Baillie Gifford to take over Schroder UK Growth fund
Iain McCombie and Milena Mileva, managers at Edinburgh investment firm Baillie Gifford have taken over the management of the £259 million Schroder UK Growth fund after its board sacked Schroders.
Baillie Gifford’s appointment follows a prolonged period of disappointing performance for the investment trust under Julie Dean’s successor Philip Matthews, which has resulted in a persistent double-digit discount.
Over the past three years, Schroder UK Growth’s share price has risen by 35.5 per cent, which compares to 80.9 per cent by the average share price return across the Association of Investment Companies’ UK All Companies sector. Since December 2015, the fund has traded on a double-digit discount to net asset value (NAV) and was yesterday trading on a 13.1 per cent discount.
Over the same period, Matthews has grown the NAV by 14.7 per cent versus a sector average of 18.8 per cent.
This performance was acknowledged in a Baillie Gifford statement accompanying the announcement of the Edinburgh firm’s appointment, which read: “It is disappointing to note that the Company’s long-term investment performance is considerably below the Board’s expectation and has lagged the benchmark since inception. Further, despite its ongoing share buyback policy, the Company has struggled with a persistent and wide discount to NAV.”
The trust will be renamed Baillie Gifford UK Growth fund and its ticker will change to ‘BGUK’, but its investment objective and policy will not change under Baillie Gifford.
Baillie Gifford’s board said it had concluded that, “in order to provide the best investment outcome for existing investors and to position the company to attract new investors, it should make the change to implement a new, ‘best ideas’ investment approach”.
The portfolio will now be co-managed by Iain McCombie and Milena Mileva and will be populated with their “highest conviction ideas”, which Bailie Gifford promised will provide investors with “exposure to some of the most exciting UK growth companies”.
A statement from the Baillie Gifford board said: “The managers will seek to select high quality companies with strong competitive positions which it believes have the prospect of delivering strong earnings growth over a number of years. Baillie Gifford believes that the investment portfolio, constructed on a stock-picking, growth orientated, long-term basis will be highly differentiated relative to the benchmark and to the peer group of all-cap UK equity investment trusts.”
Ms Mileva joined Baillie Gifford in 2009, and has worked as an investment manager in the UK equity team since 2012.
Mr McCombie co-runs the open-ended Baillie Gifford Managed fund with Steven Hay and has returned 37.6 per cent over the past three years.
Baillie Gifford will receive an annual management fee of 0.5% of the NAV under the new contract.
In order to offset any payment to Schroders relating to the termination of their contract and to contribute towards other costs associated with the manager change, including stamp duty, Baillie Gifford has agreed to waive approximately six months of its management fee. Based on the current NAV, this equates to £732,000.
Under the new investment management contract, each party must provide six months’ notice to terminate.