Fund Profile

Baillie Gifford European Growth 15 December 2022


This is a non-independent marketing communication commissioned by Baillie Gifford. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

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Baillie Gifford European Growth Trust (LON:BGEU) is managed by Stephen Paice and Chris Davies, who start with a blank piece of paper and aim to identify the companies with the best long-term growth prospects in the European market.

The portfolio is highly active and differentiated from the benchmark. Positions in unlisted companies contribute to this, the weighting being currently at 10.6% of the portfolio, as does the significant mid-cap tilt. Overall, the trust is highly sensitive to the growth factor, which helps explain the swings in recent absolute and relative returns.

The last year has seen a significant fall in both the NAV and share price, following an equally extreme rise. As we discuss under Performance, this has been driven by macroeconomic conditions which we believe are unlikely to repeat and, in our view, long-term alpha is more likely to come from the managers’ success in identifying companies which can deliver exceptional long-term earnings’ growth.

The managers report an “extreme mismatch between the potential of our companies and their valuations” and that operational performance has largely been good, even as prices fall. In fact, some companies have performed extraordinarily well, yet been punished (see Portfolio).

BGEU’s shares have moved onto a discount over the course of 2022 as risk aversion has risen and growth-investing has fallen out of favour. At the time of writing, the discount is 13.8% compared to an average of 9.8% for the AIC Europe sector.

The trust has structural Gearing which contributes to NAV volatility and amounted to 15% of NAV at last month end, following falls in the portfolio’s value over the year. Helpfully, this debt has been locked in for the long term at very low rates.

Analyst's View

The approach taken by Stephen and Chris is refreshingly optimistic. While the immediate outlook for the economy in the UK, in Europe and globally is poor, and the cost-of-living crisis bites, it is important to remember that there are still new markets and products being developed. Human ingenuity has a good track record of improving our standard of life and generating wealth. Stephen and Chris are looking for the outliers which will deliver the greatest returns, often by delivering the greatest change. This highly-active approach has the potential to generate high levels of outperformance, as it has done in the past, although active approaches also bring the potential for underperformance if the stock picks are wrong.

In our view, BGEU looks increasingly interesting after a period of underperformance. The longer record of the strategy has had a tendency to deliver alpha in cycles (see Performance). We would not, however, expect the extreme outperformance of 2020 and early 2021 or the extreme underperformance since, to repeat. This is because these seem reflective of extreme swings in economic conditions and valuations. In short, we would not expect growth stocks to be so indiscriminately bid up or down, but rather earnings’ performance to be more crucial to performance.

After significant falls in the portfolio’s value and with the trust on a discount of 13.8%, we think this looks potentially attractive as an entry point. It is particularly important for investors to take a long-term view though. This is due to the managers’ own focus on the long-term, the immediate outlook being poor for short-term earnings, which often drives short-term share price performance and the potential for volatility, thanks to the high active share and structural debt.


  • Open-ended equivalent has a long-term track record of outperformance
  • Managers’ compensation package is designed to incentivise long-term value creation
  • High-conviction approach to European growth-investing


  • Gearing can enhance losses on the downside
  • Active approach also increases chance of underperformance
  • May underperform if interest rate expectations rise
Continue to Portfolio

