International Concentrated Growth: investor letter Q4 2025

As with any investment, your capital is at risk.

 

A paradoxical year: signal vs noise

As the year comes to a close, it is a natural time for reflection, assessing how the world has changed and evaluating our perspectives for the future. We are living through a paradoxical and turbulent time, and 2025 has amply demonstrated this.

The turbulence is clear. From the shock of DeepSeek’s emergence (briefly) challenging prevailing assumptions about Artificial Intelligence (AI) scaling, to the return of tariffs and the longest US government shutdown on record, to devastating natural disasters and escalating geopolitical tensions across multiple flashpoints.

The pace and volume of events are disorienting. Beneath this cacophony lies a contradiction – that at a time when the structural shifts reshaping the global economy are perhaps the most obvious they have been for some time, noise is also at its loudest and most confusing.

 

How markets expressed the paradox

Two examples demonstrate this paradox. First, it has become increasingly clear and accepted that generative AI is a transformational general-purpose technology. As a result, fear of missing out has driven multiple AI-themed ETFs to outperform global indices. Yet this performance has occurred at the same time as returns for the Magnificent 7 have moderated substantially, indicating second-order beneficiaries and companies further down the supply chain have driven returns. This is a reasonable result of high capex flowing through to order books, but does not necessarily reflect the long-term potential to maintain or gain market share.

Second, the flight to safety is also evident in the fact that gold has surged more than 60 per cent, while global equity returns, particularly outside the US, have been powered by multiple expansion rather than underlying earnings growth. European and British banks in particular have led the benchmark, supported by expectations of a ‘higher for longer’ rate environment. In periods of uncertainty, the desire for security is a powerful force, yet we struggle to believe that these companies have suddenly seen a dramatic expansion of their opportunity set and competitive strength to warrant such revaluation.

 

Portfolio outcome and key drivers

Against this backdrop, your portfolio delivered positive absolute returns over the year yet trailed the benchmark. We do not take this underperformance lightly, and it reflects two distinct challenges.

First, some holdings such as Meituan have encountered deteriorating competitive dynamics, which compressed margins and weighed on valuation. Meituan’s share price has declined by more than 30 per cent over the year, primarily due to rising competition, surplus delivery capacity in China, and a rapidly evolving competitive landscape. We expect the company is entering a challenging period as rivals such as Alibaba use quick-commerce propositions to attract consumers and funnel them into their core ecommerce platforms. Despite this, we remain optimistic about Meituan’s entrenched scale in food delivery and believe the heightened rivalry could ultimately expand the overall market for rapid delivery, particularly in categories that have historically been harder to convert online, such as apparel.

Second, and perhaps more importantly, even strong performers have struggled to beat a shift to value and safety. Benchmark performance this year has been driven by a combination of the fear of missing out alongside a flight to safety. As a result, companies such as MercadoLibre and BYD, which delivered robust operational growth and positive share price returns, did not do sufficiently well to beat the benchmark and have been detractors this year.

 

Company perspectives

MercadoLibre: investing through margin pressure

MercadoLibre is Latin America’s dominant ecommerce marketplace – despite its leading position, it has seen revenue growth accelerate this year to nearly 40 per cent. However, ongoing investments in free shipping, marketing, and credit expansion have compressed margins. This, combined with a leadership transition from founder Marcos Galperin to Ariel Szarfsztejn, weighed on sentiment. Nevertheless, we feel the company is taking the right steps to continue improving its competitive position. We have gotten to know the incoming CEO over many years of meetings when he led MercadoLibre’s ecommerce business, and expected a transition to occur eventually. Changes like these can, of course, create challenges; we continue to monitor the company closely and remain optimistic about MercadoLibre’s positioning and the strength of its management team.

BYD: scaling advantage as EV adoption broadens

BYD is the world’s leading EV manufacturer, and we are excited about its long-term opportunity to capture market share as the car industry transitions to electric vehicles and autonomous driving. Its founder, Wang Chuanfu, has the experience and authority to enable rapid shifts in strategy when necessary. This mirrors the decision this year to offer “God’s Eye”, an advanced driver assistance package, as standard across the company’s entire model line-up, further increasing pressure on its competition. Despite lagging in the US, EV penetration has reached 25 per cent globally this year, with 39 countries exceeding 10 per cent penetration. This compares to just 4 countries at that level in 2019; a clear sign that consumers want cheaper vehicles with a better user experience than an internal combustion engine can provide.  Thanks to its vertical integration, BYD is capable of manufacturing cars at price points unattainable by its Western competitors, and it is well on its road to taking share in Europe.

 

What worked and why patience matters

Such challenging backdrops for bottom-up growth investors are neither unexpected nor discouraging. We hold 20-35 companies at any given time because we believe that truly exceptional businesses are, by definition, rare. Our holding periods are long, and we are deliberately patient investors, because we know from experience that outlier returns take years to manifest with periods of price volatility in the meantime. So short-term valuation and sentiment swings, however pronounced, should not alter our conviction in the underlying businesses.

The benefits of this focus and patience are evident when examining the positive contributors to performance over the year. These included Nu Holdings, the Latin American fintech disrupting incumbent banks and offering a structurally cheaper and better experience to customers. At various points in your ownership, Nu shares have fallen by more than 20 per cent as the market worried about competition and credit cycles. But with a strong base in Brazil, where Nu reaches more than 60 per cent of the adult population, the company is expanding well in both Mexico and Colombia, increasing revenue per customer, and reducing cost to serve to drive net income growth nearly 40 per cent year on year. We are particularly encouraged that expansion into other countries appears to be proceeding faster than history might suggest, with Mexico reaching similar monetisation levels to Brazil much sooner. We added to your Nu holding twice over the course of the year as our confidence in its ability to execute on its opportunity increased.

