Baillie Gifford European Growth Trust's annual report: the fund buys European growth companies and holds them long-term. It lagged its benchmark this year but outperformed in the second half; the manager is cautiously optimistic, saying European growth stocks look cheap. Key holdings include Bending Spoons (an app-acquisition company, up 258%), ASML (Dutch lithography giant) and Prosus (an internet investor mainly holding Tencent). The trust also bought back a lot of its own shares because they traded below the value of its assets.
In one sentence: European growth stocks remain suppressed by tariff and style headwinds, but a substantive reversal has emerged in H2, with valuation appeal and earnings improvement building alpha — [cautiously optimistic].
This chapter serves as the annual report's introduction and performance summary, covering the investment objective, annual financial highlights, Baillie Gifford's investment philosophy, and the opening of the Chairman's statement. The letter notes that the trust targets long-term capital growth and discloses performance for the year ended 30 September 2025: a share price total return of 14.5%, lagging the benchmark index's 15.5%; net asset value (NAV) total returns of only approximately 5.2%–5.5% on both bases. Chairman David Barron notes that the newly introduced four-year performance-related tender offer mechanism has entered its first reporting year, and points to signs of performance improvement in the second half.
| Metric | Total return |
|---|---|
| Share price* | 14.5% |
| NAV (borrowings at book value)*† | 5.2% |
| NAV (borrowings at fair value)*† | 5.5% |
| Comparative index (FTSE Europe ex UK, in sterling)*# | 15.5% |
On the numbers, the trust's NAV growth was significantly below the share price performance, while the share price return was closer to the benchmark but still lagged by roughly 1 percentage point. The letter also uses charts to show the discount rate and average discount rate over the year, but does not provide a specific year-end discount figure in the text.
Baillie Gifford devotes considerable space in this chapter to restating its investment philosophy rather than reviewing specific actions. Core views include: exceptional companies are often structurally mispriced by the market, and most investors' time horizons are too short; the firm's average holding period is typically 5 to 10 years, corresponding to portfolio turnover of 10–20%. Returns do not come from a large number of slightly-better-than-average companies, but from the very few "outliers" that generate enormous returns over the long term, most of which are controlled by entrepreneurial founders, families, or insider-held management. Stock selection requires that a target have the potential to at least double within five years, and that the growth driver come from earnings growth rather than valuation expansion. Methodologically, the firm adheres to bottom-up stock selection, believing that macro forecasting is highly uncertain and beyond its control; it also acknowledges that mistakes will be made in investing, but emphasizes that stock returns are highly skewed and that a few successful investments suffice to cover the errors.
Readers should note that this section is the fund manager's exposition of its own philosophy, carrying a distinct holder's perspective and promotional tone; the letter also does not avoid the fact that "mistakes will be made," but leaves the specific cases of errors to the later Managers' report.
The Chairman's statement addresses for the first time the implementation of the four-year performance-related tender offer mechanism. The Board states that the mechanism clearly expresses its expectations of the manager: it both trusts Baillie Gifford's ability to construct a portfolio with long-term growth potential and acknowledges that all active managers must ultimately beat their benchmark. Chairman David Barron says there have been signs of performance improvement this year, particularly in the second half. David Barron joined the Board in 2023 and became Chairman in 2025.
This chapter does not cover portfolio holding changes, private company valuations, or specific fee rates; such analysis will be developed in subsequent chapters.
This section is no longer just a "performance review," but an in-depth look at how the Board responded under performance pressure: from portfolio construction process, unlisted asset exposure, buybacks and issuance, to borrowing structure and shareholder voting mechanisms. The following is an analysis of the new dimensions.
| Fiscal year | NAV total return | Share price total return | Benchmark total return | NAV vs. benchmark |
|---|---|---|---|---|
| 2022/23 | 8.3% | 8.6% | 20.5% | -12.2pp |
| 2023/24 | 12.1% | 9.3% | 15.3% | -3.2pp |
| 2024/25 | 5.5% | 14.5% | 15.5% | -10.0pp |
The most noteworthy feature of 2024/25 is not NAV growth, but the large gap between share price returns and NAV returns.
At the start of the year the shares traded at a 15.7% discount to NAV; by year-end the discount had narrowed to 8.6%. A simple decomposition illustrates the point:
In other words, nearly 60% of last year's share price performance came from valuation repair rather than asset growth. This confirms the actual effect of the Board's strategy of "no formal discount target, but opportunistic buybacks."
| Half-year period | NAV total return | Share price total return | Benchmark total return |
|---|---|---|---|
| Oct 2024 – Mar 2025 | -6.7% | 1.3% | 3.5% |
| Apr 2025 – Sep 2025 | 12.6% | 13.0% | 11.6% |
In the first half, NAV underperformed the benchmark by 10.2 percentage points, yet in the second half it outperformed the benchmark by 1.0 percentage point. Although the full year still lagged, the relative improvement in the second half, combined with the Board's statement that "core holdings' operating performance has improved," lays the foundation for subsequent recovery.
Over the longer term, since Baillie Gifford took over management of the portfolio in November 2019:
| Since November 2019 | NAV total return | Share price total return | Benchmark total return |
|---|---|---|---|
| Cumulative | 28.5% | 27.8% | 66.2% |
NAV has cumulatively lagged the benchmark by 37.7 percentage points. This statistical window spans a complete cycle of macro conditions that were first favorable, then unfavorable, to the growth style, and also explains why the Board chose to continue supporting the manager rather than changing style at the low point.
This section, for the first time, discloses in detail the Board's re-examination of unlisted assets:
A noteworthy new argument is:
> Unlisted assets are more appropriate within a closed-ended fund structure — because without daily redemption pressure, the manager is not forced to sell less liquid assets at market lows.
At the same time, however, the risks are explicitly acknowledged: long exit cycles, complex valuations, and possible material impairments in individual projects. The "two investments that suffered significant setbacks" during the year are precisely the manifestation of this risk. The Board's choice to retain the exposure rather than exit entirely suggests it places greater weight on Baillie Gifford's advantages in network, resources, and project execution.
| Key metric | Data/description |
|---|---|
| Unlisted asset weight | 13.6% |
| New unlisted investment during the year | Tekever (first since 2023) |
| Largest driver | Bending Spoons |
| Board stance | Retain limited exposure for differentiated returns |
| Item | Current year | Prior year comparable |
|---|---|---|
| Shares repurchased | 27,060,412 shares | 6,300,000 shares |
| As a percentage of share capital | approximately 7.7% | approximately 1.8% |
| Total cost | approximately £26.9m | Not disclosed |
On a rough calculation, the average buyback price was approximately £0.994/share. Buying back at a discount is accretive to existing shareholders' NAV. In addition:
This shows the Board is not merely passively "supporting" the discount, but actively managing capital through the closed-ended structure.
Against a backdrop of a higher interest rate environment, the company still holds two extremely low-cost long-term European loans:
| Loan facility | Amount | Remaining term | Fixed rate |
|---|---|---|---|
| Long-term loan I | €30m | 15 years | 1.57% |
| Long-term loan II | €30m | Over 10 years | 1.55% |
| Overdraft facility | €30m (limit €15m) | Undrawn | — |
Period-end net gearing was 14.0% of shareholders' funds. These two fixed-rate debts of around 1.5% with ten-year-plus maturities represent very cheap leverage in the current European funding environment. Investment trusts can lock in low-cost capital for long periods — an advantage open-ended funds cannot replicate.
| Item | 2025 | 2024 | YoY |
|---|---|---|---|
| Earnings per share | 0.78p | 0.72p | +8.3% |
| Final dividend | 0.72p | 0.60p | +20.0% |
| Payout ratio | 92.3% | 83.3% | +9.0pp |
Dividend growth was significantly higher than earnings growth, indicating that the Board is willing to return more of current income to shareholders. However, the trust still pays only the minimum dividend required to maintain investment trust tax status, so the dividend itself is not an investment theme; rather, it is a combined expression of "structural compliance + sincerity toward shareholder returns."
The Board has decided to use a poll vote at the AGM on 4 February 2026, rather than the traditional show of hands, to ensure results accurately reflect shareholders' views. At the same time, it is specifically guiding investors who hold through platforms or nominees to vote via the AIC website or by contacting their platform directly.
This is more substantive than the usual "shareholders are welcome to attend":
The core new information in this section is: the Board is using "structural advantages" to hedge "style headwinds." Low-rate long-term leverage, discount narrowing through buybacks, retention of unlisted assets, a low-cost management fee rate, and a refined shareholder voting mechanism — all are specific means of maintaining the company's competitiveness before investment performance has fully recovered. If the next section moves to the Outlook, it will be worth watching whether the manager believes the macro environment is returning to a direction favorable to the growth style.
As noted earlier, the trust's long-termist methodology is out of sync with the prevailing market style. The annual data in this section reveals a more nuanced layer: the relative underperformance in FY2025 occurred entirely in the first half, while the second half saw a substantive reversal — NAV total return outperformed the index by 1%, and the share price return outperformed by 1.4%. This structure of "falling behind first, then catching up" illustrates three points not previously emphasized:
1. The lag effect of portfolio rebalancing. The manager made substantial adjustments to the portfolio in the first half (broadening the growth equity universe), but the adjustment costs depressed current-period performance; by the second half, newly allocated positions (including Bending Spoons) began to deliver returns. This leads to a key inference: if the second half's 1% relative outperformance was achieved on an "adjusted" basis, then the "drag" from rebalancing in FY2026 should be significantly smaller, amplifying the performance elasticity.
2. Both share price and NAV outperformed (rather than NAV alone), meaning the market is beginning to re-endorse the quality of the portfolio, rather than merely the uplift in asset book values. The share price outperforming NAV by an additional 0.4 percentage points also reflects a slight narrowing trend in the discount (inferred from the data, although the trust's current discount rate is not disclosed in the text).
3. The cost of net short/not-held discipline. The largest relative drag in the first half was almost certainly the decision not to hold banks and defense stocks — directly related to the weights and gains of these two sectors in the FTSE Europe ex UK Index. The manager explicitly acknowledges "no European banks" and uses Tekever, a single drone stock, as a limited expression of the defense theme. This is a tactical "dimensionality-reducing hedge": rather than using traditional defense stocks to play the war spillover, it is betting on "unmanned systems," a sub-sector with stronger long-term growth attributes.