Fund History

19 Jun 2024 None in, one out
We ask why companies are disappearing from public markets, and if it matters…
23 May 2024 Has BGEU passed its “inflection point”?
The managers of BGEU highlight that valuations remain attractive even after a 20% rally…
26 Jan 2024 Baillie Gifford European Growth Trust: manager insights
Investment manager Chris Davies discusses performance, portfolio positioning and why the Trust continues to seek fast-growing companies that prioritise long-term growth over near-term profits. He also explains why the allocation to private companies is an important point of differentiation for the Trust...
04 Dec 2023 Fund Analysis
BGEU looks exceptionally cheap given the growth potential in the portfolio…
03 Nov 2023 European Growth Investing: time to go bargain hunting?
In this webinar recording Stephen Paice, co-manager of the Baillie Gifford European Growth Trust, shares where opportunities lie and what trends he sees driving value creation over the next five years and beyond...
16 Jun 2023 Baillie Gifford: what investors get wrong about Europe
Chris Davies, joint manager of the Baillie Gifford European Growth Trust, gives three examples of European companies that show there is no shortage of ambition and disruption in Europe...
17 Feb 2023 Baillie Gifford European Growth Trust - Manager Insights
Investment manager Stephen Paice explains the European Growth Trust’s objectives, with an update on the portfolio as well as reflections on recent events and reasons for optimism...
15 Dec 2022 Fund Analysis
BGEU is a high-risk, high-potential return strategy looking cheap on a portfolio and share price level…
28 Sep 2022 Mind the gap
While chaos reigns in the short-term for markets, some investors see a growing disconnect between prices and reality...
28 Sep 2022 Slides and Audio: Baillie Gifford European Growth
Download the presentation and listen to the audio from our 'Growth at an unreasonable price' event from 20 September...
31 Aug 2022 Growth at an unreasonable price
Growth has taken a beating as inflation fears have soared, but the tide may be turning and we have six speakers at our next event ready to tell us why…
22 Jul 2022 Baillie Gifford: Which European country is driving innovation?
In the latest episode of Short Briefings on Long Term Thinking, Baillie Gifford’s Stephen Paice explains how Sweden tops the charts for original thinking and innovation...
01 Jun 2022 Investing in Europe with investment trusts
How closed-ended funds can help you invest in Europe…
18 May 2022 Riding out the storm
We look at trusts with tightly governed discounts which may appeal to investors in volatile markets…
14 Apr 2022 Baillie Gifford European Growth Trust - Growth Investing in Europe
In this recent webinar, co-manager Stephen Paice discusses why the case for owning growing, innovative companies is getting stronger for BGEU despite a rough period for growth investors the world over. Stephen also outlines growth investor opportunities in Europe and answers viewer questions...
18 Feb 2022 Baillie Gifford European Growth Trust - Manager Insights
Moritz Sitte, co-manager of the Baillie Gifford European Growth Trust, gives an update on investment philosophy, portfolio activity and positioning, and outlook...
19 Jan 2022 Fund Analysis
BGEU offers investors an attractive option for European growth investing, combining listed and unlisted opportunities…
20 Oct 2021 Board games
Investment trust boards talk a good game about championing shareholders interests - but do they really deliver?
09 Sep 2021 What next for European equities?
After a strong period for European equity markets, we ask whether this trend can continue…
26 May 2021 Stand and deliver
Is a high OCF daylight robbery or should investors keep calm and carry on? Our analysts debate the perennial question…
21 May 2021 Europe’s digital ambitions
European companies have quietly built up some of the world’s largest digital platforms for ecommerce. The next stage will be anything but quiet say Stephen Paice and Moritz Sitte, joint managers of Baillie Gifford European Growth Trust.
01 Mar 2021 Baillie Gifford European Growth Trust - Manager Update
Stephen Paice, investment manager of the Baillie Gifford European Growth Trust plc, gives an update on investment philosophy, performance, portfolio positioning and outlook. Capital at Risk.
25 Jan 2021 How Covid is changing the way we shop
With the high street either shut down or harder to get to during the pandemic, consumer habits had to change. Baillie Gifford investment manager Moritz Sitte explores what this means for the future of shopping.
25 Jan 2021 Podcast: How Covid is changing the way we shop
With the high street either shut down or harder to get to during the pandemic, consumer habits had to change. In our Short Briefings on Long Term Thinking podcast, Moritz Sitte explores what this means for the future of shopping.
24 Jun 2020 Fund Analysis
BGEU has seen a turnaround in performance under its new managers…
18 Jun 2020 Gimme shelter
As income investors brace for impact we ask which regions and trusts are less likely to cut their dividends in 2020…
18 Dec 2019 Continental blend - the case for European companies
17 Dec 2019 Baillie Gifford European Growth
Baillie Gifford are now managers of the re-named Baillie Gifford European Growth Trust plc. In this film, co-managers Stephen Paice and Moritz Sitte outline why they have repositioned the portfolio to focus on the 40 or so companies that they believe are most likely to deliver outstanding growth over the next five to ten years...
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