Scotland's most successful investment house this week challenged investors to avoid being ripped off by a failing fund industry, and to widen their horizons and invest in tomorrow's global winners.

Baillie Gifford staged its own investment trust conference in Edinburgh to lift the curtain on an investment philosophy which has enabled the firm to create a £70 billion empire through steady organic growth.

Baillie Gifford partner James Anderson told industry professionals: “About 75% of actively-managed funds in international markets have under performed (an index) over 10 years after costs.”

He said the US financial industry had cost investors an estimated $620bn (£380bn) a year over the decade, and that the effect on savers had been to reduce annual returns by 4%.

“That is not good,” Mr Anderson added. “There is no evidence that Britain is better – fees are higher in aggregate. I am led to the conclusion that really we are not much better than bankers.”

Along with the likes of Aberdeen-owned Murray International, and the independent Scottish Investment Trust and Alliance Trust, Baillie Gifford’s trusts Scottish Mortgage, Monks, Edinburgh Worldwide and Scottish American (or Saints) are private investor stalwarts offering low-cost exposure to global investment.

The issue of cost will be among those highlighted at this month’s annual meeting in Dundee of the sector giant Alliance Trust, as activist shareholder Laxey Partners tries to rally support for its proposed reforms of the self-managed £2.5bn trust.

Laxey this week reopened fire on Alliance, claiming that its true total expense ratio (TER), the official measure of cost to investors, was around 1.2%, almost double the published figure of 0.63%, because shareholders in reality have to bear all the costs of all the company’s financial services activities. Alliance disputes the analysis.

Mr Anderson said: “Scottish Mortgage’s TER is 0.51%, I invite all the forensic accountants and surveyors of Alliance Trust to prove it is any higher. We don’t want a fee increase, we don’t want a performance fee. Being low cost is the single most important thing any investor can do for his clients.”

He insisted that it was also crucial that fund managers “take a large chunk of their reward through owning exactly the same shares (in their fund) as everybody else”.

Mr Anderson said savers lost out because managers were rewarded on volumes of funds managed, so became obsessed with short-term performance to avoid being sacked by big clients and losing assets. This in turn led to supposedly “safe” investment options. “People somehow assume that big capitalisation stocks are safe, that is what we are told...but capitalism, if it is working, acts to destroy the big, the big is risky.”

Just as many of the biggest companies owned by the now £1.9bn Scottish Mortgage a decade ago were now in meltdown, Mr Anderson said he believed that within 10 years, today’s biggest stocks in finance, oil and gas, pharmaceuticals and tobacco would have suffered “destruction” by the forces of change in the world and the markets.

He added: “The oil companies that everybody loves to own will be moribund ... look at how quickly alternative power sources are going to get cheaper.”

By contrast, pioneers in sectors such as solar energy, data usage, healthcare, e-commerce (including giant Amazon), genetic medicine, cloud computing, biotechnology, and robotics, could match the Baillie Gifford search for companies with “unlimited upside”.

Mark Urquhart, manager of the £153 million Edinburgh Worldwide, said 90% of our shopping was still done through bricks and mortar not the web, but we were in a “transformative era” of media for information, interaction and consumption. “The two-year-old, seven-year-old and 12-year-old who have grown up with these devices will define consumption over the next few years.”

He went on to say: “Technology has this massive skeleton in the cupboard of the TMT boom, but not if we think about these companies as consumer services businesses.”

Patrick Edwardson, manager of the £320m Saints trust focusing on income, said the trust now had only 34% of its equity holdings in UK companies against 72% seven years ago. It looked increasingly to the dividend prospects of companies such as China Mobile, and Handelsbanken, the Swedish bank with over 80 branches in the UK, which were both paying 4.5% yields.

Mike Gush, manager of the £127m Pacific Horizon trust, said China already had four times as many science and engineering graduates as the US, and 30% of PhD students in America were born in China.

It was important, however, to invest in companies which were entrepreneurially managed, without state involvement.

Mr Anderson said: “The big driving forces are not countries they are individual cities – we are starting an office in Shanghai. I don’t believe sitting in an office in a row of desks, rejoicing when you get new clients, is the way to outperform in fund management. We have got to unlearn all the habits we have been brought up with.”

Meanwhile, Alliance Trust this week bought back over 2m of its own shares in the market and has bought back almost 3.7m in the past three weeks, helping to narrow the trust’s share price discount to asset value, now just over 14%.

Chris Agar at Laxey Partners, campaigning for an automatic buyback whenever the discount breaches 10%, told a briefing: “All shareholders would see an increase in value in their shares, long-term, short-term, any shareholders, would have the opportunity to exit at a stable discount.”

He said discounts at the three similar trusts which had introduced such a mechanism – F & C, Witan and SIT – had all narrowed and stabilised, and F & C had reported it had reduced share price volatility and enhanced net asset value per share.

Alliance has said it will continue to buy back shares on an ad hoc basis to allow investment flexibility.