schibsted ASA We engaged with Schibsted regarding its executive remuneration policy ahead of the annual meeting. We have maintained an ongoing dialogue with the company on this topic in recent years, including voting against at previous meetings. Our discussions have been positive, and the company understands that we intend to be a constructive shareholder. Improvement from last year can be seen in the higher weighting of performance-based awards. Furthermore, there is an appropriate weighting of pay-outs which incentivise performance and risk taking. While we have encouraged the company to strengthen threshold vesting requirements for future long-term incentive, we did not see this as sufficient reason to withhold support from the pay resolution at this year's meeting. Furthermore, we consider a vote in favour to be a demonstration of good faith and trust in the ongoing process of stewardship. We look forward to future conversations on ESG topics. Service Corporation International SCI is an American provider of funeral goods and services as well as cemetery property and services. Accordingly, it has been one of many organisations at the forefront of the ongoing Covid pandemic. Our conversations with the company over 2020 and 2021 have sought to support the company as its seeks to protect the health and wellbeing of its staff at the same time as providing a vital service to families that have lost loved ones. To this end, we believe the board and senior management team have worked diligently and admirably. Ahead of the AGM, we spoke to the company about ongoing board refreshment and external audit rotation. Auditor rotation in the US occurs less regularly than in other regions. We therefore discussed how the company rotates the audit partner regularly and the role of the audit committee in overseeing SCI's accounting practices. We also urged the company to improve the quality of its climate disclosure. Limited information is currently available, and we explained that we expect the company to report its emissions data, to set reduction targets and outline a long-term climate strategy. The company explained that this is an ongoing topic for consideration, and we are hopeful of seeing tangible progress later this year. Shopify Inc. We spoke with Shopify, including Stacey Kauk director of the company's Sustainability Fund, to learn more about the approach to positive climate influence across the ecommerce value chain. Shopify reports its direct emissions and runs both its own and cloud-related activities on 100 per cent renewable power. Just as importantly, it is a direct investor in carbon reduction and removal innovators. This creates a deep knowledge of the offsetting market which it then, in turn, puts at the disposal of Shopify-enabled merchants that wish to offer offsets to their customers. We also discussed the company's interactions with logistics operators and carriers, where Shopify is exploring ways to accelerate its offer of lower-carbon warehousing and distribution. The company also acknowledged that it may be able to deploy the deep dataset it is gathering on ecommerce purchases to further educate and empower consumers on product carbon footprints. Shopify displays a strong pro-climate narrative in its communications, and we look forward to seeing how this continues to develop into direct action for decarbonisation.

Governance Engagement 18

Company Engagement Report The Trade Desk, Inc. We met with founder and CEO Jeff Green to delve into the data privacy challenges and opportunities facing The Trade Desk's advertising business. As 'walled gardens' (e.g. Google and Apple) with troves of first-party data move to eliminate third-party cookies from their browsers and operating systems (on the premise of enhanced user privacy), the concern facing The Trade Desk is that the open internet will be starved of some of the data that facilitates the company's targeted advertising business. In response, the company has launched a nascent alternative to third-party cookies that not only enhances data privacy and control for users, but also supports targeted advertising for the benefit of the entire digital advertising industry and the millions of small publishers who have business models based on advertising. The Trade Desk's Unified ID 2.0 initiative is based on entirely anonymised email addresses (meaning it cannot be controlled by any browser), works across all channels (desktop, mobile, streaming TV), and increases user convenience and control. Crucially, The Trade Desk has open-sourced the initiative and it will be operated by a consortium of partners so that no individual company has control over user data. This is because its ambition is to benefit the internet as a whole - ad-tech competitors, publishers, advertisers, users, and regulators alike. We are encouraged by The Trade Desk's adaptability and ability to thoughtfully engage with multiple stakeholders, while also expanding its growth opportunities. Wayfair Inc. We met with the CEO and CFO of Wayfair to discuss business development, but also for an update on progress with the company's thinking and strategy around environmental sustainability. Connecting thousands of furniture and homeware suppliers to customers in Europe and the Americas, Wayfair has the opportunity to share best practice, develop information for consumers and influence the logistics providers. We discussed the company's findings on the level of inherent interest in these topics across the value chain. European customers and global logistics are most advanced, with Wayfair seeing more work to be done to educate buyers in the Americas and convince sellers that progress can be made without a long-term burden on margins. This is an evolving area of focus, and we will keep in touch with the company as efforts progress.

Transaction Notes 20

New Purchases Stock Name Transaction Rationale Carvana Carvana is the leading player in the US online used car market. We are excited by the tremendous market opportunity as the used car industry has just started moving online. The market is currently fragmented but we believe the shift to online will favour only a few players, including Carvana. Their vertically integrated business model is radically different to traditional car dealerships and we believe that it will improve the car buying experience and lower prices for consumers. Further, we expect Carvana's consumer-centric culture and skill in data-driven customer acquisition will help it build a strong brand and steadily grab market share. We don't think the current valuation reflects Carvana's growth potential, therefore we decided to take a holding. Li Auto ADR Li Auto is a Chinese electric vehicle ('EV') manufacturer with aspirations to become one of the leading players in the electrification of the global automobile market. The company's strategy is focused on addressing the two largest concerns facing consumers when looking to switch to an EV, namely range anxiety and cost. Li Auto's first model, the Li One, has an internal combustion engine, which exists solely to provide additional charge to the electric batteries, resulting in best in class range. The resulting ability to run with smaller battery packs than rival manufacturers also helps keep costs low, translating into lower prices for customers and impressive gross margins. We admire the vision and entrepreneurialism of founder Li Xiang and believe that Li Auto is one of the few EV companies in the world which truly understands both the radical implications of the shift to EVs and the rising importance of software. As such we have taken a new holding for the portfolio. Staar Surgical Staar Surgical is a developer of vision correcting implantable lenses. The company's technology remains industry-leading, yet historically it has lacked robust and consistent marketing, thereby allowing laser vision correction to become the 'default' treatment despite significant limitations. With a new management team installed at the company we are enthused by the prospect of a great product being marketed much more strategically and are excited by the significant recent growth the company has achieved (particularly in Asia, where the incidence of myopia is high). The research and development initiatives at the company interest us too, specifically its development of a presbyopic lens (a lens for treatment of age-related lens deterioration which affects near sight and is usually treated with reading glasses).

Complete Sales Stock Name Transaction Rationale Interactive Brokers Group Interactive Brokers is an online discount stockbroker which provides a platform for active traders and institutional investors. Our investment case was based on the company's compelling combination of low cost and technology leadership, but our conviction in both factors has weakened due to, for example, rising competition from 'commission-free' rivals such as Robinhood. In addition, although we have historically viewed the founder's controlling stake in the firm to be a net positive, this has meant that minority shareholders struggle to have a voice in the company's development. A combination of these issues led to our decision to sell. SoftBank Group We have decided to sell the position in Japanese holding company SoftBank. Having only purchased the business in February of 2020, this represents an unusually short holding period for Global Alpha. The investment case was based on two interconnected factors: a more disciplined approach to the use of capital and the potential for a narrowing of the discount to the value of the underlying investments, dominated by the stake in Chinese ecommerce giant, Alibaba. These factors have largely played out as we might have hoped, with CEO Masayoshi Son having initially focused on realising the value of companies in the portfolio, returning cash to shareholders and hence narrowing the discount. However, as the incentive towards discipline created at the start of the pandemic has dissipated, we have started to see questions return with regards to the quality of the corporate governance at SoftBank. With our ability to engage meaningfully with the company on this topic limited and the discount substantially smaller than when we first invested, we have decided to move on.

Legal Notices 21

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