Baillie Gifford has appointed a third fund manager to its UK Growth (BGUK) investment after the £222m listed fund underperformed the FTSE All-Share by 9.6% in the year to 30 April.
James Smith, lead manager of Baillie Gifford’s Great British Growth strategy, will work with Iain McCombie and Milena Mileva, who have run the trust since it switched to Baillie Gifford from Schroders eight years ago. Smith joined the firm in 2022 after working at ADIA in Abu Dhabi and Martin Currie in Edinburgh.
BGUK chair Neil Rogan said the board had “pressed” Baillie Gifford to add a third fund manager as the trust’s strong first half gave way to a difficult second half, though it has bounced back from Iran war lows in March.
Rogan said the concentrated portfolio would retain its “strong growth credentials” but would adapt more quickly to changing market conditions. “We expect to see a small increase in the number of holdings and an increase in portfolio turnover from less than 5% towards 20% per annum as a greater emphasis is put on portfolio construction and sell discipline.”
A lack of “value” stocks in mining, energy and financials coupled with the sell-off of software businesses on fears of disruption by artificial intelligence saw the trust return 15.6% compared to the FTSE All-Share’s total return of 25.2%. Annual results showed shareholders did slightly better with an 18.2% return as the discount to net asset value narrowed to 8.7% from 10.5%.
While acknowledging the style “headwinds” facing the managers, Rogan said that poor stock selection had accounted for around three quarters of the trust’s underperformance against the benchmark over five years. Currently, BGUK’s portfolio is up only 8% over the past 60 months compared to the 66% advance in the All-Share index.
With a continuation vote due next year and followed two years later by a 100% conditional tender offer if the trust doesn’t outperform, Rogan stressed the urgency of the situation.
“We hear that there is a clear appetite for a UK investment trust with high active share and a long-term approach to growth investing. We recognise that shareholder patience is thin. Ours is too: The board is mindful of the 2027 continuation vote and the 2029 performance conditional tender offer. While we believe that the probability of success has improved, we know that we need to see clear evidence of recovery to pass beyond these two hurdles.”
Our view
Matthew Read, senior analyst at QuotedData, said: “This is a disappointing outcome for Baillie Gifford UK Growth, especially after it had edged ahead of the index at the half-year stage. However, the second half brought a fairly toxic combination for the trust’s style: a strong run from banks, oil & gas and mining stocks, none of which feature in the portfolio, and a sharp derating of platform and software-related businesses as investors fretted about the potential impact of AI. That said, the managers are not being given a free pass. The chairman is blunt that stock selection has been poor and that shareholder patience is wearing thin.
“Encouragingly, the board and manager are responding. James Smith’s appointment as a third co-manager should bring more focus on portfolio construction and sell discipline, while the fee cut and ongoing buybacks are both sensible shareholder-friendly moves but, with a continuation vote in 2027 and a performance-triggered tender test in 2029, shareholders will need to see clear evidence that these changes are translating into better relative performance. UK growth and mid-cap stocks look better value than they have for some time, so a more supportive market could help the trust recover ground.”
