SAINTS spotlight: tested by markets, built for resilience

As with any investment, your or your clients’ capital is at risk. Any income is not guaranteed and can fall as well as rise.

This quarter felt like the title of the multi-Oscar-winning film One Battle After Another.

Markets moved rapidly from one concern to the next. First came a sharp sell-off in software and digital businesses, as investors feared that artificial intelligence (AI) could disrupt even well-established companies.

Then, towards the end of the quarter, conflict in the Middle East triggered a surge in energy prices and a marked market reaction.

The portfolio held up relatively well during the first phase. Despite pressure on some software and data holdings, performance was resilient and ahead of the index through that period.

But the second phase proved more challenging. As geopolitical tensions escalated and energy markets reacted, investors moved quickly and indiscriminately.

Even areas of the market that have historically offered shelter, such as consumer staples and healthcare, came under pressure. Energy was the clear exception, benefiting from higher oil and gas prices.

Because we have no direct exposure to the energy sector, this weighed on relative returns. Some of our European industrial holdings also struggled as the market began to worry about the effects of higher energy costs.

As a result, the weakness in March more than offset the earlier period of relative strength, and the portfolio ended the quarter behind the index.

That is a frustrating outcome. But it does not change our confidence in the portfolio’s resilience in the face of future challenges. Nor in the investment process behind it, which is why I will touch on our thoughts on resilience and why we think we are well-positioned looking ahead.

Resilience is not an accidental feature of how we invest. It is something we actively seek. As a team, our vehicles have a good track record in downturns.

Our starting point is always deep fundamental research. We look closely at a company’s business model, competitive position and ability to endure tougher periods. We combine financial analysis with environmental, social and governance (ESG) factors and take a view on corporate culture.

Next, we assess each company through our GRIT framework, which evaluates a company’s growth potential, resilience, income payout sustainability, meaning its ability to keep paying and growing dividends, and total return potential.

That framework helps us judge whether a business can grow, whether that growth is durable and whether the market is properly valuing it.

History gives us useful reference points here. When we find businesses that can grow earnings and income across both good and difficult economic periods, and where that resilience is underappreciated, we believe that creates opportunity.

That was particularly clear during the software companies' sell-off earlier in the quarter.

When the latest wave of AI tools were launched, the market quickly began to question how durable many traditional software models might be.

Investors worried that pricing could come under pressure, customer churn could increase and long-established competitive advantages might weaken. The result was a sharp fall in share prices across subscription-based software-as-a-service (SaaS) businesses.

Given the portfolio’s exposure to software and data-related companies, that move affected several of our holdings. But we believe the market reaction was too broad and too simplistic.

The businesses we own in this area are not easily replaced. Customers have deeply embedded their products into their workflows, or they control proprietary data that a new AI interface cannot simply replicate.

Microsoft is a good example. Its productivity tools and cloud services are woven into the daily operations of businesses worldwide, creating exceptionally high switching costs.

Experian, the credit data provider, is another. Its data advantage rests on a consortium model that is difficult to reproduce and, in our view, highly resilient.

Importantly, the operating results from many of these companies have remained strong, even as sentiment has deteriorated.

For example, Amadeus, which provides the software backbone for much of the travel industry, continued to deliver solid growth and raised its dividend. Management spoke confidently about its competitive strengths, including its role as a trusted recordkeeping system, deep integration with customers and the reliability of its global infrastructure.

Intuit, the tax and accounting software company, also reported strong results despite a substantial decline in its share price.

In both cases, we see businesses still delivering on growth and income, but with valuations that no longer reflect the resilience of those underlying fundamentals. That disconnect created an opportunity to generate strong total returns from share-price gains and income, and we added to both positions during the quarter.

Of course, building a resilient portfolio depends on company selection and on how holdings complement each other.

We want separate parts of the portfolio to work in different environments. Consumer staples, for example, remain an important source of ballast. Businesses such as L’Oréal and PepsiCo generate strong cash flows, have pricing power and continue to grow their dividends.

