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Baillie Gifford UK Growth performance has ‘continued to disappoint’

Baillie Gifford UK Growth performance has ‘continued to disappoint’ as it sells Just Eat after ‘disastrous’ acquisition – but can its small cap stars bounce back?

  • The trust’s NAV per share fell 10.9% while its discount widened to 13% 
  • Just Eat was removed from the portfolio due to fierce competition 
  • The trust also bolstered its existing holdings in Wise and Experian 

Baillie Gifford UK Growth trust has ‘continued to disappoint’ as it underperformed the FTSE benchmark amid worsening conditions for the UK economy.

The trust, which is co-managed by Iain McCombie and Milena Mileva, invests in small and medium sized UK listed companies, meaning it has been more susceptible to the volatility in domestic stocks.

While the FTSE 100 has been bolstered by oil and banking stocks and is up 0.9 per cent this year, the domestically focused FTSE 250 has plummeted nearly 20 per cent as headwinds worsen in the UK economy.

‘Our short term performance continued to disappoint, with the headwinds against our pronounced growth style… continuing to persist,’ the co-managers said.

Managers Iain McCombie and Milena Mileva said it was a ‘mistake’ not to sell the trust’s position in Just Eat sooner

Baillie Gifford UK Trust’s NAV total return per share fell 10.9 per cent, while the benchmark FTSE All-Share fell 5.8 per cent in the six months to 31 October.

The share price total return over the six months dropped 11.9 per cent while its discount widened from 11.8 per cent to 13 per cent.

‘The paradox is that in operational terms the portfolio in general is continuing to perform satisfactorily and therefore portfolio activity was relatively low,’ the trust said.

Since 31 October, the trust’s share price has rallied 11 per cent to trade at 165.6p but it remains down 31 per cent in the year to date and is trading at a -12.47 per cent discount. 

Baillie Gifford UK Growth sold its position in Just Eat labelling the decision not to sell sooner a ‘mistake’ following its ‘disastrous’ US acquisition.

It said: ‘Our worry is that fierce competition by incumbents and other parties encouraging competition, such as Amazon, will result in businesses never able to exploit network benefits.’

It bolstered its positions in Wise and Experian which have been ‘unfairly derated given their strong fundamentals’.

This week Wise announced its income in the first half had grown 63 per cent year-on-year and profit before tax jumped 173 per cent to £51.3million.

The trust also bought positions in IT company Softcat and software company Kainos which it sees as beneficiaries of a long-term structural trend in IT investment.

McCombie and Mileva pointed to Howden Joinery, AutoTrader and Volution as the main detractors in the portfolio because of market concerns about an economic downturn.

‘All of these businesses have compelling grown opportunities over the longer term and strong balance sheets to weather any near term turbulence,’ they said. 

It also took a hit from its investment in Molten Ventures, previously Draper Esprit, which invests in unlisted technology companies and has plummeted more than 60 per cent this year.

‘Markets correctly assumed that the fall in valuations in the quoted market would have an impact on the carrying value of Molten’s investments; although the pessimism baked into its share price, when compared to its most recent written down valuation of its assets, seems excessive to us.

‘Finally, not owning the major oil stocks in the period was again the other notable detractor to our relative performance.’


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