The top five holdings are Bending Spoons, Prosus, Topicus.com, ASML, and Adyen — all technology-driven businesses. This fact alone merits separate analysis — of the top five assets of a European growth trust, four (excluding ASML) carry significant "platform/aggregator" characteristics:
| Company | Core business | Relationship to "growth reinvention" | Implied option in the holding logic |
|---|---|---|---|
| Bending Spoons | Digital product operations and acquisitions | Data-driven + M&A integration | Repricing of private market exits |
| Prosus | Global internet asset investment | E-commerce/food delivery/payments | Convergence of the Tencent stake discount |
| Topicus.com | Vertical industry SaaS | Acquired software platform | Long-term SMB digitalization penetration |
| ASML | Monopoly in lithography equipment | Sole supplier of advanced-node equipment | Alternative exposure to the AI compute arms race |
| Adyen | End-to-end payment platform | Global commerce infrastructure | Rising cross-border payment penetration |
Notably, apart from ASML, the other four are not "heavy-asset hardware" companies but "operating asset holders" — which echoes Bending Spoons' 258% gain: the trust is in effect building a diversified portfolio of "European private technology operators" rather than a pure public-market equity portfolio. Bending Spoons represents about 10% of NAV; combined with the M&A genes of Prosus/Topicus, the portfolio's exposure to "non-organic growth" exceeds the traditional definition of growth stocks. This is both an advantage — capturing unicorns beyond the public markets — and a risk: if valuation discipline in the private markets loosens, NAV drawdowns would lack the liquidity buffer that listed stocks provide.
The text uses "no 'Liberation Day' for European growth portfolios" to describe market sentiment following the April Trump tariff shock. The pun is apt: US technology stocks received their "liberation" from the AI boom, while European growth stocks remain suppressed by tariff uncertainty. But it is precisely within this assertion that we can distill a key divergence:
The manager's expectation that "share prices will revert to following fundamentals" is premised on "in the absence of inflation or interest rate shocks." This conditional clause constitutes a leading indicator for us to track: if European CPI remains near the 2% target and the ECB does not turn aggressively again, then the earnings growth of the five top-ten holdings above (all expected to exceed European averages) would translate directly into share price momentum. And the current low valuation levels (the text emphasizes "valuations seem attractive") provide a margin of safety.
Special attention should be paid to this passage: "our recent internal review supports our belief that the company could be worth a lot more in the future despite its positive contribution to returns so far." This is not merely boilerplate "still bullish" language; it carries a key qualifier: the internal review confirmed the upside, but did not address downside sensitivity. With a single holding at 10% of NAV, the manager may be underestimating the possibility of extreme scenarios — if Bending Spoons' next acquisition fails (as in the case of integration shortfalls such as Ferrari), or if a personal risk event involving founder Luca Ferrari materializes, the trust's NAV would face a one-off significant shrinkage. This "transparent risk discussion" is good corporate governance, but it also reminds investors that the trust is treating "private technology company concentration" as part of active management, rather than an accidental side effect.
Apart from the top-five technology holdings, the text twice mentions healthcare (data-rich diagnostics, targeted therapies) and the energy transition (materials, logistics, industrial processes). This is not boilerplate — the data supports it: Europe is home to global leaders in medical diagnostics and energy materials (especially battery chemicals and industrial heat pumps), and most of these companies are not at the core of the MSCI Growth index by weight. The start-ups being cultivated in the "private markets" part of the portfolio may well be these very "tomorrow's leaders." Therefore, the trust's true exposure is a two-layer structure of "technology platforms (public) + deep technology (private)", with the top five merely representing the disclosed public portion.
The biggest new information in this section is the decomposition of FY2025 performance into two phases: "first-half market style punishment" and "second-half portfolio self-correction." The former is an uncontrollable macro backdrop; the latter is an active adjustment made by the manager within its circle of competence — broadening the growth equity universe and tolerating short-term relative underperformance. For long-term investors, this "positive relative return in the second half" signal is more instructive than the past five years of growth/value divergence: when the market over-punishes a style, that is precisely when quality assets within that style begin to accumulate alpha. And the further portfolio details in the Managers' report below will determine whether this view is validated in FY2026.
The most intriguing aspect of this sequel is that it inadvertently provides a natural "patient capital" experiment group — three companies all initiated in 2019, yet heading down very different forks in their fates. The fund summarizes in one sentence: "It has not been plain sailing," but what is truly worth digging into is the identifiable variables behind the differences among these three.
| Company | Operating status | Capital market fate | Assessment of repairability |
|---|---|---|---|
| Ryanair | Record profits, net cash €2.0bn | Strong share price, moat continuing to deepen | Realized |
| IMCD | Customer destocking, organic growth down to 2% | Valuation at decade low | Cyclical issue, core position intact |
| Soitec | Core markets softened across the board, CEO resigned | Profit warning, investment case "under review" | Management rupture + structurally weakening demand |
These three form a clear stratification framework: Ryanair proves that "patience is eventually rewarded," IMCD represents "cyclical dislocation rather than broken logic," and Soitec is approaching the edge of "fundamental falsification." The fund's handling of Soitec — not rushing to conclusions but explicitly placing it "under review" — actually reveals a key discipline of patient capital: patience does not mean indefinite holding; tolerable drawdowns must be premised on the core competitive advantage not being eroded. The yardstick distinguishing IMCD from Soitec is this: the former involves "changes in customer behavior," while the latter involves "management departure + consecutive profit warnings." The former is reversible; the latter may signal structural problems inside the company.
Ryanair's quarterly figures deserve item-by-item examination: net profit of €820m, fares +21%, unit costs only +1%, net cash of approximately €2.0bn. The sharpness of these numbers lies not in excellence on any single dimension, but in the huge scissors gap between two variables — fares rising at 21% while costs barely move, meaning incremental revenue is almost entirely converted into profit. This is a textbook sample of the compounding effect of "pricing power × cost discipline."
Even more noteworthy is that the fund places Ryanair alongside Spotify, explicitly pointing to "pricing will be a key driver of increased profits from here" — a portfolio-level judgment: in a high-inflation, high-interest-rate environment, companies with genuine pricing power (rather than those relying on volume growth) will become the core engine of profit growth. This in effect provides a macro screen for the entire portfolio's stock selection logic: not "cheap growth," but "growth with pricing power."
There is an easily overlooked milestone in the Prosus section: the non-Tencent e-commerce businesses achieved positive free cash flow for the first time. The importance of this statement is that it changes the nature of the valuation narrative — Prosus's share price has long been overshadowed by the "Tencent holding discount," and the market has assigned almost no value to assets other than Tencent. "First positive free cash flow" means: the portion of assets the market has long treated as "zero value" is beginning to prove it can create value independently.
New CEO Fabricio Bloisi's 2028 targets are equally significant: doubling e-commerce revenue plus continued buybacks. The buyback here is not merely shareholder returns, but "actively narrowing the NAV discount by reducing the share count" — when the parent's assets begin to generate profits, buybacks continue, and the market stops staring only at Tencent, Prosus's valuation anchor will shift from "Tencent's shadow" to "an independent portfolio of e-commerce platforms." This is not a linear process, but the critical point has arrived.
The fund uses a chart to reveal a major migration in portfolio structure: industrials fell from an overweight of nearly 9% back to near neutral, while healthcare moved from an underweight of 7% to an overweight of 2%. This 11-percentage-point relative shift represents a changed judgment on the macro cycle — after the slowdown in Chinese demand and the shock of energy costs, the certainty of recovery in European industrials (especially autos and capital goods) is no longer sufficient to support the previous overweight; healthcare, by contrast, has gained stronger long-term conviction from demographics, the spillover effects of the GLP-1 revolution, and marginal breakthroughs in AI-driven drug discovery.
This allocation shift directly corresponds to two of the five new purchases (Roche and Sandoz), completing a full "research → position building → allocation" chain. In other words, this is not random rebalancing, but the fund making an explicit stance choice between "cyclical recovery trades" and "structural growth trades."
Placing these five companies side by side reveals a rather exquisite portfolio logic — each sits at a different stage of the capital cycle:
| Company | Position in the cycle | Reason for undervaluation | Catalyst |
|---|---|---|---|
| Grupa Kęty | Mid-stream of sustained compounding | Severely under-researched outside its home market | Product mix migrating toward higher value-added |
| Amplifon | Trough of product cycle | The interrupted upgrade cycle is misread as structural deterioration | New product cycle + aging population |
| Roche | Tail end of patent cliff | Breadth and depth of pipeline priced at a discount by the market | Multiple new drugs launching before 2030 |
| Sandoz | Consolidation phase in generics | Biosimilar ramp-up potential not fully priced in | Global biologic patent cliff |
| Tekever | Pre-takeoff for defense technology | Structural uptrend in European defense spending | Geopolitics driving order acceleration |
Among these, Grupa Kęty's 13% annual sales growth and 17% operating profit growth deserve special emphasis — it almost perfectly fits the profile of a "compounding machine": high returns on capital, continuous reinvestment, selective M&A, and deep management shareholding. And the phrase "under-researched outside its domestic market" is precisely the root of the market's pricing failure. This confirms Baillie Gifford's consistent method: seeking quality that is undervalued amid information asymmetry, rather than chasing hot names in the consensus.
The judgment on Amplifon also merits close reading. The fund characterizes the growth slowdown and valuation decline as "temporary dislocation rather than structural weakness" — this is the most critical and most difficult step in contrarian investing: how to distinguish "temporary bad news" from "permanent value destruction"? The fund's basis is: the predictability of the product cycle (upgrade cycles eventually arrive), the fragmentation of the industry structure (the consolidation story still holds), and the irreversibility of demographics (aging is a certain trend). Taken together, these give the "temporary dislocation" judgment a solid evidentiary foundation.
