Baillie Gifford European Growth Trust Overhauls Portfolio After Disappointing Half-Year Performance

Baillie Gifford European Growth Trust has used its half-year results to do two things at once: admit performance has been poor, and show shareholders it is not sitting on its hands. The six months to 31 March 2026 were rough, with the trust badly lagging its benchmark, but the bigger story is the management handover and a pretty dramatic portfolio reshuffle.

For retail investors, this matters because investment trusts live and die by long-term performance, not by excuses. When a board changes the manager and starts rotating hard out of old favourites into banks, insurers, defence, telecoms and energy, that is not business as usual.

Baillie Gifford European Growth Trust interim results: the key numbers investors need

Metric	Six months to 31 March 2026	Comparison
NAV total return	-9.2%	FTSE Europe ex UK Index: 4.4%
Share price total return	-8.8%	Discount narrowed from 8.6% to 8.2%
Net asset value per share	102.2p	113.3p at 30 September 2025
Share price	93.8p	103.5p at 30 September 2025
Shareholders’ funds	£287.3 million	£353.9 million at 30 September 2025
Total assets	£339.7 million	£406.2 million at 30 September 2025
Net return after taxation	-£34.0 million	-£26.8 million a year earlier
Interim dividend	Nil	Nil last year

The headline is simple enough: performance was weak, and weak by a wide margin. A -9.2% NAV total return against a benchmark gain of 4.4% is not a near miss – it is a proper disappointment.

The board says exactly that, which I actually think is a positive. Investors are usually better served by plain speaking than by polished waffle, and this RNS is fairly blunt about the underperformance.

Why Baillie Gifford European Growth Trust underperformed the FTSE Europe ex UK Index

The trust says the main problem was concentration in a cluster of stock-specific losers, especially growth names that got hit by worries about artificial intelligence disruption, higher discount rates and shorter market attention spans. In plain English, the market suddenly became less willing to give expensive growth companies the benefit of the doubt.

Topicus, Prosus and Adyen all fell by around a third. Hypoport, Allegro and Reply were also heavily marked down. That is a painful list, especially for a trust built around the idea of backing long-term European growth stories.

There was also a style problem. The trust had limited exposure to some of the market’s best-performing areas – banks, insurers, utilities and energy – and that really hurt when the Middle East conflict pushed up energy prices in March.

There were some bright spots. ASML and ASM International performed strongly, while Roche, Sandoz, DSV and Epiroc also did well. Among the private holdings, Bending Spoons continued to make strong operational progress and an IPO is now expected this year.

New manager Joe Faraday signals a major portfolio overhaul after poor returns

This is where the story gets more interesting. In March 2026, the board confirmed that Joe Faraday would replace Stephen Paice and Chris Davies as portfolio manager, with effect from 1 April 2026.

That means most of the bad performance belongs to the previous setup, while most of the portfolio changes belong to the new one. So investors should treat this report partly as a post-mortem and partly as a reset.

Faraday has broadened the trust’s exposure well beyond the old growth-heavy mix. New holdings include Allianz, Swiss Re, Deutsche Telekom, Airbus, Rheinmetall, Iberdrola and TotalEnergies, plus several banks including CaixaBank, AIB, KBC, UBS and Bank of Piraeus.

That shift tells you a lot. The trust still wants growth, but it now wants more balance – more cash generation, more resilience, and more exposure to sectors that can cope with inflation, geopolitical shocks and slower economic growth.

On the other side of the ledger, the trust sold holdings including Hypoport, Edenred, LVMH, Novo Nordisk, Amplifon, Reply, EQT, Kinnevik, Topicus, Camurus and Sandoz. Some of those had disappointed, while others were sold because valuation looked full or the capital could be better used elsewhere.

My take: this is a meaningful change, not a cosmetic tweak. Selling high-quality names like LVMH and Novo Nordisk shows the manager is not just tidying around the edges. He is rebuilding the shape of the trust.

What the £30.4 million share buyback means for the discount to NAV

The board also leaned hard on buybacks. Over the six months, the trust bought back 28,697,500 shares at a total cost of approximately £30.4 million, equal to around 8.8% of the issued share capital at the start of the financial year.

A buyback is when the company purchases its own shares. For investment trusts, that is often used to help manage the discount – the gap between the share price and the net asset value, or NAV.

That gap did improve slightly, with the discount narrowing from 8.6% to 8.2% on the fair value basis used in the chairman’s statement. It is not a dramatic improvement, but without that level of buyback support, the discount could easily have been wider.

There is more. Between 1 April 2026 and 13 May 2026, the company bought back a further 4,345,000 shares into treasury. So the board is still actively supporting the shares after the period end.

Private company exposure, borrowings and the tender condition: what shareholders should watch

One reason some investors own this trust is its access to private companies, which ordinary investors cannot usually buy directly in public markets. At 31 March 2026, unlisted equities were valued at £50.7 million out of total investments of £336.9 million.

That private exposure remains a differentiator, with Bending Spoons still the largest holding at 10.4% of total assets. But it also adds risk because private company valuations are less transparent than listed shares and are based on judgement rather than live market prices.

The trust also has borrowings of £52.4 million. Borrowing, often called gearing in investment trust language, can boost returns in good markets but makes falls feel worse when performance goes the wrong way. That has clearly not helped over this period.

One other point matters. The company’s 100% performance conditional tender remains in place for the four years to 30 September 2028. The detailed mechanics are not set out in this RNS, but the important takeaway is that shareholders still have a performance-linked protection mechanism hanging over the trust.

And the performance since that measurement period began has been ugly: NAV total return of -4.3% versus 20.6% for the FTSE Europe ex UK Index. That is exactly why the board felt forced to act.

Is this Baillie Gifford European Growth Trust update good news or bad news?

Short term, this is a bad set of numbers. There is no clever way to dress up a half-year in which the trust lost money and lagged its benchmark by 13.6 percentage points.

Longer term, though, there is at least a credible recovery plan. The board has changed the manager, the portfolio has been diversified, buybacks are ongoing, and the trust still offers something distinctive through its growth mandate and private company access.

The risk is obvious: investors now have to trust that the reset works. The opportunity is just as obvious: if the new mix produces steadier results and some of the unloved growth holdings recover, the current discount could leave room for upside.

My verdict is balanced but slightly improved. The results are poor, but the response looks serious. For existing shareholders, this feels like a trust in repair mode rather than a trust in denial – and that is a much better place to start.