Stephen Paice expects it may take a couple of years for the Baillie Gifford European Growth Trust to build up a 'game-changing' portion of unlisted holdings, as the fund manager continues to overhaul the portfolio.
Baillie Gifford took over the mandate from Edinburgh Partners in November 2019, with the board of the trust switching from a value bias to growth in the process.
Paice said he and co-manager Moritz Sitte had sold every holding in the trust bar one - Ryanair - in the space of a couple of weeks, with the portfolio now replicating that of their Baillie Gifford European fund they also co-manage.
However, Paice noted the closed-ended nature of the investment trust structure allows additional flexibility to the managers, including the potential to use gearing, move further down the market capitalisation spectrum and access stocks not listed on a public stock exchange.
The open-ended fund, for instance, can only invest in companies with a market cap of more than €1bn. For the trust, the managers can go as low as €500m.
"That effectively increases the addressable universe of companies from 800 to over 1,100, so we have more to choose from," Paice explained.
Further, the trust can hold up to 10% of its assets in unlisted securities, which Paice said could be a "game-changer" for the managers.
"Even though the unlisted space in Europe is relatively small compared to some other regions like the US or China, we think it is going to be much bigger in the future," Paice told Investment Week.
"To be able to explore the fantastic, entrepreneurial companies within that area is going to be a game changer in terms of producing returns for our clients because we only need one or two of these companies to actually work out to make a massive difference to the to the overall portfolio returns."
While Paice and Sitte have yet to invest in unlisted securities, many of its stablemate trusts already do. Indeed, the manager said Baillie Gifford has a dedicated unlisted team, with more than 100 people directly or indirectly involved in the process of identifying private firms.
Paice said his team is able to "benefit from a lot of the work [the unlisted team] has done in the past".
"All of their work goes onto a centralised research platform that Moritz and I, who are the decision-makers on the trust, can access," he explained.