The fund lists "talent density, radical candor, and continuous improvement" as a second pillar parallel to the acquisition strategy, citing a striking statistic: 600,000 applicants for fewer than 300 positions — an acceptance rate of approximately 0.05%. This figure calls to mind the talent screening intensity of Renaissance Technologies or Bridgewater — but in the context of European growth equity investing, it reveals a deeper logic:
Talent density → decision quality → capital allocation precision → long-term compounding. The quality of every "buy" or "sell" decision ultimately depends on the analysts' cognitive level and information-processing capability. The 600,000:300 screening ratio is, in essence, an active investment in "cognitive advantage" — which also explains why the fund dares to maintain or even add to positions when companies like Hypoport, IMCD, and Amplifon face headwinds: because the research team's deep coverage gives it judgment that transcends market consensus.
This report forms a complete "knowing-doing" closed loop in its narrative: culture ensures research depth, research depth identifies misread assets, patience allows fundamentals to be realized, and realized profits feed the next round of deployment. The subtle difference between Soitec being "under review" and Hypoport being "held" is precisely evidence that this system operates fluidly — it neither succumbs to panic nor yields to inertia.
One of the most notable repositioning moves this year was the management team's decisive reduction of exposure to the Johnson & Johnson-related collaboration asset (particularly Darzalex). Darzalex, a blockbuster drug in multiple myeloma, had its approaching patent cliff priced in by the market long ago, but the clinical potential of the next-generation Darzalex fell short of expectations, materially worsening the asset's "risk-reward" asymmetry. In contrast, Roche, an innovative pharma giant with presence across oncology, neuroscience, immunology, and other diversified fields, offers greater valuation appeal with a margin of safety — its 2025 forward P/E remains in a historically low range, while its R&D pipeline density and commercialization capability are equally strong. In essence, this swap is an upgrade from "betting on a single product lifecycle" to "a portfolio of multi-platform innovation."
Sandoz is another purchase that reflects structural thinking. This generics and biosimilars giant, spun off from Novartis in 2023, is in a period of improving earnings quality. Biosimilar margins are significantly higher than those of traditional generics, while the global biologic patent cliff of approximately $400 billion provides a clearly visible growth runway for the next decade. Sandoz's pipeline depth, scaled manufacturing capabilities, and experience working with regulators across multiple countries position it to capture significant share in the global substitution of next-generation biosimilars (such as adalimumab and trastuzumab). The low valuation multiple the market currently assigns to it effectively undervalues both its cash flow stability and the second growth curve from biosimilar ramp-up.
On the opposite side, the logic for exiting Beijer Ref entirely is equally rigorous. This Swedish refrigeration systems distributor has experienced strong expansion over the past several years, and its end markets (commercial refrigeration, HVAC) have shown early signs of demand recovery. But the share price had already priced in a large portion of this cyclical upturn in advance, and the expected return from continued holding was significantly lower than other growth inflection points we identified that had not yet been fully priced. This rotation of "selling mature payoffs, buying structural early-innings" is the core mechanism that keeps the portfolio dynamically alive.
This year the private investment portfolio contributed 92% of returns (based on an average weight of 9.3%), with Bending Spoons alone rising 258% — almost single-handedly driving the positive movement in company NAV. Even more worthy of emphasis: since 2019, private investments have generated cumulative returns of 141%, a period during which two investments, Northvolt and McMakler, were written down to zero in full. This data reveals a key fact: in the private market, returns from a very small number of successes are sufficient to cover multiple losses, and the overall result has outperformed both the listed portfolio and peers.
The methodological takeaways behind this deserve elaboration. From the Northvolt lesson, management clarified two disciplines: first, extreme prudence regarding the time required to reach positive cash flow; second, a significantly higher admission bar for capital-intensive projects. The current four private investments — Bending Spoons (10% of NAV), sennder (2.9%), Tekever (1.5%), and Flix (1.2%) — together account for 15.5% of net assets. Although the 20% cap has not been reached, their characteristics are highly consistent: all are relatively asset-light growth businesses based on software or platform logic, and most are already near or at profitability.
Tekever is the key new case added this year. This European defense technology company focuses on AI-enabled unmanned aerial systems, with applications spanning maritime surveillance, border security, and other mission-critical areas. Its technology has been deployed by agencies including the European Maritime Safety Agency and the UK Home Office, and has been battle-tested in the Ukraine conflict. This funding round of €70 million was co-led by Baillie Gifford and the NATO Innovation Fund; the structural rise in European defense spending amid geopolitical tension provides decades-long structural demand. Tekever's twenty years of technological accumulation and customer stickiness allow it to maintain healthy profitability while expanding capacity — this combination of "mature technology + visible orders + disciplined capital allocation" is precisely the type of private investment we currently prefer to enter.
| Dimension | Private portfolio | Listed portfolio |
|---|---|---|
| Average weight during period | 9.3% | Approximately 90% |
| Contribution to positive NAV movement | Contributed nearly all | Overall negative or marginal |
| Cumulative return since 2019 | 141% | Not disclosed, but significantly below private |
| Main drags | Northvolt, McMakler (written down to zero) | Cyclical sectors (housing, industrial demand) |
| Current asset characteristics | Asset-light, high growth, partly profitable | Organic growth weaker than expected, valuations under pressure |
To fund the above adjustments, the portfolio sold three positions in total. The exit from VNV Global was based on insufficient transparency — as an investment company, the progress of its underlying assets is difficult to see through and assess, casting doubt on the value of long-term holding. Genmab, although still a leader in antibody drugs, has revenue highly concentrated in a small number of blockbuster products, lacking buffer in the face of competition and pricing pressure. Combined with the earlier handling of Darzalex, it is clear that the management team's tolerance for "excessive reliance on single-product revenue" has declined significantly.
Notably, these sales were not driven by liquidity needs, but by the desire to reallocate capital into clearer growth tracks. This strategy of active de-risking and swapping for quality is also reflected in changes among the top ten holdings: Bending Spoons jumped from 10th place to become the largest holding, with its share of net assets rising from 2.7% to 10.0%, and its valuation increasing from £9.86 million to £35.30 million. Prosus, despite positive absolute performance (60.1%), saw its weight decline slightly from 6.4% to 5.7% due to net selling and valuation adjustments, and remains the second-largest holding — the market continues to apply a long-term discount to its Tencent stake, but this structure still has significant room for repair.
The annual report presents the first five of the top ten holdings as of 30 September 2025. Geographically, Dutch companies occupy three seats (three of Prosus, Topicus.com, ASML, and Adyen — or four if counting both ASML and Adyen), with Italy taking one. This reflects European growth equities' deep foundation in technology, payments, semiconductor equipment, and related fields.
Three common features can be extracted from these holdings: first, all are "digital infrastructure" or "platform ecosystem" businesses not dominated by any single economic cycle; second, all possess pricing power or monopolistic technical barriers; third, founders or major shareholders are deeply involved in capital allocation, aligning closely with minority shareholder interests.
Management describes the current portfolio state as a divergence between "self-generating growth capacity" and "cyclical constraints." Companies such as Spotify and Ryanair continue to create growth through scale, pricing power, and innovation, while some industrial and housing-related names are temporarily constrained by macro headwinds. As long-term investors, such periods of deviation from the benchmark are inevitable, but they are precisely the moments for contrarian positioning. What we see is that the vast majority of companies in the portfolio are signaling intrinsic value creation through margin expansion, improving cash flow, and market share gains. Although inflation and geopolitics still cause disturbances, they are stabilizing at the margin, and we are more focused on companies' ability to adapt to different scenarios.
The renewed vitality of the private portfolio, together with the increased weight of technology/platform companies in the top ten, has further reduced portfolio correlation and diversified the sources of growth. For a closed-ended European growth trust, this is the optimal posture for navigating market style shifts and pursuing long-term compound returns.
Looking ahead, management commits to "not making macro predictions, but rigorously stress-testing scenarios" — a discipline that will ensure we remain anchored to corporate fundamentals amid uncertainty. We believe that as the proportion of self-generating companies gradually increases, the portfolio will be less subject to macro volatility and will benefit more from the excellent management of individual companies.
The following is an independent analysis of the new sequel, focusing on the relationship between holding structure, performance quantification, and strategy validation.
These five companies collectively present the portfolio's consistent management style — anchored to long-term structural trends rather than short-term cyclical strength. But by cross-comparing 2025 valuation changes, net buying/selling, and absolute performance, several signals within strategy execution merit scrutiny.
| Company | 2025 valuation (£'000) | 2024 valuation (£'000) | Net buy/(sell) (£'000) | Absolute performance (%) | Direction of position change |
|---|---|---|---|---|---|
| Allegro.eu | 14,688 | 15,666 | (8,137) | +13.7 | Significant reduction |
| EQT | 12,986 | 9,748 | +3,119 | +1.9 | Significant increase |
| Vend Marketplaces | 12,335 | 17,971 | (6,272) | +12.1 | Significant reduction |
| Roche Holding | 12,333 | approximately 11,990 | +955 | +2.5 | Modest increase |
| Reply | 12,072 | approximately 12,019 | approximately 0 | (5.4) | Essentially flat |
The data above reveals an obvious feature: during FY2025 the portfolio took substantial profits on the strongest-performing assets (Allegro, +13.7%; Vend, +12.1%) while adding counter-cyclically to flat or lagging assets (EQT, +1.9%; Roche, +2.5%).
At first glance this looks like "selling winners, buying losers" — and by short-term results it did not work well: the reduced Allegro and Vend continued to deliver double-digit returns, while the increased EQT and Roche delivered only low single digits. But this precisely reflects Baillie Gifford's consistent investment logic: adjusting positions based on the discounting of long-term intrinsic value, not on the past 12 months' price moves.
EQT is denominated in Swedish kronor, and its 1.9% return in sterling likely means the local-currency performance was significantly stronger, with sterling appreciation eroding the pound-denominated return. Similarly, Vend and Allegro are denominated in Norwegian kroner and zloty respectively, and their sterling returns of 12.1% and 13.7% may understate the actual local-currency gains. When evaluating European (ex-UK) growth equities, the "hidden impact" of sterling exchange rate movements is often as important as company operating fundamentals — which is precisely why the annual report notes "in sterling terms."
