The £228 million Baillie Gifford China Growth Trust plc reported that its net asset value total return was -27.0% and its share price total return was -37.1% for the year to January 31, compared with a total return of -20.5% for the MSCI China All Shares Index and with 38.1% and 67.9% for the fund’s previous financial year.

Baillie Gifford China Growth Trust is managed by Edinburgh-based Baillie Gifford & Co, which had around £277 billion under management and advice as at April 1, 2022 — down from around £360 billion in November 2021.

Baillie Gifford China Growth Trust saw weak share price performance from a number of its healthcare holdings “as the sector sold off markedly in response to the likelihood of increased regulatory scrutiny here.”

Notable positive contributors for the fund included Li Ning, a domestic sportswear manufacturer; CATL, a company that posted strong operational results driven by China’s shift to electric vehicles and renewable energy; and Bytedance, a leader in short form video, and the fund’s only private holding.

The fund has also bought a number of stocks over the year that it believes are “well positioned to benefit from China’s green revolution.”

These include Yunnan Energy New Material, a separator maker for large form batteries; Sungrow, an inverter maker for solar and wind farms; and Zijin Mining, a copper producer and enabler of China’s green infrastructure.

Susan Platts-Martin, chair, Baillie Gifford China Growth Trust, wrote: “The managers have a long-term investment approach, and we ask shareholders to judge performance over periods of five years or more …

“Despite the many challenges of the last 12 months, there is cause for optimism.

“The coming months are likely to be volatile as geo-political events unfold including Russia’s invasion of Ukraine, as China attempts to eliminate rather than live with Covid and as we await further detail on anti-monopoly and other regulations.

“Some sectors such as healthcare have been hit indiscriminately by the correction resulting in attractive investment opportunities.

“As stated in last year’s report, the Chinese economy remains the second largest economy in the world and is expected to overtake the US as the largest economy in ten or so years.

“Global portfolios continue to be generally underweight China, and we expect to see the weighting rise over time which, alongside increasing consumption from China’s huge and growing middle class, should provide support for equity markets over the long-term.”

The fund’s managers, Roderick Snell and Sophie Earnshaw, wrote: “This year we have experienced one of the biggest regulatory resets in China for over a decade.

“Combined with a sell-off in growth equities towards the latter part of the year, it has been a painful period of performance for growth investors in China.

“At times like these, we believe it is important to stick unwaveringly to our long-term growth philosophy and process, both of which have served us well in the sixteen years that we have invested directly in China …

“Baillie Gifford has been investing in China since the 1990s.

“As such, we have experienced numerous regulatory cycles, significant volatility and, at times, painful periods of adjustment.

“However, whilst investment in China may prove volatile over the short term, we continue to believe that a combination of a vast and growing domestic market, significant investment in research and development, and private and public equity markets that are poorly understood and very short term, give long-term growth investors like ourselves a real opportunity to generate returns for our shareholders.”