SAINTS spotlight: testing the case for resilient growth

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

SAINTS’ objectives are to provide a high, dependable income for shareholders, while growing capital and income ahead of inflation. Its role isn’t to mirror the market index, but to offer a collection of growth drivers designed to compound capital and income steadily, diversify clients’ wider portfolios and provide resilience when markets become less forgiving. That can look dull when a narrow group of companies drives markets higher as they are now, but it may matter more when capital becomes discriminating again.

This quarter, we compare the portfolio’s beliefs with those of an index tracker and explain how we test them.

Believe it or not

In 1918, Robert Ripley began publishing illustrated newspaper panels under the title “Believe It or Not!”. Their appeal lay in presenting claims that seemed improbable but were, apparently, true.

Modern stock markets have their own curiosities. Passive funds own a growing share of assets, while fundamental investors account for little daily trading. Many transactions are driven not by value, but by index rules, flows and momentum.

A tracker is not a neutral expression of global growth. It buys more of what has risen and becomes concentrated in whatever is largest. Today, that means heavy exposure to the AI capital-spending cycle and technology platforms, with much less in electrification, healthcare, industrial productivity, financial infrastructure and consumer franchises.

We are not anti-AI. About 14 percent of the portfolio is invested in businesses associated with its infrastructure buildout. We doubt adoption will be as fast or frictionless as current prices imply. Regulation, data governance and process redesign will slow implementation. Companies currently valued as ‘AI losers’, like SAINTS holdings Wolters Kluwer and SAP, may therefore prove enablers rather than victims. Meanwhile, with many of those companies most associated with the AI trade firmly in investment mode, we think they are unlikely to offer the sustainable dividend growth that SAINTS’ shareholders value.

We balance this exposure with other growth engines: electrification, digital consumption, healthcare, industrial productivity, financial infrastructure and global consumer franchises. Some are less fashionable and smaller in index terms, but they offer the steady, reliable growth in income and in earnings over the long term. It’s our belief that by investing in these compounders, we will deliver the attractive dividends and capital growth which SAINTS investors look for.

How our beliefs have fared

This quarter tested that conviction. Portfolio companies continued to grow earnings and dividends, but their valuations fell. The index enjoyed growth and rising valuations. That divergence explains most recent underperformance.

Software was hit particularly hard as investors questioned whether AI agents might undermine subscription models. Intuit continues to grow, especially in small-business services and assisted tax, but weakness among lower-income TurboTax customers and a sizeable restructuring intensified fears of disruption. We think the interpretation is too pessimistic. The company is simplifying its organisation and using AI to improve customer matching, reduce administration and help small businesses make better decisions.

Accenture faces a similar narrative. Its May results showed 9 percent earnings growth and a 10 percent  increase, yet the shares remain depressed. We bought too early, but still believe consulting will be essential to spreading AI through companies.

Testing our beliefs

Ripley invited readers to challenge his claims. We apply the same discipline to ours.

Our annual Quality Growth Review asks whether holdings are delivering the earnings growth we bought them to produce. We remove distortions, then compare clean growth over one, five and ten years with our 10 percent ambition. Five-year growth remains about that level, but the average conceals strong compounders, temporary troughs and a few cases where patience may have become inertia.

The central question is whether compounding has been interrupted or disrupted. Would we buy the company today, knowing what we now know? For T. Rowe Price, the answer became no. Passive competition, fee pressure and persistent outflows have proved more structural than we expected, so we sold the position.

Our Dividend Hall of Shame applies the same scrutiny to income. Last year, only three of roughly sixty holdings cut dividends, but Diageo offered an important lesson. We placed too much weight on management’s willingness to pay and too little on its ability to pay. Earnings suggested the dividend was affordable; weaker cash flow, higher working capital and rising investment told a less comfortable story. We are consequently giving free cash flow cover more weight and making our resilience assessments more responsive to management changes and profit warnings.

Expanding our range of beliefs

As we remove weaker ideas, we are replacing them with holdings that broaden the portfolio’s sources of growth. This is not benchmark hugging. It aims to ensure outcomes reflect stock selection rather than unintended concentration.

One recent addition is Cullen/Frost Bankers. Most banks are too leveraged and cyclical for our approach. Cullen/Frost is unusual. Founded in 1868 and still only on its seventh chief executive, it runs a relationship-led Texas franchise, has expanded organically and enjoys a low-cost deposit base because customers value service over the highest rate. Its conservative credit culture has survived repeated energy downturns and the 2023 regional-banking crisis.

We see it as a specific business capable of compounding earnings and dividends attractively with less downside risk than peers.

Why we still believe

Our emphasis on resilience and diversification has carried a real opportunity cost. Relative returns over the past two years have been poor, and we know that tests clients’ confidence.

But the beliefs embedded in today’s index deserve scrutiny too. Current expectations imply AI will drive an extraordinary acceleration in earnings. It may deliver much of what advocates expect, but the speed, distribution and political consequences remain uncertain.

In a market that increasingly asks investors to accept the strange as normal, the right response is not to suspend disbelief. It is to return repeatedly to the evidence: the growth of the companies we own, the dividends they pay, the resilience they demonstrate and the discipline with which we respond when our assumptions are wrong. Those are the measures by which we ask to be judged. On that basis, we continue to believe strongly in the portfolio we manage for you.

Past performance

The Scottish American Investment Company P.L.C. (SAINTS) 

Annual past performance to 30 June each year (net %)

Source: Morningstar, FTSE. Total return, sterling. *Net asset value per share, including income with debt at fair value.

Annual SAINTS dividends to 31 December each year

Source: Baillie Gifford & Co. Total dividend per ordinary share. Pence per share.

Past performance is not a guide to future returns. 

Legal notice: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2026. 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 July 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.

199611 10064153