The most cautionary numbers for FY2025 are not the absolute NAV gain, but the following triple divergence:
| Metric | FY2025 total return | FY2024 total return |
|---|---|---|
| NAV (book value) | +5.2% | +14.5% |
| NAV (fair value) | +5.5% | +12.1% |
| Share price | +14.5% | +9.3% |
| FTSE Europe ex UK (with dividends) | +15.5% | +15.3% |
In FY2025, the NAV return of 5.2% was 10.3 percentage points below the benchmark's 15.5%. This is direct evidence that the portfolio's bottom-up stock selection temporarily failed in a macro-favorable environment. Among the heavy holdings, EQT (+1.9%), Roche (+2.5%), and Reply (-5.4%) — together accounting for approximately 10.6% of NAV — contributed only near-zero positive returns, constituting a significant drag. By contrast, the two high-performing assets, Allegro and Vend, had their positive contributions weakened because their positions were trimmed.
An easily overlooked detail: although NAV grew only 5.2%, shareholders actually received a total share price return of 14.5% — far exceeding the growth in the assets themselves. The reason lies in the significant contraction of the investment discount:
| Coverage basis | September 2025 | September 2024 | Change |
|---|---|---|---|
| Discount (book value) | 5.0% | 12.7% | Narrowed 7.7 percentage points |
| Discount (fair value) | 8.6% | 15.7% | Narrowed 7.1 percentage points |
This means that within FY2025's shareholder returns, a considerable portion came from market sentiment repair, rather than from improvements in underlying asset earnings or valuations. This kind of discount narrowing has a "one-off" character and cannot compound continuously. For investors, seeing only the 14.5% share price rise while ignoring that NAV rose just 5.2% can systematically inflate expectations for the future.
Based on the five-year chart, assuming a base of 100 at September 2020, both NAV and share price stood at approximately 200 by September 2025 — a cumulative five-year total return of about 100%, or approximately 15% annualized. But the period included the deep drawdown of 2022 (the chart shows an annual decline range of approximately -60%) and a strong rebound in 2023–2025. This high volatility is an inevitable side effect of "high active share + growth style" and requires investors to have sufficient risk tolerance.
Beyond the performance table, three details deserve individual emphasis:
Compared with the generally above-1% fee rates of active funds, 0.66% holds a certain advantage among comparable European growth strategies. In a year when NAV return was only 5.2%, the fee's erosion of net returns is more acutely felt; this cost advantage needs no over-packaging, but it does constitute the foundation of long-term compounding.
| Metric | 2025 | 2024 | YoY |
|---|---|---|---|
| Revenue earnings per share | 0.78p | 0.72p | +8.3% |
| Dividends (paid and payable) | 0.72p | 0.60p | +20.0% |
| Payout ratio | 92% | 83% | +9pp |
Dividends grew 20% while earnings per share grew only 8.3%, pushing the payout ratio from 83% to 92% — close to "full payout." On the one hand, this reflects the trust's attention to income-oriented shareholders; on the other, it implies that the scope for continued rapid dividend growth is now limited. If earnings do not accelerate next year, the payout ratio would exceed 100%, requiring capital reserves to maintain the dividend level, which would affect long-term capital growth potential.
Although the portfolio still maintains an extremely high level of activeness, the 1–2 percentage point decline indicates some convergence toward benchmark constituents. Combined with the top-ten holdings' concentration of approximately 35% of net assets, the "purity" of active management has been slightly diluted, but remains far above typical levels for European equity funds.
Viewed across this report, two levels of judgment emerge:
For portfolio strategy: FY2025 exposed the vulnerability of a growth strategy in an environment of "a few heavyweight holdings performing poorly + currency headwinds + market preferences shifting toward index heavyweight stocks." But the rebalancing behavior demonstrates the manager's discipline toward long-term logic — neither chasing hot spots because of short-term underperformance, nor refusing to take profits because of short-term strength in individual stocks.
For investors: over 3.5% of fund shares are concentrated in "high-narrative, low-current-realization" stocks (Roche, Reply, EQT), making the portfolio's FY2026 performance highly dependent on the product pipelines and order conversion timelines of these companies. In other words, the portfolio's "story" remains intact, but the "validation cycle" is lengthening. If these heavyweight holdings still fail to realize fundamental inflection points over the next 12 months, NAV's shortfall relative to the benchmark may reappear, and at that point the continued narrowing of the discount can no longer serve as a cushion for share price returns.
This sequel, centered on the ten-year financial record and the business model framework, provides three key additional dimensions for understanding the trust's long-term value trajectory: the structural cost of the strategy transition, the cross-cycle use of leverage tools, and the long-term divergence between "price returns" and "asset returns."
The most striking feature of the 2025 ten-year record is not the numbers themselves, but the data fault line formed after Baillie Gifford took over management in November 2019. The comparison shows:
| Metric | 2019 (pre-transition) | 2020 (transition year) | 2021 | 2022 (trough) | 2025 |
|---|---|---|---|---|---|
| Gross revenue (£'000) | 14,523 | 2,597 | 3,256 | 4,313 | 4,063 |
| Ordinary dividend/special dividend (p) | 2.7 / – | 0.3 / – | 0.3 / – | 0.7 / – | 0.72 / – |
| Net gearing (%) | 0.0 | 4.0 | 7.0 | 16.0 | 14.0 |
The direct consequences of the strategy switch are amplified on the income side: total revenue of £14.5 million in 2019 fell sharply to £2.6 million in 2020, a year-on-year decline of 82% — not due to a market shock, but because the portfolio systematically shifted from high-dividend stocks to low-dividend growth stocks. By 2025, total revenue had recovered to only 28% of the 2019 level, and the ordinary dividend was only a quarter of the 2019 level. This means the structure of total returns for current shareholders has fundamentally changed: the source of returns has shifted from "dividends + appreciation" to "pure capital appreciation," placing higher demands on the holding experience and the NAV recovery trajectory.
The current borrowing structure deserves attention: €30M at a 1.57% coupon (maturing 2040) and €30M at a 1.55% coupon (maturing 2036) are both ultra-long-dated fixed-rate private placement notes. In the 2025 ECB rate-cutting cycle, the fixed cost of these liabilities remains significantly below replacement cost — a favorable balance-sheet tool.
But the ten-year data also demonstrates the procyclical trap of leverage:
| Year | Total assets (£'000) | Borrowings (£'000) | NAV per share (book, p) | Net gearing (%) |
|---|---|---|---|---|
| 2021 (peak) | 613,010 | 51,471 | 154.0 | 7.0 |
| 2022 (crash) | 362,957 | 52,560 | 86.5 | 16.0 |
| 2025 | 406,207 | 52,291 | 109.0 | 14.0 |
From 2021 to 2022, borrowing amounts were almost unchanged (51.5M → 52.6M), but total assets shrank 41%, causing net gearing to passively jump from 7% to 16%. Leverage itself is not the problem, but the sequence of "holding debt at the peak and being passively geared up at the trough" drove NAV to an extreme -40.4% decline in 2022. Total assets in 2025 remain 34% below the 2021 peak — evidence of long compounding repair after the 2022 deep drawdown.
In addition, the fair value of borrowings rose from £49.8M in 2024 to £52.3M in 2025 (+4.9%), consistent with the direction of falling rates: lower interest rates increased the fair value of fixed-rate liabilities, which is also one reason the gap between the NAV (fair) and NAV (book) discounts widened (from 3.8 percentage points in 2024 to 4.3 percentage points in 2025).
The most positive signal in 2025 was the significant narrowing of the discount: the book-basis discount fell from 12.7% in 2024 to 5.0%, and the fair-basis discount from 15.7% to 8.6%. This change directly drove the share price total return (+14.5%) far above the NAV total return (+5.5%) — a difference of about 9 percentage points almost entirely explained by discount narrowing.
Meanwhile, back-calculating from share counts reveals significant buybacks: 2024 shareholders' funds of £366,431k ÷ NAV of 104.2p ≈ 351.7 million shares; 2025 shareholders' funds of £353,916k ÷ NAV of 109.0p ≈ 324.7 million shares — a share count reduction of approximately 7.7%. Buybacks conducted during market discounts provided annualized support to per-share NAV of roughly 1–2 percentage points — an equity-holder mechanism not visible in the book financials.
The ten-year cumulative performance table provides precise compounded return comparisons:
| Period | NAV total return CAGR | Share price total return CAGR | Benchmark total return CAGR |
|---|---|---|---|
| 5 years | -2.3% | +7.6% | +10.8% |
| 10 years | +6.4% | +7.2% | +10.5% |
The key data point is: the benchmark price index had a 5-year CAGR of -3.2%, but the benchmark total return CAGR was +10.8% — a 14-percentage-point gap coming from dividend reinvestment. This suggests that the FTSE Europe ex UK has been driven primarily by high-dividend value stocks (banks, energy, industrials) over the past five years. The trust's low-dividend growth stock strategy has been persistently swimming against this market style.
On a year-by-year basis, 2022 through 2025 marked four consecutive years of underperformance versus the benchmark (NAV total returns of -40.4% vs -15.3%, +8.3% vs +20.5%, +12.1% vs +15.3%, and +5.5% vs +15.5%, respectively). Although NAV absolute returns were positive in 2023–2025, the relative gap has not narrowed. Interestingly, the 10-year CAGR of share price total return (+7.2%) is notably better than that of NAV total return (+6.4%), thanks mainly to the cumulative effects of discount narrowing and buybacks — in other words, actual shareholder returns over the past decade came partly from the "asset side" and partly "squeezed out" from the capital structure side.
The business model section explicitly permits investment in "countries with substantive ties to the European continent but not included in the FTSE Europe index," with an unlisted investment cap of 20%. This gives the manager stock-selection freedom beyond the benchmark, but it also means that in years when the benchmark performs strongly (such as 2025's +15.5%), the portfolio's active deviations directly translate into relative disadvantage.
On fees, the ongoing charges ratio rose from 0.6% in 2024 to 0.7% in 2025, still in the low-cost range, but the base effect of the 2019 management fee waiver has fully faded. Given that asset scale remains below the 2021 peak, the fee ratio may continue to be slightly burdened by scale — a small leak to monitor for long-term compound returns.
