Cash is king

Cash-generative companies should form the portfolio’s core because they offer current value, resilience and optionality while still funding future growth.

• Hyperscalers including Amazon, Microsoft and Google are expected to spend about $755bn on AI infrastructure in 2026, while cash on US large-cap balance sheets has fallen to 10% of market capitalisation, the lowest level since 2007.
• Market concentration has increased as passive funds exceed 50% of US mutual-fund and ETF assets, and the 10 largest S&P 500 companies rose from 19% of index weight at end-2015 to nearly 41% at end-2025.
• This concentration increases equity-duration risk because more portfolio value depends on distant cash flows, making returns more sensitive to interest rates, discount rates and growth expectations.
• Cash-generative companies can provide dividends, buybacks and balance-sheet resilience while reinvesting for growth; Apple invests in custom silicon and L’Oréal in AI predictive formulation models.
• After poor relative performance from quality and income equities, the S&P 500’s free-cash-flow yield has fallen 30% in five years, whereas Baillie Gifford’s own free-cash-flow yield has risen 10% and reached its highest level in five years.

Takeaway: Investors may find an unusually attractive opportunity to strengthen a cash-generative income or durable-growth core, using its ballast and optionality to take risk elsewhere, although it is not a recommendation and capital remains at risk.