Baillie Gifford UK Growth Trust (BGUK) has released results for the year to 30 April 2025, showing a NAV total return of 7.1%, slightly behind the 7.5% return from the All-Share Index. However, the trust’s share price total return was notably stronger at 13.6%, helped by a narrowing of the discount from 15.3% to 10.5% over the period.
The year was characterised by contrasting halves. Performance was strong in the first six months but weakened in the second half, largely due to a combination of macroeconomic concerns and volatility stemming from President Trump’s new trade tariffs and fading confidence in UK economic growth. Growth stocks, to which BGUK is heavily exposed, were particularly impacted, despite generally robust operational performance among portfolio companies.
On a stock-specific level, some of the largest negative contributors to performance relative to the benchmark included 4imprint and Renishaw. These economically sensitive businesses were caught in the wider sell-off triggered by macro fears. Conversely, holdings such as Games Workshop, St James’s Place, AutoTrader, and Wise were among the most significant contributors, with strong operational results helping to drive share prices higher.
The trust’s net revenue return per share was 5.32p, down from 5.68p for the prior year. The year‑on‑year decrease was largely as a consequence of reduced dividends paid by 4Imprint and St James’ Place and the sale of holdings in Rio Tinto and Hargreaves Lansdown. BGUK’s board is recommending a final dividend of 5.70p (2024: 5.60p), to be paid on 12 September 2025. The board reiterated that income remains a secondary focus behind long-term capital growth. The company retains healthy revenue reserves of 13.6p per share and while the dividend is uncovered, the board say that although the accumulated revenue reserves are ample to fund the difference, the number of shares bought back since the year-end (dividends are not paid on shares held in Treasury) means that it is unlikely to need to dip into these reserves this time.
Buybacks, discount management, and governance changes
The trust has ramped up efforts to control its discount, particularly since the start of 2025. Over the course of the financial year, BGUK repurchased 17.4m shares (11.9% of share capital), and a further 1.6m have been bought back since the year-end to 10 June. This activity was part of a stated commitment to maintain the discount in single digits under normal market conditions. Following an increase in the pace of buybacks, the board is now seeking to renew its buyback authority at a General Meeting on 3 July 2025, ahead of its Annual General Meeting on 3 September.
Chairman Neil Rogan noted that while conditions have not been “normal,” the buyback programme has helped narrow the discount to around 9.9% at the time of writing. He also acknowledged that the trust “remains in a recovery situation” and that clear progress must be demonstrated ahead of the next continuation vote scheduled for 2027.
BGUK’s strategic efforts to enhance shareholder value also include a conditional tender offer introduced last year. Shareholders will have the right to redeem their shares at NAV less 2% if the trust’s NAV total return fails to outperform the All-Share Index over the five years to 30 April 2029. This initiative, combined with the additional continuation vote in 2027, is designed to align the trust more closely with shareholder interests and provide downside protection.
During the year, the trust also saw a change in board composition, with Carolan Dobson stepping down as chair and being succeeded by Neil Rogan. Seema Paterson joined the board in January 2025 and will stand for election at the upcoming AGM. Paterson brings significant public and private sector experience and is a qualified chartered accountant.
Portfolio characteristics and positioning
At the end of the period, the portfolio consisted of 37 holdings (36 listed, one private), with a notably high active share of 89.5%, reflecting the managers’ conviction-led approach. While stock-level turnover remains low in keeping with Baillie Gifford’s long-term style, the volatility of the market in early 2025 prompted more pronounced adjustments. Additions were made to Moonpig and 4imprint, while Hiscox and Rio Tinto were sold entirely. Several other positions, including RELX, Games Workshop and Ashtead, were trimmed – partly to fund buybacks and partly due to valuation concerns following strong runs.
The trust continues to focus on high-quality, long-term growth companies, with an emphasis on fundamentals rather than short-term macro trends. The managers note that the portfolio trades on a forward P/E of 18.8x, with a projected three-year EPS growth rate of 7.5%. While market sentiment has punished many of these businesses over the last 12–18 months, the managers argue the valuations are now highly attractive given the strength and durability of underlying earnings.
Gearing increased modestly during the year, with net borrowings standing at 9% at the year-end (compared to 6% the year before), supported by a £30m revolving credit facility. The managers have used gearing selectively, reflecting increased confidence in the long-term prospects of the underlying holdings.
Outlook and positioning
The trust’s managers, Iain McCombie and Milena Mileva, remain committed to a long-term growth strategy. While they acknowledge that the short-term environment has been difficult – especially for growth investors – they are confident in the operational resilience and long-term prospects of the companies held in the portfolio. The portfolio’s performance since the year-end has been encouraging, with the share price and NAV up 9.7% and 8.7% respectively to 10 June 2025, outpacing the All-Share’s return of 5.3%. [If you would like further thoughts from BGUK’s managers, click here to read more of their thoughts from Baillie Gifford’s 2025 Investment Trust Conference.]
The chairman concluded that the UK equity market remains notably undervalued by both historical standards and in a global context. Should growth stocks return to favour, or UK economic conditions improve, the trust is well placed to benefit. Combined with ongoing efforts to control the discount and a supportive structural framework that includes the conditional tender offer, BGUK believes it offers a compelling proposition for investors looking for UK-focused long-term growth.
[QD comment MR: While NAV performance lagged the index slightly over the year, the narrowing of the discount and strong share price total return are encouraging signs, particularly in a period where growth stocks were out of favour. The board has been proactive – tightening discount control, introducing a five-year conditional tender, and committing to a mid-cycle continuation vote – all aimed at restoring investor confidence.
BGUK remains highly differentiated, with an active share close to 90% and a concentrated portfolio of long-term growth names that are now trading at attractive valuations. If UK equities begin to re-rate and growth stocks come back into favour, BGUK looks very well-positioned to benefit. The next couple of years will be key, but the building blocks for a successful recovery are firmly in place.]
