Baillie Gifford is an Edinburgh investment partnership founded in 1908, famous for ultra-long-horizon, high-conviction growth investing — its early stakes in Amazon, Tesla and NIO are classics. Its "actual investors" philosophy holds world-changing companies on 5-10 year views; AUM is around $120bn. The Insights column carries its managers' investment views and thematic research.
This report argues that some quality UK companies are undervalued because investors have piled into a few big stocks like banks and defense firms. Firms like Moonpig (a digital greeting card platform with 70% UK market share) and Spirax Sarco (an industrial engineer with a hard-to-replicate sales force) have strong earnings but cheap prices. For ordinary investors, it suggests looking beyond the hype at medium-sized UK growth stocks that the market has overlooked. Worth reading because it shows when the market makes a mistake, patient investors can find bargains.
The UK stock market exhibits a significant disconnect: in 2024, the FTSE All-Share index rose 24%, but only 10 companies contributed nearly two-thirds of the gains, concentrated in the banking, defense, and pharmaceutical sectors. Meanwhile, many global, innovative growth companies in the FTSE 250 (
The report argues that the UK stock market currently presents a structural opportunity where "fundamentals are significantly out of sync with valuations." Due to macro shocks over the past five years, investors have shortened their time horizons, causing capital to cluster in a handful of large-cap stocks (banks, defense, pharma). Meanwhile, many growth companies in the FTSE 250 with global competitiveness and sustained growth capacity have seen their earnings per share (EPS) growth outpace that of cyclical value stocks, yet their share prices have yet to reflect this shift. The report's core judgment is that the intrinsic value of long-term growth companies is systematically undervalued, offering a significant contrarian entry opportunity for patient capital.
This thesis stands in stark contrast to the market consensus (that the UK is a value/defensive market, with growth opportunities in the US or Asia). Most investors believe the UK stock market lacks a growth narrative, but the report argues that the growth narrative is not missing—it has been obscured by the market's short-term narrative.
The report constructs its logical chain using the following data and cases:
1. Abnormal Concentration of Market Returns (Indicating Structural Imbalance)
2. Historical Divergence Between Large-Cap and Small-Cap Performance and Fundamentals
3. Case Evidence: Moonpig
4. Case Evidence: Spirax Sarco (New Buy Target)
5. Macro Background Explanation (Why the Opportunity Exists)
The cumulative effects of shocks over the past five years (pandemic, supply chain disruptions, inflation, interest rate hikes, geopolitical uncertainty) have led to:
| Company/Theme | Role | Key Data | Author's Stance |
|---|---|---|---|
| Moonpig | Core case, illustrating an undervalued digital platform | 70% market share; high recurring revenue, low marketing intensity, strong cash flow | Bullish, believes the market has completely misjudged the nature of its business model |
| Spirax Sarco | New buy case, illustrating cyclical vs. structural misjudgment | 2,000 global sales engineers; long-term organic growth, high margins | Bullish, views the current cyclical trough as an opportunity to buy a world-class compounder |
| FTSE 100 / FTSE 250 Comparison | Market structure analysis | The FTSE 100's 2024 rise was primarily driven by 10 large-cap stocks; the performance of growth stocks in the FTSE 250 has not been reflected | Neutral observation, noting a rare reversal in the historical return relationship between the two |
| BGUK Portfolio | Clarification of own position | The report notes that many companies in its portfolio have more resilient operational performance than their share prices reflect | Implicitly bullish, believes valuation dislocation creates room for catch-up |
Actionable Directions (Specific):
Perspective Bias Reminder:
As a typical growth-oriented/long-termist investment institution, Baillie Gifford is naturally inclined to favor "long-duration" assets and tends to attribute short-term underperformance to market mispricing rather than fundamental deterioration. Its analysis may underestimate the substantive drag that macro conditions (e.g., persistently high interest rates, shifts in consumer spending patterns) could have on the revenue growth of these companies. Investors need to independently verify whether the current valuation discount is a sign of market inefficiency or a rational response to fundamental deterioration (e.g., Moonpig's growth ceiling, Spirax's customers' capital spending cycle contraction).
The article (including the performance data and risk warnings in this section) aims to reveal that the Baillie Gifford UK Growth Trust's historical returns have long lagged behind the FTSE All-Share Index, but the institution believes this gap precisely reflects the market's systematic undervaluation of UK growth companies. What investors should focus on is not short-term performance rankings, but the mispricing opportunity between growth stocks and their intrinsic value.
The difference between this thesis and market consensus is: most investors view the fund's underperformance relative to the index as a weakness, while the author interprets it as a signal for patient capital to enter — over the past five years, macro shocks have forced capital to concentrate in a small number of large-cap value stocks, causing innovative growth companies to be mispriced.
| Year (as of 3/31) | Share Price Return (%) | NAV Return (%) | FTSE All-Share Index (%) |
|---|---|---|---|
| 2022 | -18.8 | -9.5 | 13.0 |
| 2023 | -9.2 | -2.6 | 2.9 |
| 2024 | 1.5 | 2.3 | 8.4 |
| 2025 | 12.2 | 3.5 | 10.5 |
| 2026 | 7.2 | 8.1 | 21.5 |