Baillie Gifford UK Growth Reports Difficult Interim Period

LONDON (Alliance News) - Baillie Gifford UK Growth Fund PLC on Wednesday reported a drop in net assets in the first half after a "market correction" during the period.

This followed a structural re-organisation of its portfolio due to a change in investment manager.

At October 31, the fund's net asset value per share stood at 183.5 pence compared to 207.5p at April 30, a 12% decrease, and net assets decreased 12% to GBP276.1 million from GBP312.3 million.

In the first half, the fund's NAV total return was a negative 10% compared to the FTSE All Share index's total return of a negative 3.5%.

In June, Baillie Gifford became the investment manager of the fund, taking over responsibility from Schroders PLC.

In the four months period from July to October, under new management, the fund's total return was negative 11% compared to the FTSE All Share index's total return of negative 6.0%.

Baillie Gifford UK said the period was characterised by a "significant market correction and a rotation" into value stocks in October.

The fund said: "Given the portfolio's pronounced bias towards growth companies, this has presented an unfavourable backdrop for growth investors and 'stock selection' has been the key driver of disappointing short-term returns.

"We view short-term volatility in performance - good or bad - as inevitable and in keeping with the style and nature of the portfolio. We therefore respectfully ask shareholders to take a measured approach and judge performance over longer time periods, in line with our own investment time horizon of at least five years."

The investment policy of the fund has not changed since the move from Schroders, Baillie Gifford said, but the method has, with the portfolio being "radically re-positioned" in line with a new "explicit growth investment policy".

Baillie Gifford sold 49 of the previous portfolio's holdings and acquiring 42 new holdings, saying the fund is now 98% positioned as desired. The cost of restructuring the portfolio was "slightly less" than 1% of NAV.

The fund expects its underlying earnings to "decline progressively" and, as a result, so will the fund's dividend payout.

Going forward the fund will pay a single interim dividend and a final dividend. For its current year, ending April 2019, the fund declared an interim dividend of 1.50p, half what was paid last year. The final dividend will be voted on by shareholders at the fund's annual general meeting.

Chairman Carolan Dobson said: "There are many distractions to be had in trying to understand the implications of the very confused UK and global market background at present, but our managers remain focused on trying to identify and back the exceptional UK companies which can grow over many years.

"Whilst the benefits of this approach might not always be reflected in short term shareholder returns, the board and managers firmly believe it provides a repeatable basis for adding value for the patient investor over the long-term."

Shares in Baillie Gifford UK were up 1.2% Wednesday at 164.00 pence each.