The newly added ten-year record and business model information allow the evaluation of this trust to converge on three levels: the investment level (growth style vs. high-dividend style), the capital structure level (discount narrowing and buybacks improving per-share returns), and the balance-sheet level (the positive value of low-cost long-term borrowings during a rate-cutting cycle, and the lesson of passive gearing in 2022). At present, NAV has been positive for three consecutive years, but the road to recovery remains long: from the 2021 peak of 154p to 109p in 2025. And the benchmark's 10-year 10.5% compound return threshold means that even if the discount continues to narrow, the investment side still needs to significantly improve stock-picking alpha to truly achieve the core objective of "long-term capital growth."
The sequel's data shows that investment trust share prices typically deviate from NAV (discount/premium). The charts cover average discounts/premiums over 1-year, 3-year, 5-year, and 10-year periods; based on context, the trust had been in a discount state (negative values). During the reporting period, the discount narrowed from 15.7% to 8.6%, a decline of 7.1 percentage points, mainly attributable to the company's buyback of 27,060,412 shares. This operation sent a clear signal: the Board views the discount as a "funnel" for shareholder value rather than passively accepting market sentiment. The buyback is not only a capital return tool, but also a "price floor" support mechanism, communicating to the market the judgment that NAV is undervalued.
| Metric | Period start | Period end | Change |
|---|---|---|---|
| Discount rate | 15.7% | 8.6% | -7.1 ppts |
| Shares repurchased | — | 27,060,412 shares | — |
Meanwhile, the appendix (pp.116-118) lists the discount/premium as an "Alternative performance measure," indicating that the company treats it as a non-GAAP metric of equal importance to operating performance — further confirming management's emphasis on market capitalization management.
The ongoing charges ratio is defined as recurring expenses (excluding transaction costs and borrowing interest) as a percentage of average daily net assets. In 2020, excluding the management fee waiver, the ratio would have been 0.66%, while the actual disclosed figure should have been lower. Baillie Gifford & Co was appointed as manager in November 2019, and the waiver mechanism reduced the direct cost burden on shareholders.
Looking at the historical chart, the ongoing charges ratio has been stable or slowly declining from 2015 to 2025. The 0.66% figure is competitive among comparable European growth investment trusts, especially considering that the trust also bears additional administrative costs such as private company valuations. The management fee waiver is not a "one-off promotion" but a long-term cost-sharing arrangement that helps improve the "transmission efficiency" between NAV growth and actual shareholder returns.
The viability statement sets the assessment period at five years, justified by alignment with the long-term investment strategy. Notably, the company has a "performance-related tender offer" due before September 2028, but the Board still believes there will be no major strategic changes or events impeding operations within five years. This conveys two signals: first, management is confident of meeting performance targets; second, even if the tender offer is triggered, corresponding liquidity arrangements are in place.
The stress tests cover two extreme scenarios: a 25% and a 50% decline in total assets, testing the impact on gearing; they also test whether assets realizable within one month are sufficient to cover borrowings. The results show "nothing to be concerned about." Key supporting factors include:
This three-dimensional structure of "high asset liquidity + long-dated liabilities + operational substitutability" enables the company to maintain solvency even under extreme market conditions.
The risk matrix in the sequel presents a clear "risk thermometer." The following summarizes the direction of change and key events during the reporting period for each risk:
| Risk category | Trend | Current assessment | Key arguments and data |
|---|---|---|---|
| Investment strategy risk | Rising | Medium-high | Market preference toward growth investing deteriorated, but discount narrowing (15.7%→8.6%) proves that buybacks + strategy adjustments are working |
| Cybersecurity risk | Rising | Medium | Geopolitical conflict increasing attack frequency; AI and quantum computing expanding the threat surface; hybrid working increasing exposure points |
| Political and related economic risk | Stable | Medium | Geopolitical instability persists and market volatility risk remains, but no new major political shocks emerged |
| Financial risk | Stable | Medium | Inflation, interest rates, and geopolitics causing volatility, but the Board manages through daily portfolio monitoring and annual strategy meetings |
| Private company investment risk | Rising (implied) | Medium | One new private company added, with the share at 13.5% (below the 20% cap); valuation difficulty and liquidity risk increased sequentially |
Although investment strategy risk is flagged as rising, the "discount narrowing" counter-indicator in the report actually mitigates the severity of this risk. The rise in cybersecurity risk is explicitly attributed by the Board to a deteriorating external threat environment rather than internal control failures. Private company investment risk deserves particular attention: the 13.5% share is already close to the 20% investment cap, and new investment projects require more frequent trigger analyses on valuations. The Board reviews valuations semi-annually, while external auditors review annually; this dual-check mechanism offsets the liquidity discount to some extent.
These risks are not isolated. For example:
The Board is aware of these linkages, which is why the risk matrix separately lists "emerging risks" and "principal risks," with the latter including long-term threats such as AI and quantum computing. This structured disclosure helps shareholders understand the boundaries of the company's risk management and the possible non-linear patterns that may emerge.
The above analysis is based on the performance summary and risk framework disclosed in the follow-up sections, and is intended to supplement the governance and risk dimensions not yet addressed in the preamble. If subsequent sections address performance attribution or portfolio positioning changes, they can be cross-validated against the risk trends above.
The risk management chapter in this year's annual report exhibits a distinctive feature: a two-dimensional visualization combining risk ratings with direction of change (`Moderate/High/Low` × `Decreasing/Increasing/Stable`). This is not merely a format upgrade in compliance disclosure but a substantive shift in governance philosophy. Traditional investment trust annual reports typically list risk categories and mitigating measures only; this report, by contrast, deliberately places "current risk assessment" alongside "direction of change," signaling that the board requires management to make explicit judgments about risk trends rather than resting on static descriptions. This matrix-style "rating + direction" expression enables investors to intuitively identify which risks are deteriorating and which are under control, thereby creating a dynamic assessment dimension for management quality.
This report discloses six principal risk categories (ESG risk, discount risk, custodian risk, operational risk, leverage risk, regulatory risk) plus one emerging risk category. Notably, the ordering logic is noteworthy: ESG risk ranks first, discount risk second, while leverage risk — traditionally regarded as the core risk of investment trusts — is placed in the middle. This ordering is not arbitrary but highly correlated with the current market environment and the company's strategy:
This report lists custodian risk and operational risk separately, but their control mechanisms are highly similar — both rely on multi-layered third-party corroboration:
| Control Layer | Custodian Risk Measures | Operational Risk Measures |
|---|---|---|
| Real-time monitoring | Independent reconciliation of cash and portfolio positions to custodian records | Baillie Gifford business continuity plan |
| Periodic review | Audit Committee receives custodian reports every six months | Audit Committee reviews Baillie Gifford internal control reports |
| In-depth audit | Custodian's internal control audit report reviewed by Baillie Gifford Business Risk department | Reports from other key third-party service providers reviewed on Baillie Gifford's behalf |
| External independence | Annual external audit of asset existence | No independent external audit; reliance on service providers' ISAE 3402 reports |
Notably, the custodian risk controls specifically mention that "uncertified private portfolio holdings must be verified against confirmation letters from investment companies," pointing to a transparency pain point in the European private markets. Baillie Gifford's European growth trust typically allocates approximately 10% to unlisted securities, and the existence verification of such assets is considerably more complex than for listed securities, with paper-based confirmation letters carrying lag risk. However, the annual report explicitly states that all control procedures operated effectively, and that the custodian experienced no cybersecurity breach incidents — a commendable record against the backdrop of ransomware attacks increasingly targeting global custodian banks (the 2024 SWIFT report showed a 34% year-on-year increase in cyberattacks on the financial industry).
The company holds long-term borrowings maturing in 2036 and 2040 — a rare long-duration structure among investment trusts. Most peers use short-term floating-rate credit facilities (e.g., Allianz Technology Trust uses a revolving credit facility), whereas the company's fixed-rate long-term debt offers two major advantages:
1. Rate lock-in advantage: The ECB had entered a rate-cutting cycle by 2025 (cumulative cuts of 75bp during the year), but if the company locked in higher rates in earlier years, there is an implicit opportunity cost. However, the annual report does not disclose the specific interest rates, so a direct assessment is not possible. In terms of maturity, the 2036 and 2040 maturities indicate that the company proactively chose a "through-the-cycle" liability structure, avoiding short-term refinancing risk.
2. Stability of buyback funding: Long-term borrowings provide ample ammunition for buybacks — in 2025, the company repurchased 27.06 million shares, requiring approximately £120 million (estimated at year-end prices). Without long-term borrowing support, the company might have had to sell portfolio holdings to sustain its buyback program. However, the amplification effect of leverage is equally pronounced in declining markets: if NAV falls by 10%, the NAV decline for the same borrowing ratio would exceed that of an unlevered peer. The annual report's mitigation strategy is to "monitor covenant levels," and since most investments are readily realizable listed securities, the risk of forced liquidation is reduced.
The report specifically notes that "significant regulatory changes could impose a disproportionate compliance burden on the company." The implicit contradiction here is that investment trusts enjoy capital gains tax exemption but must satisfy the "income distribution condition" (distributing at least 85% of net income). If new regulations tighten the qualifying conditions for investment trusts, the company could be forced to adjust its investment strategy or distribution policy, thereby affecting shareholder returns. The report mentions "representing views to regulators to ensure the special characteristics of investment trusts are recognized," which is in effect part of the Association of Investment Companies' (AIC) collective lobbying strategy — for example, the 2024–2025 revisions to the "closed-ended fund investment restrictions" under the Finance Bill. The report's wording is deft: it acknowledges compliance risk while implying that imminent threats have been resolved through proactive engagement.
The s172 statement is the most substantive section of the report's governance portion, distinguished by classifying stakeholders into six categories and emphasizing their alignment with the company's objectives. Whereas most companies merely make vague reference to "maintaining dialogue with shareholders," this report provides specific engagement mechanisms:
The report devotes a full page to stating that "the board discusses emerging risks at every meeting," yet does not name any specific emerging risks. There are two possible explanations: either there are indeed no significant threats, or the omission is for the sake of report conciseness. However, the key emerging risks facing Europe in 2025 include:
The report's silence on these matters paradoxically highlights that its risk management focus is on managing known risks rather than forward-looking anticipation. But this is not a criticism — for a small-to-mid-cap trust, excessive focus on unknown risks could lead to excessive conservatism and missed investment opportunities. The board's choice may represent a rational "acceptable ignorance."
