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The high conviction trust hunts for compelling UK growth opportunities
Thursday 04 Jul 2019 Author: James Crux

Investors seeking to complement mainstream UK value and income-oriented funds with a concentrated, actively managed best ideas growth trust should snap up Baillie Gifford UK Growth Fund (BGUK).

The only Baillie Gifford-managed investment trust trading at a significant discount to net asset value (NAV), 5% at the time of writing, a continuation of the recent pick-up in performance should trigger a re-rating.

Indeed, Winterflood Investment Trusts’ Simon Elliott believes the trust could swing to an NAV premium over the next 12 months, helped by Baillie Gifford’s high profile among retail investors.

Baillie Gifford assumed responsibility for running the trust, formerly Schroder UK Growth, at the end of June last year. The change came at the instigation of the board and followed a period of poor performance that had seen the trust languish on a persistent discount.

Although Baillie Gifford UK Growth has underperformed the FTSE All-Share since the change, it has outperformed so far this year, delivering an NAV total return of 15.5% versus 13% for the FTSE All-Share Index.

The investment trust is co-managed by Iain McCombie and Milena Mileva and aims to achieve capital growth and a total return in excess of the FTSE All-Share.

It now has a mid and small cap bias with a relatively concentrated portfolio of 42 ‘best ideas’. Active share, a measure of how different a fund is to its benchmark index, is high at 86%.

The investment approach has a growth and quality bias, with the team taking a long-term ownership approach. They search for under-appreciated growth stocks, believing in the power of compounding and that superior growth drives long-term outperformance.

Having shifted away from larger income holdings into growth companies that are reinvesting rather than distributing dividends, the yield on the trust’s investments is of ‘secondary importance’.

The portfolio includes drinks giant Diageo (DGE) and online car listings play Auto Trader (AUTO), as well as precision engineering outfit Renishaw (RSW) and safety group Halma (HLMA).

The largest holding is Hargreaves Landsown (HL.), but the trust now also has a stake in rival investment platform AJ Bell (AJB) and remains invested in out-of-favour fashion retailer Ted Baker (TED).

The position in the latter was reduced following allegations over the behaviour of founder and major shareholder Ray Kelvin, although the trust’s managers believe the recent  appointment of a new CEO is a positive for the business.

DISCLAIMER: AJ Bell is the owner and publisher of Shares. The author owns shares in AJ Bell.

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