It isn’t always the case that a change in fund manager leads to sweeping portfolio changes, particularly when the new team works for the same fund house as the old one. But the underperforming Baillie Gifford European Growth (BGEU) is getting a proper makeover from the newly appointed Joe Faraday, who replaced incumbents Stephen Paice and Chris Davies on 1 April.
The trust’s growth strategy has not been in favour in the region in recent years, to put it mildly. Like many Baillie Gifford trusts, its share price skyrocketed during the pandemic, but since 2022 performance has been poor. In the three years to 18 May, the trust returned about 9 per cent, against the 41 per cent made by its benchmark, the FTSE Europe ex UK index.
The trust’s portfolio has now been significantly repositioned. Faraday bought 21 new stocks, accounting for about 30 per cent of the portfolio, and sold at least 13.
Baillie Gifford is known for its unapologetic and consistent growth investing strategy, but Faraday appears to be thinking more broadly than one would perhaps expect. “The portfolio is now built around a far broader range of growth types and earnings drivers,” he says. “These now include structural rearmament in defence, infrastructure-like compounding in telecoms, capital strength and rate sensitivity in financials, and cash generation in energy.”
New positions include insurer and asset manager Allianz (DE:ALV), which according to Faraday “offers exposure to strong underwriting franchises and earnings that should travel better in a firmer inflationary environment than many investors assume”; insurer Swiss Re (CH:SREN), which “also has a defensive earnings profile”; and Deutsche Telekom (DE:DTE), which “with its breadth of telecom operations across Europe and North America, offers a rare combination of infrastructure-like cash flows, scale and strategic relevance”.
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The list goes on and includes various banks, which have perhaps surprisingly become the trust’s second-biggest subsector exposure, and even energy company TotalEnergies (FR:TTE). Meanwhile, Novo Nordisk (DK:NOVO.B) and LVMH (FR:MC), among others, have been sold.
The trust still has significant exposure to technology – both software and hardware. The biggest holding is the unlisted Italian tech conglomerate Bending Spoons, which is widely considered one of Europe’s most exciting start-ups and owns the likes of community platform Meetup and video platform Vimeo. The second-biggest holding is semiconductor company ASML (NL:ASML).
The portfolio certainly looks very different from three months ago, and less distinctive. The active share, which measures how much a fund diverges from its index, dropped from 86 per cent in September 2025 to 77 per cent as at the end of April. Investors will have to make up their own minds on whether they think this is a more sensible and balanced approach that is more likely to outperform, or whether it is too diluted a version of Baillie Gifford’s philosophy. Both can be true at the same time – it’s about what you want for your portfolio.
Certainly, the US-Israeli war on Iran has made things more difficult for European fund managers. Trusts focusing on European large caps have now mostly given up their 2025 gains: on a one-year basis, Fidelity European (FEV) and European Opportunities (EOT) are broadly flat, and BlackRock Greater Europe (BRGE) is down by 3 per cent. All have a quality/quality growth bias.
JPMorgan European Growth & Income (JEGI) is holding up better, partly helped by its exposure to banks and energy, but is mostly living off its huge 2025 gains. In this context, it’s hard to blame Baillie Gifford European Growth for trying a different approach.
