By Mark McSherry
The £310 million Baillie Gifford UK Growth Trust showed more evidence of an ongoing recovery under managers Iain McCombie and Milena Mileva as it reported net asset value per share total return of +8.1% for the six months to October 31, 2024, compared to +1.8% for the FTSE All-Share Index total return.
The fund’s share price total return for the same period was +11.7%.
” … the one-year performance numbers are also significantly ahead of the benchmark index, but the three-year and five-year performance numbers still lag considerably behind,” said the investment trust’s chairman Neil Rogan.
The fund’s biggest investments are in Volution Group, Auto Trader, Games Workshop, Experian, Ashtead, AJ Bell, Howden Joinery, Softcat, Just Group and 4imprint.
Rogan added: “There is still much work to be done by the Managers and by the Board to turn around this Company.
“Obviously, the main determinant of our future success will be building on this performance improvement over the next three to five years.
“Your Board believes that the ingredients are in place for Baillie Gifford to deliver this improvement, with their clear investment philosophy, a robust investment process and a strong team led by Iain and Milena managing the portfolio.
“They have learnt the pitfalls of their style of investing, such as paying too high an entry price for a good company or holding on too long when something starts to go wrong.
“Their response has been an intensive programme of company meetings to review and upkeep the validity of the investment case for all your holdings.”
McCombie and Mileva wrote: “Even as bottom up investors, it was hard to ignore the chatter surrounding the UK General Election, interest rate cuts, the political drama across in the US and efforts by the Chinese to stimulate their economy. However the relatively small bounce in the FTSE All-Share over the period did highlight that these factors are often more short term and transitory than many people think …
“Nevertheless, good operational performance was rewarded with notable share price rises in holdings such as Autotrader, Experian, Games Workshop, Volution, Just Group and AJ Bell. The welcome absence of no further bad news from the wealth manager St James’s Place also led a large jump in the share price albeit from a fairly low level at the start of the period.
“On the less positive side, the market was still unforgiving of trading disappointments as we saw in holdings such as Diageo & Burberry (poor trading from both), Page Group (a tough current climate for recruitment firms) and Kainos (Government IT contract delays). Elsewhere some of our engineers such as Renishaw and Bodycote fell as markets worried about the impact of some tough end markets on their near term prospects.
“There were a few notable transactions in the period. We exited our position in Victrex, the speciality chemicals business as we grew increasingly downbeat that the new product areas they are trying to commercialise are taking longer than hoped and may not be material enough to make a difference to the more mature core business.
“We decided to sell our position in Hargreaves Lansdown following its agreed takeover by private equity. We have been disappointed by the performance of this leading savings platform business in recent years, as a number of management missteps have ultimately led to disappointing inflows into their platform in comparison to the other platform businesses owned in the portfolio such as Integrafin and notably AJ Bell.
“Whilst we had been impressed by the new CEO at Hargreaves Lansdown and his plans for getting a grip on the business, we also felt that it would take time and money to fix, so it was not a total surprise that an opportunistic bid at a difficult time for the business was accepted by the board given the uplift to the prevailing share price …
“Finally, we bought a new holding in Applied Nutrition at its floatation on the market. The business is founder led, has built a strong and profitable position in certain sports related markets and we think it has the opportunity to grow significantly both in the UK and more importantly internationally.
“Encouraging evidence of the latter is signing up well known supermarkets to stock some of their products and they believe that these relationships can be materially expanded in the future. We think Applied Nutrition’s edge is having a nimble and innovative culture where the business can test and launch new flavours or products in relatively short order in comparison to competitors …
“While it is pleasing to see a decent period of performance for the Company, we are not getting carried away. What we are more concerned with is owning a portfolio of exciting growth names and trying to ensure that the management teams are executing on that long term potential. In turbulent times this remains a challenge, but at the same time the rewards for owners of such businesses that can execute on their plans is as attractive and as relevant as ever.”