ASML and TSMC have also been strong performers this year. Both companies are critical to continued improvements in computing power. The rise of generative AI and the resulting growth in semiconductor capex spending can only be fulfilled by a short list of companies. ASML remains a clear technological leader with no competition in the EUV lithography space, critical for the powerful compute required for both training and inference tasks. Over decades, it has built up a central position within the supply chain, enabling it to continue innovating to drive down cost and energy usage. This is particularly important as AI compute demands go hand in hand with high energy needs. ASML is uniquely placed to help resolve this.

TSMC continued performing well, with revenues up 39 per cent in the first half of this year. Strong guidance for the coming years indicates increased confidence in the length of the AI-driven capex cycle. We are also encouraged by the progress in building out fabs outside Taiwan. These will remain a relatively small portion of overall volumes, but the company’s ability to ramp production and improve utilisation and costs over time while building out local supply chains is a testament to management’s focus and abilities.

 

Where we see the durable signals

In a time of increasing noise and uncertainty, we believe the best way to create long-term value for our clients is by focusing on the signals that matter, deepening our understanding of the structural changes that will drive economies a decade from now, and leveraging our relationships with companies to increase insight. The goal is to see through volatility rather than hedging against it, and when we look a decade out, we remain incredibly excited by the changes we see coming.

The growing importance of compute and generative AI is perhaps the most obvious structural change in the world today, but we are equally optimistic about the continued potential of ecommerce disrupting traditional retail. 10 years ago, global ecommerce penetration was 8 per cent of retail sales. This has more than doubled to over 20 per cent today and shows no signs of stopping. Consumers still want cheaper, more convenient products delivered to their doorstep. This desire is not a function of wealth alone; companies such as SEA, which operates ecommerce and digital services platforms across Southeast Asia, are clear beneficiaries.

The rising digitisation of media consumption is another exciting trend, with Spotify successfully expanding from an audio platform to one encompassing video and fan services too. Innovation in Healthcare continues as well. Within living memory, any kind of cancer had appalling survival statistics, but the past decade or so has seen a dramatic uptick in treatment availability. We believe this bodes well for companies such as BioNTech, which still has a sizeable Covid-driven war chest and an ambitious founder with an eye for great science.

 

Sins of Omission

It is a basic fact of equity investing that sins of omission – the great companies you don’t own – are more harmful to returns than those companies which don’t work out. We are constantly on the lookout for what we may be missing, and as of the writing of this letter, we are conducting our annual risk review process, which includes evaluating the best-performing stocks from the past five years that we have not owned.

One area we are aware of, but where we have not yet identified suitable investable opportunities, is the defence sector. We are conscious of the likely structural increase in military spending globally. Europe’s decades of underinvestment relative to Nato pledges, combined with ongoing geopolitical tensions, imply budgets should rise here as well. Historically, the US has led the way in both spending and company formation, with the defence primes dominating military R&D and capex. There are signs this is changing due to shifting battlefield tactics, such as the rise of drone use in Ukraine. At the same time, there is a growing desire to invest more in local production. As a result, we believe that the best investment opportunities are more likely to be home-grown companies with technologically differentiated products and a path to scaling production effectively. We will continue to look out for opportunities here while maintaining a high bar in terms of business models and management team quality.

 

Looking ahead

We are looking ahead to the approaching end of the decade with deliberate optimism and a keen eye out for companies that will drive and benefit from the substantial disruption underway. The pathway will inevitably be bumpy, but we believe the long-term returns will be worth it. We are grateful to our clients for placing their trust in us for this endeavour, and we hope to have many more thoughtful conversations with you in the coming year.

 

---

International Concentrated Growth 

Annual past performance to 31 December each year (%)

	2021	2022	2023	2024	2025
International Concentrated Growth Composite (gross)	-0.1	-39.5	15.2	19.5	17.9
International Concentrated Growth Composite (net)	-0.8	-39.9	14.4	18.7	17.1
MSCI ACWI ex US Index	8.3	-15.6	16.2	6.1	33.1

 

Annualised returns to 31 December 2025 (%)

	1 year	5 years	10 years
International Concentrated Growth Composite (gross)	17.9	-0.4	14.3
International Concentrated Growth Composite (net)	17.1	-1.1	13.6
MSCI ACWI ex US Index	33.1	8.5	8.9

Source: Revolution, MSCI. US dollars. Returns have been calculated by reducing the gross return by the highest annual management fee for the composite. 1 year figures are not annualised.

Past performance is not a guide to future returns.

Legal notice: MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Risk factors

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

The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.

All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.

The images used in this communication are for illustrative purposes only.

 

Important Information

Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs.

Baillie Gifford Overseas Limited provides investment management and advisory services to non-UK Professional/Institutional clients only. Baillie Gifford Overseas Limited is wholly owned by Baillie Gifford & Co. Baillie Gifford & Co and Baillie Gifford Overseas Limited are authorised and regulated by the FCA in the UK.

Persons resident or domiciled outside the UK should consult with their professional advisers as to whether they require any governmental or other consents in order to enable them to invest, and with their tax advisers for advice relevant to their own particular circumstances.

Financial Intermediaries

This communication is suitable for use of financial intermediaries. Financial intermediaries are solely responsible for any further distribution and Baillie Gifford takes no responsibility for the reliance on this document by any other person who did not receive this document directly from Baillie Gifford.

184307 10059723