Baillie Gifford is undergoing a significant restructuring of its fixed income business, which includes winding down four bond funds and exiting its international fixed income operations to concentrate solely on the UK market. This strategic shift has led to the departure of two bond managers and a planned reduction of approximately 40 jobs globally.
The firm's investment trusts are also facing scrutiny. Baillie Gifford UK Growth, for instance, has proposed an exit opportunity for investors if it continues to underperform the FTSE All-Share index over a five-year period starting April 30, 2024. The trust's net asset value (NAV) returned only 0.6% in the year to April 30, 2024, significantly trailing the index's 7.5% return, marking its third consecutive year of underperformance.
Similarly, Baillie Gifford Shin Nippon will offer an exit strategy if its NAV fails to outperform the MSCI Japan Small Cap Index over three years to January 31, 2027. These measures are designed to address shareholder frustration stemming from underperformance and widening discounts on the trusts.
Analysts at Numis acknowledge that Baillie Gifford UK Growth's high-growth investment style has contributed to recent underperformance amidst rising interest rates and a preference for cyclical stocks, which the trust largely avoids. However, the trust's board supports the current portfolio, citing strong fundamentals in its holdings, with 97% demonstrating positive earnings or cash flows, and superior one-year forward sales and earnings growth compared to the index.
While the firm is making changes to its fixed income division and offering investor exit clauses in some trusts, the board of Baillie Gifford UK Growth remains confident in its long-term strategy and is encouraging shareholders to vote for the trust's continuation, anticipating a return to historical outperformance as market conditions evolve.
