By Heather Farmbrough. Autumn 2018
    Photograph by Chris Close.
  2. Iain McCombie and Milena Mileva, co-managers of the Baillie Gifford UK Growth Fund, talk to Heather Farmbrough about their new portfolio and five of their favourite growth stocks.


    This article originally featured in Baillie Gifford’s Autumn 2018 issue of Trust magazine.

  3. What do driving a Suzuki SUV in Panama and finding a cure for swine disease have in common? What is the link between supplying kitchens and providing advanced engineering solutions for neurosurgery? The answer is that they underpin the business models of some of the most interesting companies in the Baillie Gifford UK Growth Fund. 

    Since taking over the management of the investment trust from Schroders in July, co-managers Iain McCombie and Milena Mileva have crafted quite a distinctive portfolio. The new, slimmer trust has only 42 holdings, but the main change is an explicit focus on growth. “Our aspiration is to own some of the best growth businesses on the UK stock exchange,” Mileva says. “The way we get there is very much bottom-up stock picking, which is what we have always done and what we are good at.”

    Unlike many other UK trusts, the Baillie Gifford UK Growth Fund invests only a relatively small proportion – around 20 per cent – of its £300 million funds under management in companies worth over £10 billion. However, it is not a small or medium-sized company investment trust either.

    “This is a portfolio of our best ideas,” observes McCombie. “Many of the companies in which we invest in the UK might not be technological leaders like some US giants, but they either use that technology or enjoy different kinds of growth. A number are world leaders.” 


  4. High Five

    Five of the managers’ favourite growth stocks



    “We’re very interested in businesses operating in the broader savings area,” says Mileva. “There is a real savings problem in this country because in response to the fall in yields on pension assets, employers are shifting away their employee pension schemes from defined benefit (when a promise is made to pay a specific amount) to defined contribution schemes (where the contribution is defined, but not the amount paid to pensioners). As a result people may lose out because their pensions will be inadequate for their retirement.

    “The investment industry will change radically over the next couple of decades. Many businesses will be put under pressure. We are interested in identifying the handful of long-term winners that will prosper in this changing market.”

    One company addressing this savings gap is IntegraFin, which owns Transact, an investment platform for independent financial advisers (IFAs) to aggregate and manage their clients’ investment portfolios and financial plans online. In other words, it’s a kind of Hargreaves Lansdown (another company in the fund) for IFAs.

    IntegraFin, which floated earlier this year, has just under £30 billion funds under management. It was the first investment wrapper scheme to be launched in the UK in 2000.


    Howdens Joinery

    Howdens’ business is joinery, mainly for kitchens, selling directly to tradespeople. Although this can be a tough market, McCombie believes Howdens has a superior business model to competitors such as Magnet, because it focuses on one thing only: selling to tradesmen, rather than to consumers as well.

    Profitability is measured depot by depot, rather than centrally, and each manager takes a share of the depot’s gross profit. This makes it important for staff to get to know which customers to trust and which not. “Staff are given parameters on the discounts that they can offer to tradespeople. The more reliable and profitable a customer, the better the discount likely to be offered,” explains McCombie. 

    He likes the way in which managers are allowed to trust teams and customers. As he says, “When you trust and empower people, you shouldn’t be surprised if they succeed.”

    © Image courtesy of Howdens Joinery.


    McCombie and Mileva like companies that enable their customers to fundamentally improve their productivity.



    McCombie and Mileva like companies that enable their customers to fundamentally improve their productivity. One company helping its agricultural customers by improving the quality of their beef and pork is Genus. “The company is investing in research and making advances in genomic science and gene editing that can make genuine improvements in the ways that farmers produce animals,” explains Mileva.

    By analysing DNA, Genus can select the best breeding parents or change animals’ genes to produce a healthier herd. It is also working on Porcine Reproductive and Respiratory Syndrome, a deadly combination of problems in both areas. “This is the most devastating disease in the swine industry,” says Mileva. “Genus is trying to breed pigs where the gene responsible for susceptibility to the virus is switched off.”



    Not all the companies in the Baillie Gifford UK Growth Fund are necessarily ‘new’ companies. Inchcape, the global automotive distributor and retailer, has a strong business model and management track record. The managers like the emphasis the company places on good customer relations – Inchcape has been in partnership with Toyota for over 50 years.

    Inchcape focuses on understanding the brands it distributes and for which it provides parts. While Inchcape is a British company, its reach is truly global: it had the presence of mind to buy the Suzuki franchise in Costa Rica and Panama, where the automotive company has an unusually high market share. This was dependent on the approval of Suzuki and that kind of trust is not built in a couple of years.

    In emerging economies, the company enjoys a terrific advantage because of its focus on larger and luxury vehicles: there is nothing to beat a Toyota on the rough roads in Ethiopia, or little that says you have arrived like a 4x4 in China.


    © Egmont Strigl/imageBROKER/REX/Shutterstock.



    The precision engineering group supplies products and services used in brain surgery, dentistry, jet engines and wind turbines. Although 95 per cent of revenues come from overseas markets, most of Renishaw’s manufacturing and research and development, in which it invests heavily, is in the UK. The managers expect this innovative business to continue growing strongly as the trend towards automation and advanced manufacturing grows.

    McCombie wastes no time pontificating about the possible effects of Brexit on the companies in which he invests. Challenges like a weak pound are something that Renishaw, which has been around for over four decades, is used to dealing with. “Many of our stocks are international companies that just happen to have a headquarters in the UK,” McCombie says. “Businesses can manage long-term changes, because they can adjust costs or production. Business is used to change.” 


    © Renishaw plc.

  5. If you would like to register to receive Trust magazine please visit www.bailliegifford.com/trust



    Portfolio data at 16 July 2018. Please remember that the value of a stock market investment and any income from it can fall as well as rise and investors may not get back the amount invested. Investment trusts can borrow money to make further investments and there is a risk that when this money is repaid by the trust, the value of the investments may not be enough to cover the borrowing and the interest costs, and the trust will make a loss. The trust՚s exposure to a single market may increase risk.

    The views expressed in this article should not be considered as advice or a recommendation to buy, sell or hold a particular investment. The article contains information and opinion on investments that does not constitute independent investment research, and is therefore not subject to the protections afforded to independent research. 

    This communication was produced and approved on the stated date and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

    Some of the views expressed are not necessarily those of Baillie Gifford. Investment markets and conditions can change rapidly, therefore the views expressed should not be taken as statements of fact nor should reliance be placed on them when making investment decisions. 

    Baillie Gifford Savings Management Limited, Baillie Gifford & Co Limited and Baillie Gifford & Co are authorised and regulated by the Financial Conduct Authority and are based at Calton Square, 1 Greenside Row, Edinburgh EH1 3AN. 

    The investment trusts managed by Baillie Gifford & Co Limited are listed on the London Stock Exchange and are not authorised or regulated by the Financial Conduct Authority. 

    A Key Information Document is available by visiting www.bailliegifford.com

    Ref: 34725 IND WE 1128



    Heather Farmbrough is a Forbes contributor, freelance journalist and former fund manager. As an interviewer, she asked David Attenborough if he believed in God and Hans Rosling about witnessing human suffering.