Fund Profile

Baillie Gifford European Growth 19 January 2022

Disclaimer

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.

Overview
BGEU offers investors an attractive option for European growth investing, combining listed and unlisted opportunities…
Overview

Baillie Gifford European Growth Trust (BGEU) aims to uncover the leading European growth companies, identifying companies with outstanding growth prospects in new technologies, new industries or in underappreciated sources of growth. The management team, Stephen Paice, Moritz Sitte and Chris Davies, believe the European stock market contains lots of stodgy, old-fashioned companies, but also lots of highly innovative and exciting businesses which are often overlooked by index-aware investors. They think that subtly and slowly the European market is changing as these companies grow and list, offering huge potential for investors who are exposed early on this journey.

Baillie Gifford were awarded the management contract in November 2019, yet they have a long track record of managing a similar strategy via the Baillie Gifford European Fund, which has generated an impressive five-year NAV total return of 97.5%, beating both its peers and benchmark. As we highlight in the Performance section, the open-ended strategy has generated these results with a higher five-year volatility than its peers, but this volatility is more than compensated for by its superior returns.

Stephen, Moritz and Chris look for companies with a highly asymmetric risk profile, and which they believe can at least double in value over the next five years. They highlight that much of their historical outperformance has been driven by a few outliers that have generated disproportionately large returns. Thus the team would rather avoid missing winners than holding losers. We cover the process in more detail in our Portfolio section.

Since Baillie Gifford took over the trust there has been a substantial change to its Dividend. BGEU now pays a much lower dividend, reflecting a reduction in the underlying income that results from a greater focus on growth stocks. BGEU currently trades on a 4.6% Discount, amongst the narrowest in its peer group.

Analyst's View

We think BGEU is a compelling option for long-term investors. The highly active approach taken by the Baillie Gifford team opens up the possibility of significant outperformance, and good stock-picking has almost doubled investors’ money over the past five years. The closed-ended structure has the added benefit of allowing the managers to take significant exposure in the unlisted space, opening up the huge return potential in early-stage companies and providing a differentiator from the majority of the peer group. It is true though, that the approach has led to high volatility of returns and we think BGEU may be better suited to more aggressive or long-term investors who are able and willing to tolerate the higher risk.

Although BGEU’s current discount is small, we think it could be an interesting entry point and we note that the trust traded on a premium earlier in 2021 when risk appetite in Europe was higher. Over the long run if the managers are correct about the return potential in their portfolio, then the discount is going to be immaterial to returns.

bull bear
Open-ended equivalent has a long-term track record of outperformance
Gearing can enhance losses on the downside
Manager’s compensation package is designed to incentivise long-term value creation
Under Baillie Gifford, BGEU now has a lower dividend payout
High-conviction approach to European growth investing
Can underperform during a value rally
Continue to Portfolio

Fund History

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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