The board at Baillie Gifford UK Growth Trust (LON:BGUK) has conceded shareholders’ patience with the fund’s poor performance is wearing thin. The £220 million cap trust lagged the benchmark again in the year to 30 April 2026.
Baillie Gifford UK Growth faces a continuation vote in 2027 followed by a 100% conditional tender offer in 2029.
In a bid to pep up performance, the board has drafted in a new co-manager. Baillie Gifford UK Growth has also cut its management fee in order to keep shareholders happy.
Behind the benchmark
The trust generated a net asset value (NAV) total return of 15.6% in FY26, underperforming the FTSE All-Share’s 25.2% haul. Baillie Gifford UK Growth’s 18.2% share price total return also lagged the benchmark.
Baillie Gifford UK Trust was beating the benchmark at the halfway stage. Unfortunately, H2 performance proved poor, largely due to the quality growth portfolio’s lack of oil and gas, mining and banking exposure.
In addition, the fund was also hit by a sharp derating of platform and software-related businesses caused by AI disruption fears.
Two hurdles ahead
Chairman Neil Rogan commented: ‘We hear that there is a clear appetite for a UK investment trust with high active share and a long-term approach to growth investing. We recognise that shareholder patience is thin. Ours is too: The board is mindful of the 2027 continuation vote and the 2029 performance conditional tender offer.
‘While we believe that the probability of success has improved, we know that we need to see clear evidence of recovery to pass beyond these two hurdles.’
James Smith has been appointed as co-portfolio manager to work alongside Iain McCombie and Milena Mileva. Smith is expected to usher in a more active approach to portfolio construction and sell discipline.
Winners and losers
While acknowledging the style headwinds facing the managers, Rogan admitted that poor stock selection has accounted for around three quarters of the trust’s underperformance over five years.
Yet he stressed: ‘The problem has not been the ability to find the right growth companies, it has been paying too much for them in the first place or not selling them when they became expensive.’
In FY26, the largest detractors to relative performance were Autotrader (LON:AUTO), Experian (LON:EXPN) and Rightmove (LON:RMV). The biggest contributors included Renishaw (LON:RSW) and Just Group, which was taken over. In addition, the unlisted investment in Wayve Technologies was written up following encouraging news flow.
A taste for Greggs
During H2, Mileva and McCombie bought a new holding in Greggs (LON:GRG). The managers observed Greggs has built ‘one of the UK’s strongest value-led food brands’. They believe this will remain Greggs’ ‘core growth engine over the next five years’.
Baillie Gifford UK Growth Trust has had a tough five years. So it is good to see the board and manager springing into action.
The fee reduction and ongoing share buybacks are sensible shareholder-friendly moves. But with a continuation vote in 2027 and a performance-triggered tender in 2029, shareholders will need to see these changes translate into better performance.
Hopefully, this where Smith’s appointment should help. He should bring a greater focus on portfolio construction and sell discipline.
Winterflood’s Emma Bird said the board is ‘clearly acutely aware’ of the fund’s disappointing performance record. The trust has delivered a NAV total return of just 8% over the last 5 years versus a 66% return from the FTSE All Share.
‘We commend the board for undertaking a comprehensive view of the drivers of this underperformance, and taking steps to attempt to resolve these through the appointment of a new co-manager and encouraging a greater focus on sell discipline,’ said Bird.
‘In addition to the regular five-yearly continuation vote, a one-off vote will be held next year, which provides a good opportunity for the board to gauge shareholders’ views and may trigger a further consultation or strategic review.’
Disclaimer: James Crux has a personal investment in Greggs.
Read the press release here: https://www.londonstockexchange.com/news-article/BGUK/baillie-gifford-uk-growth-trust-plc-annual-results/17658332
