Baillie Gifford European Growth Trust Reports Narrowing Discount and Private Investment Gains Amid Benchmark Underperformance

Baillie Gifford European Growth Trust: returns, discount and buybacks in focus

Baillie Gifford European Growth Trust’s results for the year to 30 September 2025 are a mixed bag. The net asset value (NAV) total return was 5.5% versus 15.5% for the FTSE Europe ex UK Index. The share price total return, helped by discount narrowing, was a punchier 14.5%.

The second half did the heavy lifting: NAV rose 12.6% against 11.6% for the index, and the share price gained 13.0%. The discount to NAV tightened from 15.7% to 8.6% (fair value basis) as the Company bought back 27,060,412 shares for approximately £26.9m, equivalent to 7.7% of the starting share count.

Quick refresher on jargon: NAV is the value of the portfolio per share. Total return includes dividends. The discount is the percentage by which the share price sits below NAV; narrowing is good for shareholders.

Why performance lagged – and why the second half improved

All the relative underperformance came in the first half. The team remained underweight European banks – the year’s market darlings – and emphasised growth franchises in technology and innovation. In their words, Europe’s “pain trade” was not owning banks and defence; they continue to own no European banks.

Momentum improved in H2 as repositioning bedded in and several holdings showed better operating progress. Since Baillie Gifford took over in November 2019, NAV total return is 28.5% versus 66.2% for the index. The Board and Managers are open about the need to rebuild the track record from here.

Private companies moved the needle

Unlisted (private) holdings went from a drag to the main driver. The Trust now holds six unlisted companies representing 15.5% of net assets at year end (2024: 6.4% in five). In aggregate, privates returned 92% over the year, led by Bending Spoons, up 258% and now around 10% of NAV. At 30 September, the four core private positions were Bending Spoons (10% of NAV), sennder (2.9%), Tekever (1.5%) and Flix (1.2%).

The Board leant in, spending time with Baillie Gifford’s Private Companies team and concluding that selective exposure can bring “distinct growth opportunities”. Worth noting: two prior private investments were written to zero (Northvolt and McMakler), which underlines the risk, but the overall private book since 2019 still shows a 141% cumulative return.

Stock winners and laggards called out

• Big positives: Bending Spoons; Spotify (margin progress, price rises with minimal churn); Ryanair (record profitability, net cash around €2 billion, fares up 21%); Prosus (non-Tencent portfolio turned free cash flow positive; continued buybacks).
• Detractors: Hypoport (German mortgage softness), IMCD (customer destocking; decade‑low multiple cited), Soitec (cyclical softness and CEO departure; under review), Novo Nordisk (supply constraints and competition; still viewed as a long-run leader).

Portfolio changes and positioning: where the team is hunting

Turnover remained elevated as the Managers broadened the growth mix. Sector exposures shifted from a near 9% overweight in Industrials a year ago to roughly neutral, and Health Care moved to a 2% overweight. Active share sits at 86% and turnover was 22.8% – this is a genuinely active book.

New positions initiated

• Grupa Kęty – aluminium products with a decade of double‑digit profit growth.
• Amplifon – global hearing-care retailer; Managers see temporary weakness and attractive valuation.
• Roche – refreshed pipeline across oncology, immunology and new areas like obesity and Alzheimer’s.
• Sandoz – pivoting to higher‑margin biosimilars with a long runway from the biologics patent cliff.
• Tekever (private) – AI‑enabled unmanned systems with NATO‑aligned tailwinds; €70m round co-led by Baillie Gifford and the NATO Innovation Fund.

Exits to fund ideas

• VNV Global – limited transparency cited.
• Genmab – revenue concentration risk; proceeds redeployed into Roche.
• Beijer Ref – valuation fully reflecting the cyclical recovery, in the Managers’ view.

Balance sheet, gearing and costs

The Trust runs structural, long-dated euro debt: two €30 million notes at fixed coupons of 1.55% (2036) and 1.57% (2040). Net gearing was 14.0% at year end. Gearing can amplify outcomes – helpful in rising markets, painful in falling ones – so it is worth monitoring given the portfolio’s growth tilt.

Costs remain competitive: ongoing charges are 0.66%. Shareholders’ funds were £353.9 million, total assets £406.2 million and borrowings £52.3 million. NAV per share was 109.0p (book value of debt) or 113.3p (fair value of debt). The share price closed at 103.5p, leaving the discount at 8.6% on a fair‑value basis.

Dividend policy and AGM dates investors need

Revenue per share was 0.78p (2024: 0.72p). The Board proposes a final dividend of 0.72p per share (2024: 0.60p), in line with the stated approach of paying the minimum necessary to maintain investment trust status. Subject to approval, payment is due on 13 February 2026 to shareholders on the register on 9 January 2026. The ex‑dividend date is 8 January 2026.

The AGM is scheduled for 2.00pm on 4 February 2026 at One Moorgate Place, London EC2R 6EA.

Key numbers from the 2025 annual results

Metric	Year to 30 Sep 2025
NAV total return (fair value)	5.5%
Share price total return	14.5%
FTSE Europe ex UK total return	15.5%
Discount to NAV (fair value)	8.6% (from 15.7%)
Share buybacks	27,060,412 shares, ~£26.9m; 7.7% of starting share count
Unlisted exposure	Six holdings; 15.5% of net assets
NAV per share	109.0p (book) / 113.3p (fair)
Share price	103.5p
Revenue per share	0.78p
Proposed dividend	0.72p; pay date 13 Feb 2026
Net gearing	14.0%
Ongoing charges	0.66%
Shareholders’ funds	£353.9 million

What I think matters most for 2026

• Second-half trend: Outperformance in H2 is a genuine bright spot. If that persists, the four-year performance‑related tender (introduced last year) fades into the background. If not, it comes back into focus.
• Private portfolio execution: With 15.5% of net assets in privates and Bending Spoons now a 10% of NAV heavy-hitter, delivery from these businesses will drive outcomes. Valuation changes cut both ways, so expect some volatility.
• Discount management: The Board has been active with buybacks and the discount is now 8.6%. Continued NAV progress plus opportunistic buybacks could take it tighter.
• Health Care tilt: New positions in Roche and Sandoz, and a shift to a 2% overweight in Health Care, give the Trust a different engine alongside its technology leaders like ASML and Adyen.
• Gearing: Net gearing of 14.0% will magnify whichever direction markets travel. In a recovering Europe, that can be helpful.

Bottom line: cautious optimism, with clear swing factors

On the downside, the one‑year NAV lag and the longer‑term record versus the benchmark are plain to see. On the upside, discount narrowing, robust buyback activity, competitive costs, and meaningful contribution from private holdings all point to improving dynamics. The second‑half beat is the clearest signal yet that the repositioning is taking hold.

If you believe Europe’s growth franchises will be rewarded again – and you are comfortable with a measured dose of private assets and gearing – this is one to keep on the radar. Just go in with eyes open: performance will likely be driven by a concentrated set of growth names and a small roster of private businesses that can swing results either way.