These are companies whose products remain relevant through changing economic conditions, while their scale and financial strength give them the room to invest for future growth.

Our financial holdings serve a similar role, but in a distinct way. We are overweight financials, but that exposure is concentrated in exchange businesses such as Deutsche Börse and CME Group, rather than in banks.

These are highly profitable, cash-generative businesses with toll-road characteristics. They also tend to benefit when markets become more volatile, as trading activity rises. This quarter’s performance reflected that, with holdings such as B3 and CME among the stronger contributors.

These stabilising exposures sit alongside holdings tied to longer-term structural growth, including software and semiconductors such as TSMC and MediaTek.

The more recent sell-off has been another test. This has been less about company fundamentals and more about sentiment and shifting perceptions around geopolitical risk.

Markets have swung sharply in response to changing views on the conflict and its possible impact on energy supply. In that kind of environment, the market can temporarily favour immediate, tangible value over future growth.

But that is exactly why we believe this portfolio remains well-positioned.

The companies we own offer both value today and growth tomorrow. Some, such as a Coca-Cola, provide stability. Others, such as Alphabet, offer structural growth and growing income. They generate enormous cash flows, supporting attractive dividends and building fortress balance sheets, which provide value and resilience in the near term.

Looking to the future, they reinvest a portion of those cash flows at high rates of return, meaningfully higher than the average company in the index to provide tomorrow’s growth.

Value today, growth tomorrow means keeping steady in a changing environment. It is something we would be willing to pay a meaningful premium for. However, given the fall in valuations of quality, income-paying companies over the past 12 months, despite strong balance sheets, dependable earnings and dividends, that valuation gap is narrower than ever.

As complexity rises, we think investors will increasingly value this style of investing and portfolio quality.

The quarter was disappointing, our assessment of the holdings themselves has not materially changed. We continue to see a portfolio of resilient businesses, diverse growth drivers and valuations that in many cases have become more attractive.

Markets may continue to present one battle after another. But we believe the companies in the portfolio are well equipped for the battles ahead.

Past performance is not a guide to future returns.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2025. FTSE Russell is a trading name of certain of the LSE Group companies. “FTSE®” “Russell®”, “FTSE Russell ®, is/are a trade mark(s) of the relevant LSE Group companies and is/are used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication."

Risk factors 

The value of the trust's shares and any income from them can fall as well as rise. Past performance is not a guide to future returns.

This communication was produced and approved in April 2026 and has not been updated subsequently. It represents views held at the time of recording and may not reflect current thinking.

This communication should not be considered as advice or a recommendation to buy, sell or hold a particular investment. This communication contains information on investments which does not constitute independent investment research. Accordingly, it is not subject to the protections afforded to independent research and Baillie Gifford and its staff may have dealt in the investments concerned.

The investment trusts managed by Baillie Gifford & Co Limited are listed UK companies and are not authorised or regulated by the Financial Conduct Authority. The value of their shares, and any income from them, can fall as well as rise and investors may not get back the amount invested.

Baillie Gifford & Co and Baillie Gifford & Co Limited is authorised and regulated by the Financial Conduct Authority (FCA).

The specific risks associated with the Trust include:

• SAINTS invests in overseas securities. Changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up.
• The Trust invests in emerging markets where difficulties in dealing, settlement and custody could arise, resulting in a negative impact on the value of your investment.
• Market values for securities which have become difficult to trade may not be readily available and there can be no assurance that any value assigned to such securities will accurately reflect the price the Trust might receive upon their sale.
• The Trust can make use of derivatives which may impact on its performance.
• Share prices may either be below (at a discount) or above (at a premium) the net asset value (NAV). The Company may issue new shares when the price is at a premium which may reduce the share price. Shares bought at a premium may have a greater risk of loss than those bought at a discount.

Further details of the risks associated with investing in the Trust, including a Key Information Document and how charges are applied, can be found in the Trust specific pages at www.bailliegifford.com, or by calling Baillie Gifford on 0800 917 2113.

10062702