Overview
Investment specialist Bill Chater gives an update on the Global Discovery and Worldwide Discovery strategies covering Q2 2026.
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<p><strong>Your capital is at risk. Past performance is not a guide to future returns.</strong></p>
<p> </p>
<p class="MsoNormal"><strong>Bill Chater:</strong> We're in the foothills of profound technology-enabled change. Just look at the scale of what's happening. Hyperscaler-reported capex is tracking at roughly $700 billion this year. And still parts of enterprise AI remain capacity constrained. That spending is showing up in the physical economy, making a meaningful contribution to US real GDP growth. In healthcare, AI-first biopharma companies are showing that early drug discovery and candidate identification can be compressed from years to a matter of months.</p>
<p class="MsoNormal">This is no longer speculation about a distant future. These changes are happening here and now. Discovery sets out to identify and own the immature companies driving and benefiting from this kind of technology-enabled change. It's that philosophy that means the portfolio is capturing more than its fair share of this structural advancement. Its forecast sales growth over both one and three years is roughly triple that of the benchmark.</p>
<p class="MsoNormal">It also has materially higher gross margins and a stronger balance sheet profile. At the stock level. Progress has also been striking. Astera Labs is a good example. It provides semiconductor-based connectivity solutions for rack scale AI infrastructure. As AI systems become larger, more complex, its solutions are becoming mission critical. And as a result, Astera’s revenue is almost doubling year on year.</p>
<p class="MsoNormal">Xometry is another good example. It's an AI-native marketplace connecting buyers and suppliers of custom manufacturing. We see it as an important enabler of flexible and localised industrial production. It's grown its first quarter revenue strongly with marketplace accelerating, and its partnership with Siemens reinforces the platform's strategic value. In healthcare, Garduant continues to demonstrate the potential of blood-based diagnostics.</p>
<p class="MsoNormal">Its oncology business is growing well, while its Shields blood-based tests for colorectal cancer is scaling nicely. These holdings, among others, have contributed to the portfolio strong recent share price performance. Second quarter returns were well ahead of a rising benchmark, helping to improve the 12 month period. But strong returns create a new responsibility. We must be upfront that in some areas, the market's view has moved closer to our own.</p>
<p class="MsoNormal">Now that's welcome, but it means we must be even more demanding about valuation, execution risk. And frankly, the scale of upside that remains. Aehr Test Systems is a good example. Aehr provides semiconductor testing equipment, which is increasingly relevant for demanding AI, silicon photonics and power semiconductor applications. We admire a lot about the business and are very excited by the remaining opportunity. But after a significant rerating, we materially reduced the position.</p>
<p class="MsoNormal">But that doesn't mean that we're automatically trimming all of our stronger performers. Twist Bioscience also made a meaningful contribution over the quarter, but we maintained that position given our conviction in the long-term role of synthetic DNA in biological research, particularly alongside recent advances in AI-driven drug discovery.</p>
<p class="MsoNormal">The point is, we're not making blanket calls. As you would expect, we are interrogating each company individually, and we've adopted a similar mindset for idea generation. We are striving to keep a high level of competition for capital, while pushing into areas of the market that are less fully valued or less well understood. For example, within AI infrastructure, we have been moving deeper into the value chain. The next stage of AI progress will require advances in semiconductor manufacturing, advanced packaging, and data centre design.</p>
<p class="MsoNormal">And that thinking has led us to new holdings, including BESI, a leader in semiconductor assembly equipment. We've also continued to search for software companies that have been unfairly discounted, for example, adding to Rubrik, where cyber resilience and data security is becoming even more important as enterprises use more data and AI, it adds complexity. But it's also worth highlighting that not all of the portfolio's holdings currently sit in the market spotlight.</p>
<p class="MsoNormal">Some of our more mature, higher-quality businesses have been among the largest attractors. Axon, Zillow, AeroVironment have all been weak, despite what we see as robust operational execution. We're not dismissive of that weakness. But in our experience, where operational progress is being over overlooked, future returns can follow.</p>
