What really matters?

As with any investment, your capital is at risk.

A new year is a good prompt to take stock. Not of the loudest headlines, but of the quieter developments that end up shaping the next decade. The things that really matter for long-term compounding growth.

We’re only a few days into 2026, and already the events in Venezuela on 3 January will undoubtedly be one of the main news stories of the year.

Two decades ago, at the end of 2006, the highlight reel would have looked similarly obvious: geopolitical conflicts (Iraq and Afghanistan), Zidane’s World Cup headbutt, and lighter but popular stories such as the uproar over Pluto losing planet status. The American Dialect Society even picked ‘to be plutoed’ as its Word of the Year.

We’re not dismissing the importance of any of these events. The fallout from huge geopolitical events is inherently unknowable in the moment. But time eventually reveals what truly matters for long-term growth investing.

For example, 2006 also included things most people didn’t discuss at dinner. Amazon introduced Simple Storage Service (S3) and Elastic Compute Cloud (EC2), metered storage and compute delivered over the web.

In hindsight, that was an early step toward the cloud as we know it, and it helped lay the groundwork for how media, commerce and communication operate today.

YouTube also launched in 2005 and has gone on to replace traditional TV across the world, built on top of cloud technologies.

As long-term growth investors, that’s the point. Every year brings change and significant events at an increasingly rapid rate. Our job is to keep asking a simpler question:

What is most likely to drive growth and compounding over the next five to 10 years?

What matters: fundamentals

2025 was a volatile year for US equities.

Trade uncertainty dominated the early months, and concerns about ‘irrational exuberance’ around AI grew later in the year, despite obvious advantages coming from this technology.

Our US Growth portfolios delivered strong absolute returns, but we lagged the major indices across the year following an AI-sentiment-related sell-off in October and November.

Stepping back, the lesson for us is not about any single month. It is about what actually drove outcomes.

Ask most growth investors what caused 2022’s stock market drawdown, and you will hear some version of ‘the rate cycle’.

That explanation is partly right. Valuation compression was real.

Still, one factor often gets underweighted in the retelling: fundamentals weakened.

As demand cooled after Covid, earnings expectations fell. Markets responded as you would expect.

Within the Russell 3000 Growth index, companies with rising earnings per share (EPS) forecasts held up materially better than those facing estimate cuts. When valuation multiples compress, fundamental resilience becomes increasingly important.

Today, the fundamental picture across our portfolio remains healthy. We saw an average revenue growth of roughly 20 per cent in 2025, and we expect a similar pace in 2026.

We are also seeing improving operating leverage and higher earnings before interest and tax (EBIT) margins in several holdings.

What matters: the engines of growth

Fundamentals reveal where a business stands. The more important question is what keeps it moving for the next five to 10 years.

Our conviction is anchored in the structural changes we have invested in over the years: the internet, the cloud, and the ongoing digitisation of workflows across the economy.

As more systems move online, software becomes more capable, data becomes more useful, and compute becomes easier to access. Those pieces reinforce each other and expand the capabilities of what companies can build.

AI is a good example of that dynamic. It felt ‘new’ to many people in 2023, but it was enabled by decades of innovation and investment, including lower compute costs, richer datasets, better tools, and stronger distribution through modern platforms.

If those inputs continue to improve, we think the opportunity in AI-led change stays broad, even when headlines swing from enthusiasm to scepticism quarter by quarter.

What matters: AI (and what we think gets missed)

Does AI matter? Yes.

Where we differ from the daily debate is the framing.

‘Bubble or no bubble’ is an important discussion from a risk perspective, but it must also be viewed through the lens of opportunity.

We find it helpful to separate the two types of AI beneficiaries:

• First are the companies tied directly to the spending cycle, the picks-and-shovels side of the buildout. Their results can be sensitive to capital expenditure (capex) budgets and timing.
• Second are the deployers: businesses using AI to become structurally stronger through improved operations, better products and faster decision-making.

The capital expenditure (capex) path from here is uncertain. The deployer's story is more straightforward because it is already showing up in day-to-day execution. Even if AI spending slows, the tools are widely available and continue to improve quickly. That gives well-run teams room to keep iterating.

We are seeing this in operating metrics across parts of the portfolio:

• Lemonade: the digital insurance company’s premium growth has remained strong while expense growth has been far slower, which management attributes in part to AI-driven efficiency.
• Shopify: growth at the ecommerce platform has continued with a flat headcount over two years, supported by internal automation and AI enablement.
• Guardant: demand for the blood sequencing company’s Guardant360 product has accelerated, supported by an AI-enabled platform and workflow improvements.

This is why we believe the most interesting AI story often sits away from day-to-day capex commentary.

What matters: portfolio construction in an uncertain world

We should not expect uncertainty to fade, especially after the most recent developments in the Americas.

Tariffs, geopolitics and shifting narratives will keep markets cycling between risk-on and risk-off.

That makes portfolio construction more important than ever. Over the past 18 months, we have focused on improving resilience by raising the minimum level of financial maturity required and balancing different sources of demand across the portfolio.

The risk-off periods in 2025, including April’s ‘Liberation Day’ and the pullbacks in October and November, tested those guardrails. We have seen progress.

The delivered tracking error has trended downward from its mid-2022 peak, although we still view it as higher than we want over a full cycle.

Currency: US Dollar. Source: Baillie Gifford, Revolution.

That work shows up in concrete decisions. We added durable growth exposure, such as Medline. We reinitiated Alphabet. We also adjusted position sizes across the book, adding to steadier compounders and trimming a few of the most volatile transformational holdings.

We will still look different from US benchmarks. The portfolio is more concentrated and more growth-tilted than the S&P 500 and Russell Growth indices.

It is also worth noting that the benchmarks themselves have become more volatile as concentration has increased.

Looking into 2026: staying focused on what matters

The feeling of discombobulation many of us experienced when reading the headlines on 3 January reminds us that, ultimately, we cannot know which stories will dominate the next 12 months. We can only control the questions we come back to:

• Are fundamentals improving in a way that is visible in revenue, margins and cash generation?
• Are the long-term growth drivers still intact, and are they strengthening?
• Are we backing businesses that use new tools, especially AI, to execute better and widen competitive advantages?
• Have the leaders of these companies built the cultural agility to adapt to change? If so, this provides a genuine competitive advantage.
• Is the overall portfolio built to endure volatility without giving up long-term upside?

That mindset keeps us focused during these times of change, and it leaves us optimistic about what comes next.

US Equity Growth

Annual past performance to 31 December each year (%)

Annualised returns to 31 December 2025 (%)

Source: Revolution, S&P. 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: The S&P 500 Index is a product of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.

Risk factors 

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

Potential for Profit and Loss 

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.

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.

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