Baillie Gifford’s Stephen Paice and Chris Davies suffered another difficult year as their investing style and a bet on e-commerce business Adyen led the underlying asset value and share price of Baillie Gifford European Growth (BGEU ) to snap back to its 2019 level, when they first took on the trust.

The net asset value (NAV) of the £389m portfolio of assets rose 8.3% in the year to the end of September, underperforming the benchmark, which was up 20.5% over the period. The share price was up 8.6% at 83.6p, or a discount of 13.6%.

The managers said that when they took on the portfolio from Edinburgh Partners in November 2019 the share price was slightly more than 80p. A strong period saw the shares rise to around 170p, but it has ended the current period back where it started, with the underlying asset value suffering the same story. 

‘While we continually ask ourselves what we could have done differently, Baillie Gifford has been managing European portfolios since 1985 and has experienced poor performance before,’ the managers wrote in the annual report. ‘Many of our most successful companies have been through similarly difficult bouts. Just as those companies did, we emerged from each one in a stronger position.’

However, they added they did not want to ‘downplay the recent period of poor performance’.

‘We think about it every day,’ they wrote. ‘Disappointing as this is, however, it is more important to consider where the share price will be five years from now.’

November has seen an uptick in performance with the trust’s share price rising 11.5% as hopes over peak interest rates have supported equity markets. 

2023 portfolio

Along with a style shift away from growth investing in the financial year, the duo also suffered from their investment in online payment platform Adyen, which saw its share price fall about 50% after reporting it was losing market share. The business, which had made up 4% of net assets before the fall, has recovered somewhat after a positive trading update, but it is still 40% below July’s level.

The pair said the share price drop ‘looks temporary’ but they ‘continue to monitor progress and debate the attractiveness of the new, lower valuation’.

The company’s private portfolio, which makes up 10.9% of total assets through investments in five unlisted companies was hit by its largest position. Swedish battery developer Northvolt, which makes up 4.9% of overall assets, saw its valuation written down by 22% in the period in line with its listed comparables. However, it continues to make strong operational progress and an IPO has been mooted in recent weeks.

The managers benefited from their bet on discount airline Ryanair, which makes up 4.4% of the portfolio, as it continued to take market share. It was also boosted by online classified companies Adevinta and its major shareholder Schibsted, which are both held in the portfolio at weights of 2.5% and 3.8% respectively. Both share prices have risen following news a private equity group is considering an acquisition of Adevinta.

The trust’s net revenue for the year was 2.68p per share, up from 0.79p the previous year.

The rise was thanks to £7.9m which the trust received in tax repayment following a settlement agreement in relation to the Franked Investment Group. This was fully distributed to shareholders through a special interim dividend of 2.2p per share paid in September.  

The board is recommending a final dividend of 0.4p down from 0.7p in 2022.  

Performance since Baillie Gifford took on management

 Source: Morningstar