Managers of the Baillie Gifford European Growth trust sought to reassure investors about the portfolio, which suffered a 24.7% fall in the net asset value per share total return in the six month period to the end of March.
The trust's performance was significantly worse than its benchmark, the FTSE Europe ex UK index, which dropped 5.2% in sterling terms during the period.
In the half-year report the managers, Stephen Paice (pictured), Moritz Sitte and Chris Davies, said "challenging performance is never easy to endure", Adding that it was "especially difficult looking through our performance attribution statistics and seeing so few strong positive contributors".
However, they said they were reassured about the prospect of the portfolio because "fundamentals appear to be on track".
They noted the top ten detractors to the portfolio, which had an average loss of 50% during the period, were still making "strong and good progress" against their investment hypotheses.
However, they said the "drastic compression of multiples" has "taken us by surprise".
Ukraine conflict impact
The managers acknowledged there was both a direct and knock-on impact to the portfolio as a result of the crisis in Ukraine.
For example, the top holding Prosus, which makes up 5%, felt the impact because it owns Avito, a Russian classified business, and a stake in VK Group. Prosus is in the process of decoupling Avito and will write down its stake in VK, according to the managers.
Meanwhile, Wizz Air, one of the top ten detractors, and which makes up 2% of the portfolio, has four planes trapped in Ukraine.
They said that while other businesses in the portfolio have been impacted, the overall portfolio exposure is less than 2%.
Transactions
The trust had a higher turnover than usual during the period, with four new stocks entering the portfolio and five sales, along with some repositioning of the remainder of the portfolio.
LXi REIT and Secure Income REIT pursue merger
Two of the new additions are consolidators, Topicus.com and Embracer, which the mangers think have "long runways for capital allocation and unique cultures".
A previous SPAC holding has completed its merger and the resulting entity, tonies, has become a holding.
The final holding added to the unlisted portfolio, which was recently approved by shareholders to have a new limit of 20%, with the addition of a German digital real estate agent, McMakler.
The managers sold out of L'Oréal, Investor, Bechtle, Morphosys, and Pernod Ricard.
The trust is trading on a 9% discount, according to Morningstar data.