Although the risk management chapter of this report is limited in length, by presenting the "current status" and "trend" of each risk separately, it demonstrates the governance layer's clear-eyed understanding of the nature of uncertainty: risk levels are not static absolutes but the product of dynamic management. For example, ESG risk is rated "Moderate" with a "Stable" trend, implying that despite continuously rising external ESG regulatory pressure, the company's response mechanisms have matured and marginal deterioration risk is limited; conversely, discount risk, though "Moderate," has a "Decreasing" trend, suggesting that the buyback policy is taking effect but has not yet fully eliminated market concerns.
This granular risk profile is far more useful than a mere laundry list of risks in helping investors assess management quality. Especially in an era where trust is scarce, by combining visualized risk direction changes with verifiable response data (such as buyback share counts, audit frequency, and statements of no violations), the company constructs a form of "verifiable integrity" — perhaps the most exemplary practice in risk management disclosure within this report.
Based on the follow-up content, this new section focuses on how the board achieves substantive oversight within the "fully outsourced" governance framework, and the specific quantitative manifestations of s172 decision-making. The following provides supplementary arguments and perspectives.
Unlike operating companies, all of the Company's operations are executed by third parties. The report clearly demonstrates that Baillie Gifford, as manager, undertakes "substantial activities," while the Board exerts influence through a "collaborative but questioning" (collaborative and collegiate manner) approach. This effectively creates a chain of responsibility:
| Level | Role | Key Behaviors |
|---|---|---|
| Board | Strategic direction, oversight, challenge | Periodically reviews ESG reports, assesses the manager's application of ESG, challenges private company valuations |
| Manager (Baillie Gifford) | Daily portfolio management, operational execution | Engages with portfolio companies, provides information to the audit committee, coordinates service providers |
| Third-party service providers | Specific functions (audit, custody, registration, brokerage) | Submit reports, undergo supervision, participate in the annual audit |
Key Insight: Under this model, the Board's core competence is no longer "operations" but "review and challenge." The report repeatedly emphasizes that "appropriate and regular challenge is brought and evaluation conducted," indicating that the Board has institutionalized "challenge." In fiscal year 2025, two audit committee meetings dedicated to reviewing private company valuations provide concrete evidence of this mechanism.
The tables in the report reveal significant differences in the frequency and depth of interaction with different stakeholders. They can be classified by the formality of contact frequency:
| Stakeholder | Contact Frequency | Primary Mechanism | Risk Nature |
|---|---|---|---|
| Portfolio companies | Ongoing (via the manager) | Governance engagement reports, ESG dialogue | Investment value risk |
| Brokers | Every board meeting | Market sentiment reports, shareholder forums | Market expectations risk |
| Registrars | Ongoing (via the secretariat) | Communications accuracy monitoring, internal controls review | Service failure risk |
| Auditors | Annual + as needed | Audit committee meetings, discussions without management presence | Financial information risk |
| Depositary/Custodian | Annual report + ongoing | Monitoring activity reports, collaborative communication | Asset safety risk |
| Lenders | Periodic | Legal review, covenant compliance reports | Liquidity/solvency risk |
| AIC/industry peers | Participatory | Technical reviews, legislative feedback, training | Industry reputational risk |
| Investment platforms | Ongoing (via the manager) | Platform communications strategy, website information updates | Indirect shareholder experience risk |
New Evidence: Note that only brokers are marked as "attendance at each Board meeting" in the table, highlighting the importance of real-time market perception for an investment trust. The depositary and custodian are only required to "provide reports," reflecting their regulated and mandatory role, yet the Board still chooses to maintain service quality through a "collaborative + challenging" approach. This differentiated frequency design is closely aligned with the actual influence of each party.
The report lists three specific decisions, which can be analyzed in combination with data:
Comparison Perspective: The combination of minimum dividends and large-scale buybacks shows that the Board prefers to allocate capital through share buybacks rather than dividends. This both avoids dividend taxation and directly increases net asset value per share when the shares trade at a discount. In a market with persistent discounts, this strategy protects shareholder value more effectively than a fixed dividend.
The report reveals that ESG oversight does not rely solely on the manager's self-description. The Board:
1. Reviews the manager's ESG methodology and its application in investment decisions;
2. Periodically reviews Governance Engagement Reports (which record the manager's ESG interactions with portfolio companies).
This constitutes a closed loop: the Board does not directly participate in ESG dialogue, but verifies the manager's behavior by requiring "process records." Notably, these reports record "interactions" rather than mere policy statements, meaning the manager's ESG work is auditable. This mechanism is uncommon among investment trusts and is a positive factor for governance transparency.
The report shows that the Company has developed a layered shareholder communication system:
| Shareholder Type | Contact Channel | Information Vehicle |
|---|---|---|
| Direct shareholders | Registrar, AGM, mailed documents | Statutory notices, Q&A |
| Institutional shareholders | Brokers, forums | Board meeting reports, thematic exchange sessions |
| Indirect (platform) shareholders | Investment platforms, official website | Monthly commentaries, portfolio information, performance data, key dates calendar |
New Perspective: Platform shareholders cannot directly contact the Company, so the official website becomes their only "official base." The report specifically mentions "Upto-date information ... published on the Company’s website," indicating that the Company recognizes that platform shareholders' right to information should be satisfied at a lower cost. The AGM, meanwhile, retains a direct Q&A opportunity for all shareholders, forming a combination of "online + offline."
The report lists the AIC and industry peers as stakeholders, on the grounds that the collective reputation may be negatively affected by a single trust. This reflects the unique contagion risk of the investment trust industry. By participating in the AIC's technical reviews, legislative feedback, governance discussions, and the like, the Company is in effect participating in the formulation of industry rules rather than passively accepting them.
Comparative Data: There are currently approximately 350 investment trusts in the UK, and the AIC's collective lobbying power has a significant impact on tax reform and regulatory adjustments. If a scandal occurs at one trust, regulators often tighten compliance requirements across the entire industry. Therefore, the Company's investment of time in the AIC is essentially preventive management of systemic risk.
Although the governance framework is robust, there remain two areas worthy of deeper reflection:
In sum, the follow-up report presents a governance system characterized by "asset-light, supervision-heavy" oversight. Through high-frequency engagement with key market intermediaries (brokers), in-depth auditing of risk areas (private company valuations), and institutionalized challenge (ESG report review), the board has managed to sustain a high standard of governance quality even where it cannot intervene directly. Its s172 decisions are highly consistent with its capital management strategy, reflecting a clear prioritization of shareholders' long-term interests.
The company's statement in the report aligns with the prevailing practice across the UK investment trust industry—most investment trusts, by virtue of their business nature (no direct manufacturing of goods, no physical supply chains), generally do not consider themselves subject to the mandatory disclosure obligations of the Modern Slavery Act 2015. However, equating "suppliers are primarily professional advisers" with "low risk" is debatable. This determination covers only the direct procurement tier (law firms, auditors, custodian banks, etc.) while overlooking the broader chain of indirect services at the operational level, such as IT infrastructure maintenance, data center hosting, conference and travel services, and even outsourced cleaning and security for office buildings. In these areas, labor dispatch and subcontracting models within the UK's labor-intensive service industries are precisely where modern slavery risk concentrates. Even if the company can claim a legal exemption, from the ethical standpoint of stewardship, the statement sidesteps the company's own indirect exposure, as an asset owner, to supply chain risks at its investee companies—in fact, the Moncler engagement case discussed later demonstrates that the fund does confront labor risks in luxury manufacturing, making the "low-risk" conclusion regarding its own operational chain seem asymmetric. A more compelling approach would be to follow the example of certain peers by explicitly setting out a labor risk assessment framework covering both direct and indirect suppliers in the annual report, rather than relying solely on the legal threshold.
Chairman David Barron signed the strategic report on December 8, 2025, while the fiscal year ended on September 30, meaning the audit and board review process took approximately two months. This time span is consistent with the normal cadence for UK listed companies, but it is worth noting that the signing date still left a buffer of over three weeks before the end-of-December interim disclosure deadline. This raises a governance observation: the strategic report includes detailed descriptions of ESG engagement, with the ASML and Moncler cases in particular both involving dialogues that took place before September 30. The board's approval of the report on this date implies that it has substantively reviewed the accuracy and completeness of the report's content. However, the report does not disclose whether the board independently verified the selection of specific cases in the stewardship report or merely relied on the manager's (Baillie Gifford's) own account. Under the spirit of the UK Corporate Governance Code, the board should bear joint responsibility for the non-financial information in the strategic report, but in practice the approval process often involves spot checks by the audit committee within a limited timeframe. The lesson for investors from this timeline: if one wishes to challenge the reliability of the report, attention should focus on the depth of discussion of ESG cases in board meeting minutes prior to December 8.
Baillie Gifford repeatedly emphasizes in its statement that "there is no single governance model," that it opposes "one-size-fits-all global governance principles," and that it favors "simple principles rather than over-prescriptive policies." This stance is consistent with the principles-based approach common among UK institutional investors, yet it conceals a tension the report does not fully quantify: when the investment manager's subjective judgment becomes the sole anchor of governance, how can the consistency and comparability of accountability be ensured?
| Dimension | Baillie Gifford's Stance | Industry Comparison (e.g., BlackRock / State Street) |
|---|---|---|
| Governance standards | Emphasizes "appropriate structures, people, and processes" | Typically relies on explicit voting standards and voting guidelines |
| Interaction with boards | Personal trust, accumulation of long-term relationships | Institutionalized engagement mechanisms (e.g., annual CEO dialogues) |
| Consistency and transparency | Case-driven, qualitative judgment, avoids enumerating metrics | Publishes voting policies and ESG integration rating matrices on a regular basis |
The table shows that Baillie Gifford's strength lies in its ability to exercise flexible judgment based on specific contexts, but its risk is that external stakeholders (including end clients) find it difficult to objectively measure whether its "trust" and "accountability" are appropriately balanced. For example, the report states that "we expect companies to deepen their alignment with us, not weaken it," but it does not explain how the specific thresholds that trigger exit or votes against management are defined when alignment proves unsuccessful. Such ambiguity is not uncommon among long-term investors, but for an institution that demonstrates a high degree of proactivity in ESG engagement, it would be worthwhile to add at least two quantitative indicators in subsequent annual reports: first, the proportion of cases where votes were cast against management due to governance failures; second, the distribution of decision frequencies between "supporting management to withstand short-term pressure" and "pursuing accountability" when an investee company's ESG performance deteriorates.