<p class="MsoNormal">But the message I'll leave you with is this. Discovery, it will remain volatile. There will be periods where performance sharply deviates from the benchmark. That is inherent in a portfolio of immature growth companies, but we are increasingly bullish about the portfolio's prospects. The structural opportunities are accelerating. The portfolio's growth profile is improving. Recent performance has been driven by companies delivering real operational progress, and that level of competition for capital I reference, that is allowing us to keep upgrading the portfolio.</p>
<p class="MsoNormal">We are trying to access some of the most important growth opportunities for the next decade in a differentiated valuation-aware and genuinely long-term way.</p>
<p class="MsoNormal">And with that, I'll say thank you and goodbye.</p>
<p> </p>
<h3 class="MsoNormal">Discovery (representing Global Discovery and Worldwide Discovery strategies)</h3>
<p class="MsoNormal"><strong>Annual past performance to 30 June each year (net %)</strong></p>
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<p class="MsoNormal"><strong>2022</strong></p>
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<p class="MsoNormal"><strong>2023</strong></p>
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<p class="MsoNormal"><strong>2024</strong></p>
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<p class="MsoNormal"><strong>2025</strong></p>
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<td width="13%" style="width: 12.9905%; border-width: 1pt 1pt 1.5pt medium; border-style: solid solid solid none; border-color: rgb(204, 204, 204) rgb(204, 204, 204) black currentcolor; padding: 7.5pt; height: 14pt;">
<p class="MsoNormal"><strong>2026</strong></p>
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<p class="MsoNormal">Worldwide Discovery Composite* (gross)</p>
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<p class="MsoNormal"> -52.8</p>
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<p class="MsoNormal"> 1.2 </p>
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<p class="MsoNormal"> -9.3</p>
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<p class="MsoNormal"> 19.1 </p>
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<p class="MsoNormal"> 28.4 </p>
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<p class="MsoNormal">Worldwide Discovery Composite (net)</p>
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<p class="MsoNormal"> -53.1 </p>
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<p class="MsoNormal"> 0.4</p>
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<p class="MsoNormal"> -10.0</p>
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<p class="MsoNormal"> 18.2</p>
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<td width="13%" style="width: 12.9905%; border-width: medium 1pt 1pt medium; border-style: none solid solid none; border-color: currentcolor rgb(204, 204, 204) rgb(204, 204, 204) currentcolor; padding: 7.5pt 7.5pt 7.5pt 0.75pt; height: 14pt;">
<p class="MsoNormal"> 27.4</p>
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<p class="MsoNormal">MSCI ACWI Small Cap Index</p>
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<td width="13%" style="width: 13.3369%; border-width: medium 1pt 1pt medium; border-style: none solid solid none; border-color: currentcolor rgb(204, 204, 204) rgb(204, 204, 204) currentcolor; padding: 7.5pt 7.5pt 7.5pt 0.75pt;">
<p class="MsoNormal"> -21.5</p>
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<p class="MsoNormal"> 13.6</p>
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<td width="13%" style="width: 13.3369%; border-width: medium 1pt 1pt medium; border-style: none solid solid none; border-color: currentcolor rgb(204, 204, 204) rgb(204, 204, 204) currentcolor; padding: 7.5pt 7.5pt 7.5pt 0.75pt;">
<p class="MsoNormal"> 11.2</p>
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<td width="13%" style="width: 13.3369%; border-width: medium 1pt 1pt medium; border-style: none solid solid none; border-color: currentcolor rgb(204, 204, 204) rgb(204, 204, 204) currentcolor; padding: 7.5pt 7.5pt 7.5pt 0.75pt;">
<p class="MsoNormal"> 14.1</p>
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<td width="13%" style="width: 12.9905%; border-width: medium 1pt 1pt medium; border-style: none solid solid none; border-color: currentcolor rgb(204, 204, 204) rgb(204, 204, 204) currentcolor; padding: 7.5pt 7.5pt 7.5pt 0.75pt;">
<p class="MsoNormal"> 29.4</p>
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<p class="MsoNormal"> </p>
<p class="MsoNormal"><strong>Annualised returns to 30 June 2026 (%)</strong></p>
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<p class="MsoNormal"> </p>
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<td width="18%" style="width: 18.1761%; border-width: 1pt 1pt 1.5pt medium; border-style: solid solid solid none; border-color: rgb(204, 204, 204) rgb(204, 204, 204) black currentcolor; padding: 7.5pt; height: 14pt;">
<p class="MsoNormal"><strong>1 year</strong></p>
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<p class="MsoNormal"><strong>5 year</strong></p>
