Baillie Gifford UK Growth NAV slumps 12% as discount widens

In its six-month results published today (1 December), managers Iain McCombie and Milena Mileva said it was “disappointing to report another period of poor portfolio performance”.

Over the period, the trust’s share price total return fell by 12.5%, with the discount widening from 14.1% to 15%. According to data from the Association of Investment Companies, BG UK Growth is currently trading at a 14% discount.

The biggest detractors to portfolio performance over the period were St James’s Place, FD Technologies and Burberry, the managers noted, while not owning Shell and HSBC – which had strong performance over the six months – “also hurt”.

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The biggest contributors to performance was life sciences supplies business Abcam, which agreed to a takeover, alongside Wise and marketing services provider 4imprint.

McCombie and Mileva also addressed the trust’s exits from Naked Wines and Farfetch, which they admitted were “mistakes”, as both companies “fell short of our expectations”.

They said: “Nobody likes it when a stock you own performs poorly. Moreover, we are in the difficult part of the performance cycle when stock markets punish companies severely if they report disappointing news, as has been the case for some of the holdings.

“To attempt to outperform a benchmark one has to accept, whether as a portfolio manager or a shareholder, that investing carries with it risk. It is totally reasonable to expect a portfolio manager with a well-established investment process to carry out careful analysis of any existing or potential investment.

“Ultimately though, everyone has to accept that when we invest, we are investing in future outcomes, and they are unknowable. Mistakes in investment are therefore an unfortunate fact of life for an investor in good times as well as bad.”

McCombie and Mileva added they will now focus on whether the poor share price is a signal they “fundamentally made a mistake” in an individual investment, if it relates to “random noise”, or if there is “something broader going on”.

Following the sale of Abcam, the managers noted they added to their existing holdings in Prudential, Legal & General, animal genetics firm Genus, specialist engineer Renishaw and initiated investments in AJ Bell and IT services provider Kainos.

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“All strike us as businesses with fantastic market positions and sensible management teams whose valuations look very attractive at these levels,” they explained. “Moreover, despite this relatively modest level of portfolio activity, there are a handful of potential new investments on our radar.

“As bottom-up stock pickers, our low level of portfolio activity is the most telling signal that we strongly believe that there is a lot of latent potential and upside in the portfolio if you are prepared to look through the current uncertainty.”

Peel Hunt analyst Thomas Pocock noted performance for the trust “continues to be challenging” due to its growth-focused investment strategy.

“We note that five-year NAV TR is now 1.2% on an annualised basis versus 4.9% for the index. BGUK’s current discount of 14% is in line with the last 12-month average but wider that the weighted average or the UK All Companies peer group of -10%.”


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