The Edinburgh-based asset manager pointed to broader market trends in two areas in its latest Assessment of Value (AoV) report as a key driver of relative underperformance, citing “escalating” geopolitical tensions and tariff-related announcements that favoured traditional sectors such as banking and commodities over growth equities.

The firm also highlighted the rapid emergence of “agentic artificial intelligence (AI), buoyed by software developments such as Anthropic’s Claude Cowork, which narrowed returns to those companies benefitting from the buildout of physical AI infrastructure”. As a result, software and digital service companies were hit hard as investors pulled their capital over fears they could become “potential victims of AGI.”

Baillie Gifford warned that “changing market ecology”, driven by an increase of passive and retail “actors”, is amplifying volatility and “elongating the time over which share prices can be dislocated from underlying operating progress.”

It noted that the “market inefficiency” created opportunities to be exploited by long-term “patient” investors, admitting that in the short run, strategies can appear “out of step with market sentiment for longer than is comfortable.”

However, the firm’s fixed income strategies experienced a steadier 12 months, with corporate bond markets benefiting from moderating inflation, falling interest rates, and resilient economic growth.

Baillie Gifford outlined a series of internal governance measures designed to tighten portfolio management without sacrificing its high-conviction growth style in response to the struggles.

It stated in its report: “Baillie Gifford’s active, long-term approach will inevitably lead to periods of underperformance. However, we are aware that, for some funds, this has now been a sustained period of weak returns. For others, the journey has been more volatile than shareholders might expect. We share those frustrations and are grateful for your continued trust.

“Baillie Gifford has worked hard in recent months to raise standards where needed, without compromising the independence and originality of insight that have been enduring sources of value.”

The board announced a three-pillar strategy to raise the standards and the performance of its funds:

• Stronger central oversight: Utilising data-informed monitoring to flag portfolio issues earlier and enforce clear accountability.
• Systematic portfolio challenge: Implementing a dedicated Investment Analytics function to broaden the analytical scope and stress-test portfolio construction.
• Enhanced sector coverage: Formalising cross-team collaboration to build deeper expertise across emerging sectors.