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<td width="18%" style="width: 18.003%; border-width: 1pt 1pt 1.5pt medium; border-style: solid solid solid none; border-color: rgb(204, 204, 204) rgb(204, 204, 204) black currentcolor; padding: 7.5pt; height: 14pt;">
<p class="MsoNormal"><strong>Since inception</strong></p>
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<td width="45%" style="width: 45.6999%; border-width: medium 1pt 1pt; border-style: none solid solid; border-color: currentcolor rgb(204, 204, 204) rgb(204, 204, 204); border-image: initial; padding: 7.5pt; height: 14pt;">
<p class="MsoNormal">Worldwide Discovery Composite* (gross)</p>
</td>
<td width="18%" style="width: 18.1761%; border-width: medium 1pt 1pt medium; border-style: none solid solid none; border-color: currentcolor rgb(204, 204, 204) rgb(204, 204, 204) currentcolor; padding: 7.5pt 7.5pt 7.5pt 0.75pt; height: 14pt;">
<p class="MsoNormal"> 28.4</p>
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<td width="18%" style="width: 18.1761%; border-width: medium 1pt 1pt medium; border-style: none solid solid none; border-color: currentcolor rgb(204, 204, 204) rgb(204, 204, 204) currentcolor; padding: 7.5pt 7.5pt 7.5pt 0.75pt; height: 14pt;">
<p class="MsoNormal"> -7.9 </p>
</td>
<td width="18%" style="width: 18.003%; border-width: medium 1pt 1pt medium; border-style: none solid solid none; border-color: currentcolor rgb(204, 204, 204) rgb(204, 204, 204) currentcolor; padding: 7.5pt 7.5pt 7.5pt 0.75pt; height: 14pt;">
<p class="MsoNormal"> 8.0 </p>
</td>
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<tr style="mso-yfti-irow: 2; height: 14.0pt;">
<td width="45%" style="width: 45.6999%; border-width: medium 1pt 1pt; border-style: none solid solid; border-color: currentcolor rgb(204, 204, 204) rgb(204, 204, 204); border-image: initial; padding: 7.5pt; height: 14pt;">
<p class="MsoNormal">Worldwide Discovery Composite (net)</p>
</td>
<td width="18%" style="width: 18.1761%; border-width: medium 1pt 1pt medium; border-style: none solid solid none; border-color: currentcolor rgb(204, 204, 204) rgb(204, 204, 204) currentcolor; padding: 7.5pt 7.5pt 7.5pt 0.75pt; height: 14pt;">
<p class="MsoNormal"> 27.4</p>
</td>
<td width="18%" style="width: 18.1761%; border-width: medium 1pt 1pt medium; border-style: none solid solid none; border-color: currentcolor rgb(204, 204, 204) rgb(204, 204, 204) currentcolor; padding: 7.5pt 7.5pt 7.5pt 0.75pt; height: 14pt;">
<p class="MsoNormal"> -8.6 </p>
</td>
<td width="18%" style="width: 18.003%; border-width: medium 1pt 1pt medium; border-style: none solid solid none; border-color: currentcolor rgb(204, 204, 204) rgb(204, 204, 204) currentcolor; padding: 7.5pt 7.5pt 7.5pt 0.75pt; height: 14pt;">
<p class="MsoNormal"> 7.2 </p>
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<tr style="mso-yfti-irow: 3; mso-yfti-lastrow: yes;">
<td width="45%" style="width: 45.6999%; border-width: medium 1pt 1pt; border-style: none solid solid; border-color: currentcolor rgb(204, 204, 204) rgb(204, 204, 204); border-image: initial; padding: 7.5pt;">
<p class="MsoNormal">MSCI ACWI Small Cap Index</p>
</td>
<td width="18%" style="width: 18.1761%; border-width: medium 1pt 1pt medium; border-style: none solid solid none; border-color: currentcolor rgb(204, 204, 204) rgb(204, 204, 204) currentcolor; padding: 7.5pt 7.5pt 7.5pt 0.75pt;">
<p class="MsoNormal"> 29.4</p>
</td>
<td width="18%" style="width: 18.1761%; border-width: medium 1pt 1pt medium; border-style: none solid solid none; border-color: currentcolor rgb(204, 204, 204) rgb(204, 204, 204) currentcolor; padding: 7.5pt 7.5pt 7.5pt 0.75pt;">
<p class="MsoNormal"> 7.9 </p>
</td>
<td width="18%" style="width: 18.003%; border-width: medium 1pt 1pt medium; border-style: none solid solid none; border-color: currentcolor rgb(204, 204, 204) rgb(204, 204, 204) currentcolor; padding: 7.5pt 7.5pt 7.5pt 0.75pt;">
<p class="MsoNormal"> 10.2 </p>
</td>
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<p class="MsoNormal"><span class="source-text">*Inception date: 30 June 2017</span></p>
<p class="MsoNormal"><span class="source-text"><strong>Source:</strong> Revolution, MSCI. US dollars. Net returns have been calculated by reducing the gross return by the highest annual management fee for the composite. 1 year figures are not annualised.</span></p>
<p class="MsoNormal"><strong>Past performance is not a guide to future returns.</strong></p>
<p class="MsoNormal">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.</p>
<p class="MsoNormal"><strong>Risk factors</strong></p>
<p class="MsoNormal">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.</p>
<p class="MsoNormal">This communication was produced and approved in July 2026 and has not been updated subsequently.</p>
<p class="MsoNormal">It represents views held at the time and may not reflect current thinking.</p>
<p class="MsoNormal">All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk. Past performance is not a guide to future returns. </p>
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<p class="MsoNormal">All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.</p>
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