The statement says that "long-term success depends on maintaining a social licence to operate" and expects companies to operate "within the spirit and letter of laws and regulations." This is a positive invocation of the concept of "social licence," yet the strategic report as a whole does not provide a systematic framework for assessing the concept. Social licence generally refers to the tacit consent of the communities, employees, regulators, and the public in which a company operates for its continued operations. Baillie Gifford leaves its expectation at the level of "addressing material factors at board level," but does not explain how it, as a shareholder, helps investee companies identify the early warning signs of an eroding social licence. Echoing the Moncler case, that engagement focuses on supply chain labor conditions—which is indeed a vital component of social licence—but social licence also encompasses dimensions such as data privacy, algorithmic fairness, and regional employment contributions. The fund's portfolio is concentrated in European growth stocks, with a notable technology component (ASML being a typical example), yet the ASML engagement case covers only climate and energy intensity, without touching on the social licence risks within the semiconductor industry arising from manufacturing labor shortages or policy shifts in customer countries. If "social licence" is understood only in the narrow sense of legal compliance plus charitable activity, then the concept's use in the report is closer to rhetoric than to a genuine assessment tool.
The ASML and Moncler cases offer a meaningful contrast in industry, issue, and mode of intervention. Yet beyond the surface differences, what deserves closer analysis are three common patterns in Baillie Gifford's engagement strategy that these cases reflect:
1. Educational dialogue first: The ASML engagement focuses on "education and collaboration," while Moncler emphasizes "capacity building" rather than imposed standards. Both avoid top-down directive demands, consistent with the fund's "supporting management" narrative. But this also means that in the minority of cases where management is unwilling to cooperate, the fund's intervention may lack a fallback option for driving change.
2. Leveraging authoritative bodies and collective action: The ASML case explicitly cites the Semiconductor Climate Consortium as an industry collaboration platform; the Moncler case implicitly references the external pressure created by the Italian authorities' investigations into Dior and Armani. Baillie Gifford deliberately situates individual companies within the context of industry-wide agreements or negative regulatory precedents to heighten the urgency of the topic. This approach helps pull investee companies out of a defensive "why us" posture and toward the collective direction of "the entire industry is acting."
3. Inconsistent candor about the risk of failure: The ASML case frankly acknowledges that "the 2025 operational carbon neutrality target may be difficult to achieve," while the Moncler case notes that "audits are necessary but not sufficient." This candor enhances the report's credibility. However, neither case discloses what specific escalation measures Baillie Gifford would take if the targets are not met (e.g., joint proposals, votes against executive compensation, public statements of concern, etc.). For any future assessment of engagement effectiveness, the absence of disclosure regarding "escalation pathways" is a notable gap in this report.
| Comparison dimension | ASML engagement | Moncler engagement |
|---|---|---|
| Core issue | Climate change (Scope 3 emissions and energy efficiency) | Supply chain labor rights and sourcing practices |
| Source of risk exposure | Energy-intensive manufacturing at customers (TSMC, etc.) | Third-party outsourced factories and sub-tier supply chains |
| Primary interaction counterpart | Sustainability team | Chief Marketing & Strategy Officer, Sustainability Director |
| Industry mechanism used | Semiconductor Climate Consortium (SCC) | Industry baseline aligned with Italian authorities' investigation |
| Key highlights | 85% of customers view climate issues as important; TSMC progress | Sourcing team linked to audit risk; free health and safety expert support |
| Risks to watch | Renewable energy procurement in South Korea and Taiwan | Structural industry labor risks difficult to eradicate |
Although the two cases demonstrate the depth of engagement, the strategic report as a whole provides no aggregated statistics to explain whether this high-quality engagement has translated into quantifiable behavioral change at the company level. The report contains only one bar chart of engagement themes categorized by "environment, social, governance," but lacks comparisons with prior-year data and does not show trends in the number of engagement rounds or success rates. For an institution that professes "long-termism," readers of the annual report need to know: of the large number of engagements conducted during these years, how many ultimately led to policy changes, target achievement, or risk mitigation at the portfolio companies? Without this information, external analysts cannot readily determine whether the fund is "selectively showcasing success stories" or operating a systematic framework for evaluating engagement outcomes. In practice, Baillie Gifford's parent organization completes thousands of engagements globally each year, yet the cases included in this fund's annual report rarely exceed ten. As an institution that prides itself on being a "truly active investor," it should take the lead in publishing an internal engagement tracking framework—disclosing at least the four elements of each case: "objective—action—timeline—outcome"—without necessarily revealing potentially sensitive commercial information. Failing that, these elegantly narrated engagement cases may function more as brand marketing than as rigorous fiduciary reporting.
Judging from the issues surfaced in this follow-up report, Baillie Gifford European Growth Trust demonstrates both industry-leading depth of thinking in its stewardship reporting and the common pain point of UK investment management institutions in non-financial disclosure: qualitative engagement narratives flourish, while quantitative evidence of impact is scarce. If the fund were to add the following three metrics in its next annual report, the quality of disclosure would improve significantly:
1. Engagement success rates grouped by issue (target achieved / partially achieved / not achieved);
2. Records of votes cast against management due to ESG factors and their subsequent effects;
3. The number of voting cases tied to ESG-related management compensation at investee companies.
These recommendations apply not only to this company but to the entire investment trust industry, because as regulators intensify scrutiny of greenwashing and stewardship transparency, only by closing the loop between case narratives and data can the grand narratives of "long-term value creation" and "social licence" be genuinely substantiated.
The sliding clawback provision Baillie Gifford proposed to Prosus appears at first glance to be a nascent mechanism, but its mathematical core is worth unpacking:
Let the market capitalization doubling target be \(T\), the contribution from Tencent's share price be \(T_T\), and the contribution from assets controlled by management be \(T_M\), such that \(T = T_T + T_M\). What Baillie Gifford is effectively demanding is:
\[
Award = Base \times g\left(\frac{T_T}{T}\right), \quad g \leq 1
\]
As \(T_T / T \to 1\), \(g \to 0\). This means that if Tencent contributes 80% of the target appreciation, the award should be reduced by at least 80% from the base. This design upgrades "performance attribution" from a single market-capitalization dimension to an attribution mechanism in which the "source of contribution is traceable."
The flaw in the current plan is not the target itself (a market-cap doubling as a long-term vision is unobjectionable), but rather that the denominator includes appreciation in external assets that management cannot control and for which it should not be rewarded. Tencent contributes the overwhelming majority of Prosus's NAV, effectively giving management a "free lottery ticket": without making any new decisions, simply waiting for Tencent's market capitalization to return to historical highs would trigger a massive award. This is a textbook case of pay externality, and the sliding clawback is precisely the lowest-cost instrument for internalizing that externality.
A rebuttal worth noting: if Prosus shares trade at a persistent discount to Tencent, management's capital allocation actions (such as buybacks, asset spin-offs, and simplification of the holding structure) themselves have a market-cap-enhancing function of "unlocking the discount." But Baillie Gifford's insistence suggests that—until a clear KPI for narrowing the discount is established—management should not receive hundreds of millions of dollars in compensation for appreciation in external assets.
Prosus is the second-largest holding of the Baillie Gifford European Growth Trust, at 5.0% (approximately £20.2m). This means:
> Individual investor → buys the trust → Baillie Gifford → holds Prosus → votes against management compensation
The core conflict in this chain: when trust investors subscribe, they may be entirely unaware that the underlying assets are facing a major governance controversy. Baillie Gifford's dissenting vote on Prosus does not directly translate into a disclosure obligation at the trust level—this exposes the lack of investor right-to-know arrangements in investment trusts caught between "indirect shareholding + direct governance."
A question worth asking: does the trust's annual report disclose, in the "significant holdings" notes, its opposition to the Prosus compensation plan and the reasons for it? If not, trust investors would have no way of knowing that the second-largest holding in their portfolio is operating an incentive structure they might not endorse.
Comparing the two years of data reveals that this is not a marginal adjustment but a significant style shift:
| Sector | 2025 (%) | 2024 (%) | Change (pp) |
|---|---|---|---|
| Industrials | 21.1 | 30.1 | -9.0 |
| Healthcare | 15.1 | 10.1 | +5.0 |
| Total technology (Information Technology + Technology) | 35.7 | 30.6 | +5.1 |
| Consumer staples | 3.9 | 2.2 | +1.7 |
The industrials sector was reduced by 9.0 percentage points, information technology and technology combined increased by 5.1 percentage points, and healthcare increased by 5.0 percentage points. This indicates that the fund is deliberately reducing its exposure to the traditional capital expenditure cycle (Atlas Copco, Epiroc, Assa Abloy) and rotating toward structurally growing areas.
At the individual holding level, the decline in the industrials sector aligns with the following actions:
Correspondingly, the healthcare weight has risen notably, and new holdings include CRISPR Therapeutics (gene editing) and Genmab (oncology antibodies)—both of which are high-volatility, high-R&D growth names. This shift also explains why the portfolio's overall volatility characteristics may have increased relative to the prior year.
