Investors will hope Joe Faraday’s appointment as manager of Baillie Gifford European Growth Trust (BGEU) marks a change for the better. Faraday, who took over on 1 April, inherited a fund which had underperformed since October 2024.
For H1 to 31 March, BGEU generated an NAV total return of -9.2% and a share price return of -8.8%. That compares with a 4.4% return for the FTSE Europe ex-UK index, despite disruption from the Middle East conflict.
During H1, the company bought back just under 29 million shares or 8.8% of the capital for around £30 million. However, the discount barely narrowed, ending March at 8.2% against 8.6% in September 2025.
The trust has a 100% performance conditional tender which runs from 1 October 2024 to 30 September 2028. Since the start of the period, the NAV total return is -4.3% against a positive 20.6% return for its benchmark.
Change needed
Faraday described the trust’s poor H1 as ‘less about one sector or factor than concentration in a cluster of stock-specific detractors’. This meant some of its larger, rapid-growth tech related holdings saw notable downgrades.
‘In an increasingly AI-driven world, the market moved quickly to stress-test business models under higher discount rates, shorter valuation horizons, and greater uncertainty about future competitive boundaries’, observed Faraday.
Holdings such as Adyen, Prosus and Topicus lost around a third, while Allegro, Hypoport and Reply were also de-rated. There were a few positives, such as ASML and ASMI, ‘even if they were not large enough to compensate’.
In addition, the portfolio underperformed due to its limited exposure to banks, insurers, utilities and energy stocks.
New direction
The portfolio was overhauled toward the end of the period, and is now built around ‘a far broader range of growth types and earnings drivers’. These include ‘structural rearmament’ in defence, infrastructure-like compounding in telecoms, capital strength and rate sensitivity in financials and cash generation in energy.
Holdings including Amplifon, Edenred, EQT, Hypoport, Kinnevik, LVMH, Novo Nordisk, Reply, Sandoz and Topicus were exited outright. Some had performed well and valuations were stretched, others failed to justify their position in the portfolio.
In each case, says Faraday, the question was the same. Is this still the best use of capital once valuation, concentration, timing and the range of possible outcomes are considered together?
While there’s no guarantee the new-look trust will deliver a smooth recovery in performance, it’s much better placed to withstand shocks. Tough decisions were needed, and Faraday starts his tenure with his choice of holdings.
Richard Williams, senior analyst at QuotedData, commented: ‘The new manager has made sweeping changes to the shape of the portfolio. This decisiveness has better positioned the portfolio to navigate a range of macroeconomic scenarios in the current volatile landscape.’
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