Baillie Gifford European repositions portfolio as asset value falls
Baillie Gifford European Growth Trust PLC on Friday posted a decline in net asset value over its first half.
The London-based investor in European Securities posted a NAV per share of 97.1 pence with debt at book value as of March 31, down from 109.0p at September 30.
With debt at fair value, NAV per share was 102.2p, down from 113.3p at the end of September, reflecting a decline of 9.2%.
By contrast, the company’s benchmark, the FTSE Europe ex UK index, had a 4.4% total return for the same six-month period.
‘At a high level, companies that could evidence near-term cash flows, defensiveness, and explicit energy price correlation performed well. The shortfall was in many respects less about one sector or factor than about concentration in a cluster of stock-specific detractors, where certain larger, rapid-growth holdings saw notable downgrades. In addition, the portfolio also underperformed due to the limited exposure to high-performing sectors such as banks, insurers, utilities, and energy, which dragged down relative performance throughout the period, particularly in March when the oil and gas shock hit,’ the company said.
It cited Prosus NV, Adyen NV and Hypoport SE, as detractors, while contributors included ASML Holding NV and Roche Holding AG. It is also expecting one of its private investees, a technology company called Bending Spoons Spa, to float later this year.
Since the start of October 2024, Baillie Gifford European Growth’s NAV has fallen 4.3%, while its benchmark has risen 20.6%.
‘This level of underperformance is clearly disappointing and underlines the need for change,’ the company noted on Friday.
‘Toward the end of the period, a deliberate repositioning was implemented. As a result, the portfolio is now built around a far broader range of growth types and earnings drivers. These now include structural rearmament in defence, infrastructure-like compounding in telecoms, capital strength and rate sensitivity in financials, and cash generation in energy,’ Baillie Gifford European continued.
New additions include AIB Group PLC, UBS Group AG, Allianz SE, Swiss Re AG, TotalEnergies SE, Iberdrola SA, Deutsche Telecom AG, Rheinmetall AG, Nemetschek SE, Knorr-Bremse AG, Rational AG and CTS Eventim AG & Co KGaA.
To fund the changes, Baillie Gifford European exited its positions in Hypoport, Edenred SE, LVMH Moet Hennessy Louis Vuitton SE, Novo Nordisk AS and Amplifon Spa.
‘We believe the changes made are a positive step towards better execution, and ultimately stronger performance,’ commented Chair David Barron.
Still, Baillie Gifford’s Joe Farraday said: ‘Europe rarely offers a settled backdrop, and the current one is no exception...In a de-escalation scenario for the Middle East conflict, energy prices normalise, confidence recovers, and the market’s recent preference for defensiveness begins to fade...In a prolonged disruption scenario, the backdrop is less comfortable: weaker demand, stickier energy-driven inflation, and tighter policy for longer.’
Farraday added: ‘This does not, and cannot, amount to a promise of a smooth performance recovery. It does, however, leave the period with a sturdier starting point. The portfolio retains its growth credentials but is better positioned to navigate volatility rather than endure it. If market confidence improves, there remains meaningful upside. If the external backdrop stays unsettled, there is more resilience than before.’
Baillie Gifford European shares fell 1.0% to 98.81 pence on Friday morning in London and are down 5.9% over the past six months, but up 1.2% over the past year.
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