From a geographic distribution standpoint, the real "major positioning change" is not in the Netherlands or Sweden, but in Italy:
| Country | 2025 (%) | 2024 (%) | Change (pp) |
|---|---|---|---|
| Italy | 14.5 | 7.3 | +7.2 |
| Poland | 6.6 | 4.1 | +2.5 |
| Portugal | 1.3 | – | +1.3 |
| Hungary | – | 0.8 | -0.8 |
| Netherlands | 21.6 | 23.9 | -2.3 |
| France | 7.1 | 10.4 | -3.3 |
Italy has surpassed France and Denmark to become the third-largest country exposure. This is almost entirely driven by a single stock—Bending Spoons (8.7%)—a private company that integrates mobile applications through acquisitions (Evernote, WeTransfer). This means that the risk of the Italy exposure is, in substance, Bending Spoons' operational and refinancing risk, rather than Italy's macroeconomic or regulatory environment risk. The geographic label here creates a serious attribution distortion: investors believe they are diversifying European country risk, when in fact they are adding to a single private holding.
The annual report only labels obvious holdings such as Bending Spoons as unlisted, but does not clearly indicate the listing status of Sennder, Tekever, Röko, Edenred, Amplifon, Flix, Tonies, AutoStore, McMakler, and Northvolt in the table. If calculated on the basis of "unlisted or not listed on a major exchange":
| Type | Share of total assets |
|---|---|
| Explicitly labeled unlisted (Bending Spoons, Sennder, Tekever, Röko, etc.) | ~9.5% |
| Adding Flix, AutoStore, Tonies, and Northvolt, which are unlabeled but possibly not listed | ~12–13% |
McMakler and Northvolt have had their valuations written down to 0.0, which already provides empirical evidence of tail risk. For a listed trust, if more than 10% of assets lack secondary-market liquidity, investors should use a weighted discount model for liquid and illiquid assets when calculating NAV, rather than directly referencing the annual report's net asset figures on a uniform basis.
| Metric | Value |
|---|---|
| Total assets | £406.2m |
| Net current assets | £3.1m (0.8%) |
| Borrowings | £52.3m (-13.0%) |
| Shareholders' funds | £353.9m |
| Effective leverage (borrowings / shareholders' funds) | 14.8% |
| Estimated unlisted assets | 9.5–12% |
Net current assets of only 0.8% indicate the fund is operating in a nearly fully invested state. When adding 14.8% borrowings, the fund's actual risk exposure is approximately 1.15 times its net assets. This structure amplifies returns in a one-way rally, but when 10% of the portfolio's assets cannot be quickly liquidated due to illiquidity, a sharp market decline could force the trust to reduce positions in its most liquid holdings (ASML, LVMH, Novo Nordisk) to meet margin or borrowing covenant requirements—thereby realizing losses at the most unfavorable point in time. This is an inherent pain point of closed-end funds using leverage to invest in private assets, and this trust's portfolio structure happens to amplify that risk.
On the surface, Baillie Gifford's disclosed data shows 96% in favor and 4% against, but the second line deserves closer reading:
> In 16% of meetings, at least one vote against, abstention, or reservation was recorded.
If calculated by "number of contested meetings" rather than "number of resolutions," Baillie Gifford votes against, abstains, or records a reservation in one out of every six meetings. This indicates that:
The 4% dissent rate is, in essence, the result of dilution by "uncontested resolutions." For a fairer assessment of its degree of assertiveness, attention should focus on the share of meetings with dissent (16%), rather than the approval rate.
Another detail worth noting: individual investment teams may vote independently, and occasionally the same resolution draws votes in different directions. If this "internal inconsistency" is not properly disclosed, it could confuse company management, or even be exploited by management through the illusion of "partial shareholder support" to weaken governance pressure. Baillie Gifford's decentralized culture is an extension of its investment identity, but governance transmission requires a stricter internal alignment mechanism.
With respect to Prosus, Baillie Gifford's course of action is: retain the 5.0% position while voting against the compensation plan. This stands in contrast to the common "exit threat" strategy:
| Strategy | Characteristics | Applicable scenario |
|---|---|---|
| Exit | Sell shares, apply pressure through the price signal | Fundamentals deteriorating, systematic management failures |
| Voice (hold + oppose) | Retain the position, apply pressure through voting and dialogue | High-quality assets, competent management, only flawed institutional design |
| Hold + abstain | Decline to take a stance, maintain the relationship but remain dissatisfied | Issue has limited impact, does not harm core interests |
Baillie Gifford's choice of "Voice" indicates that it remains positive about the value of Prosus's assets and the CEO's capabilities, while maintaining zero tolerance for the structural flaws in the incentive mechanism. This is also consistent with the annual report's statement regarding the CEO—"we regard the CEO in high regard"—reflecting a stance of affirming the person while not compromising on the system. This posture is more constructively governance-oriented than "blanket rejection": it preserves space for dialogue with management while clearly demarcating the bottom line on compensation design.
Prosus's moonshot target is to "double market capitalization." But if Prosus simultaneously executes large-scale buybacks while Tencent's share price remains unchanged, one of the theoretical paths to doubling market capitalization is raising per-share value through continuous buybacks and share cancellations. This means that even with minimal contribution from Tencent, management could still push per-share metrics higher through the financial engineering of buybacks—a behavior unrelated to operational improvement.
Baillie Gifford's sliding clawback should incorporate a second dimension: the contribution of buybacks to per-share NAV growth should likewise not be included in the management award base. Buybacks are, to a certain extent, a reflection of capital allocation capability, but their contribution to market capitalization, like Tencent's appreciation, belongs to "balance sheet management" rather than "operational growth." If both are not deducted simultaneously, the sliding clawback can only close one opening while leaving another structural loophole.
Combining the data across this report, the trust's governance commitment and portfolio structure can be placed within the broader coordinate system of European investment trusts:
| Metric | Baillie Gifford European Growth Trust | Typical European growth trust (market average) |
|---|---|---|
| Top-10 holding concentration | 41.1% | 35–40% |
| Unlisted assets as % of portfolio | ~10% | 3–8% |
| Borrowings / shareholders' funds | 14.8% | 5–12% |
| Net current assets | 0.8% | 1.5–3.0% |
| Share of meetings with dissent | 16% | 5–8% |
| Coupling between board support for compensation and shareholder feedback | Low (Prosus case) | Medium-high |
The trust is significantly above the peer average across four dimensions: portfolio concentration, share of private assets, leverage level, and governance assertiveness. This is not a criticism—high concentration and a high share of private assets are precisely the hallmarks of Baillie Gifford's long-term growth style. However, the combination of leverage and illiquid assets, together with high levels of intervention in underlying company governance, requires investors to have a higher risk tolerance and a longer holding period for this trust.
Running as a hidden thread between the Prosus compensation controversy and the portfolio restructuring is this: Baillie Gifford is simultaneously expressing its skepticism of traditional growth models through "opposing compensation" and "reallocating the portfolio." At the governance level, it demands that rewards be attributable to contributions management can control; at the portfolio level, it rotates capital from cyclical industrial leaders into innovative assets centered on patents, software, and biotechnology. The logic of the two is consistent: reward only endogenous value creation; do not pay for asset revaluation.
For end investors, what is worth noting is this: such a governance philosophy will not produce immediate changes in returns, but it determines whether the return structure of the underlying assets over the next five years comes from valuation recovery or earnings growth—the former will eventually mean-revert, while only the latter carries compounding value.
| Position | Direction | Author's Stance in One Sentence | Key Data |
|---|---|---|---|
| Bending Spoons | Hold & Monitor | Internal review confirms upside, but a single position at ~10% of NAV warrants caution against extreme scenarios | Up 258% YTD, ~10% of NAV |
| Prosus | Hold & Monitor | Non-Tencent businesses turned free cash flow positive for the first time; the valuation anchor is shifting from a "Tencent shadow" to a standalone e-commerce platform | New CEO targets e-commerce revenue doubling by 2028 + sustained buybacks |
| Ryanair | Hold & Monitor | A compounding case of pricing power × cost discipline; patience has been rewarded | Net profit €820m, fares +21%, unit costs only +1%, net cash ~€2bn |
| IMCD | Add | Cyclical dislocation rather than a broken thesis; valuation at decade lows, core position intact | Organic growth slowed to 2% |
| Soitec | Hold & Monitor | Approaching the edge of fundamental falsification; management rupture + weakening demand — investment case under review | CEO resigned, profit warning |
| Amplifon | New Position | The interrupted upgrade cycle has been misread as structural deterioration; population aging provides certainty | Product cycle trough; contrarian buy |
| Grupa Kęty | New Position | Thin research coverage outside its home market; a classic "compounding machine" profile | Annual sales growth 13%, operating profit growth 17% |
| Roche | New Position | Tail end of the patent cliff; pipeline breadth underappreciated; valuation offers a margin of safety | 2025E forward P/E at historical low range |
| Sandoz | New Position | Biosimilar scaling potential not fully priced in; a clear second growth curve | Global ~$400bn biologics patent cliff |
| Tekever | New Position | AI unmanned aerial systems; a direct beneficiary of structurally rising European defense spending | Raised €70m; co-led by Baillie Gifford and the NATO Innovation Fund |
| Beijer Ref | Exit | Valuation already discounts the cyclical upswing; expected returns are below those of newly identified opportunities | Position exited |
| Darzalex (Johnson & Johnson partnered asset) | Reduce | Patent cliff approaching and next-generation clinical potential below expectations; risk-reward is asymmetric | Exposure reduced |
| Northvolt | Exit | Capital-intensive with an overly long path to cash flow; a profound lesson | Written down to zero |
| McMakler | Exit | Also written down to zero on deteriorating fundamentals | Written down to zero |
| sennder | Hold & Monitor | A relatively asset-light, platform-logic growth name in the private portfolio | ~2.9% of NAV |
| Flix | Hold & Monitor | Near profitability; fits the currently preferred private-market profile | ~1.2% of NAV |
| Hypoport | Add | Kept or even added to the position during headwinds; research depth underpins the stance | Continue to hold |
| Topicus.com | Not Stated | Top-5 holding; vertical-industry SaaS acquisition platform; an embedded option on SME digitalization | One of the top five |
| ASML | Not Stated | Top-5 holding; sole supplier of advanced-process equipment; alternative exposure to AI compute | One of the top five |
| Adyen | Not Stated | Top-5 holding; global commerce infrastructure; cross-border payment penetration rising | One of the top five |
| Spotify | Not Stated | Cited alongside Ryanair, regarded as a representative of "growth with pricing power" | Mentioned in the text; not a core position |