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Investment management firm Baillie Gifford has a tremendous record of finding exceptional growth stocks. It successfully backed long-term winners such as Tesla and Nvidia in many of its global and US funds.
However, it also runs an investment trust that invests solely in UK growth shares. This is the Baillie Gifford UK Growth Trust (LSE: BGUK), a portfolio made up of its “best ideas“.
Here, I’m going to look at the trust’s top two holdings, as of 30 May.
Volution Group
The top position was Volution Group (LSE: FAN), a FTSE 250 stock that currently has a market cap of £707m.
The Crawley-based company makes air quality systems and heat pumps for residential and commercial buildings in the UK, Europe and Australia.
It has grown its earnings per share (EPS) at a compound annual growth rate of 19% over five years. And despite facing inflationary and supply chain pressures, the group’s adjusted operating margin is still surprisingly strong at around 20%.
One trend the firm is benefiting from is a growing public awareness of how much poor indoor air quality (especially mould and damp) can impact health. Management argues that this makes its air quality systems “far less discretionary” in nature, especially for its social housing customers.
Now, there’s a risk that further interest rate hikes to tackle inflation could push the UK economy into a recession. That might hit the firm’s sales.
I have a small position in the stock, but given the economic uncertainty, I wouldn’t feel comfortable making this a top holding.
Games Workshop
The trust’s second largest holding was Games Workshop (LSE: GAW). This is the creator of Warhammer, the most popular tabletop battle game in the world.
Games Workshop already has millions of loyal customers globally, but the numbers could multiply on the back of its partnership with Amazon Studios.
Announced in December, this deal is only agreed in principle so far. But it could see Warhammer 40,000 become a big-budget film and TV series. This would be a major coup for the Nottingham-based business in its ongoing attempts to monetise its vast intellectual property.
However, this potential hasn’t gone unnoticed by investors who’ve driven the stock up 26.5% in six months. This puts the shares on a price-to-earnings (P/E) multiple of 27.5, which looks quite pricey to me.
So, while I own the stock, I’d rather wait for a possible pullback in the shares before adding to my position.
Would I buy Baillie Gifford UK Growth Trust?
Clearly, I’m not rushing to buy either stock. But would I buy the trust itself? Last week, the trust’s managers said they believe the portfolio has “attractive growth fundamentals and the vast majority of holdings are…high quality and resilient.”
Looking at the rest of the portfolio, which includes Experian, Ashtead and Diageo, I’d tend to agree. All appear to have solid long-term growth opportunities, at least to my mind.
But that’s a problem for me because they’re already in my portfolio, along with Games Workshop and Volution.
So, if I were to also invest in this trust, I’d be risking high levels of overconcentration. That could badly damage my returns if these shares were to underperform in future.
Having said that though, I’d consider the stock if I were building a portfolio from scratch today.
