Baillie Gifford UK Growth ‘continued to disappoint’

By Mark McSherry — The £275 million Baillie Gifford UK Growth Trust plc reported that its net asset value (NAV) total return per share declined by 10.9% in the six months to October 31, 2022, compared to a 5.8% decrease in the FTSE All-Share Index, total return, over the same period.

The share price total return of Baillie Gifford UK Growth over the six months declined by 11.9% as the shares moved from a discount of 11.8% to the NAV per share to a discount of 13%.

The fund said its board and managers believe “there is an interesting and growing disconnect between top-down perceptions of the UK market and the long-term opportunities” for growth investors.

It said two new positions were initiated in the period — IT infrastructure provider Softcat and digitisation specialist Kainos. One position was sold — online food delivery company Just Eat

The investment trust’s 10 biggest holdings at October 31 were Abcam, St. James’s Place, Auto Trader, Experian, Ashtead, Diageo, Volution Group, Games Workshop, Wise and Renishaw.

Iain McCombie and Milena Mileva, managers of the fund, wrote: “Our short term performance continued to disappoint, with the headwinds against our pronounced growth style, that we discussed in the Annual Report, continuing to persist.

“The paradox is that in operational terms the portfolio in general is continuing to perform satisfactorily and therefore portfolio activity was relatively low.

The main detractors from performance in the period included the kitchen company Howden Joinery, car platform AutoTrader and clean air solution provider Volution.

“In all three cases, despite strong trading, the market is worried about the impact of an economic downturn in the short term although all of these businesses have compelling growth opportunities over the longer term and strong balance sheets to weather any near term turbulence.

“Our exposure to fast growing unlisted technology businesses through Molten Ventures was another notable detractor as 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.

In terms of positives, we benefitted from a couple of businesses that agreed to be taken over; namely the home emergency service business HomeServe and the information, data and events business Euromoney Institutional Investor.

“In both cases we were actually supportive of management’s growth strategy and although both bids were at significant premiums to the pre bid share price, we would have been happy to have remained owners of both businesses.

“However, it was clear that the boards of both were determined to accept the bids and we reluctantly decided to accept both offers.

“The other notable positive in the period was Wise, the foreign exchange platform that offers a more compelling and cheaper proposition to consumers and small businesses than using banks.

“Like many growth businesses, its shares had been pummelled but our old adage that share prices will reflect fundamentals was partially borne out, with the shares recovering strongly following a very encouraging trading statement where growth was much stronger than expected; this bodes wells for the future.”