Joe Faraday took over Baillie Gifford's European Growth strategy this year with a mandate to improve its performance, and he tells Leo Kelion what he has bought and sold since. The conversation runs through TotalEnergies, Rheinmetall, Poland's LPP, Piraeus Bank, the decision to sell LVMH and the Nasdaq listing of Bending Spoons, and it opens with a German company that makes ovens.
👤 Guest: Joe Faraday, head of European equities at Baillie Gifford and manager of the Baillie Gifford European Growth Trust and the European Fund, who joined the firm as an intern 24 years ago after training as a chemical engineer
🎙️ Host: Leo Kelion, who presents Short Briefings on Long Term Thinking for Baillie Gifford
📰 Published: 31 August 2026 on YouTube (Baillie Gifford UK) and in the show's podcast feed
🔴 YouTube | 🟣 Apple Podcasts | 🔗 Show notes | ⏱️ 31 min | ✅ Time saved: 9 min
Key Takeaways
The guiding principle is broadening the types of growth, not buying more of the same growth
"The really short answer is broadening out the growth types."
Roughly 30 new companies bought and more than a dozen sold, by the host's count
Europe is closer to an emerging market than to North America, and that is the argument for stock picking in it
"I think Europe looks more like emerging markets than it does North America."
More than 30 countries, with banks and industrials that have almost nothing in common
A theme can underperform for years while the right companies inside it compound
The paper the host read back to him says so, and the follow-on sentence is the point: "So that did go on to then say individual businesses within that theme, if well chosen, can compound regardless, right?"
A portfolio needs many themes at once, because a narrow set of them is where the damage came from
"There are eight, maybe even 10 of these." — rearmament, electrification and energy security, and central and eastern European consumption among them
TotalEnergies is an energy major rather than an oil major, and that mix is the defense against a punitive carbon tax
Half exploration and production, a quarter liquefied natural gas, a quarter integrated power
"This company's the largest exporter of gas from America."
Rheinmetall's lumpy order book is the cost of the sector, and execution is the only question
The German government dropped plans to buy six warships from it in June
"And this is a business that generates about 10bn in sales annually. The question is in three-plus years' time, can they be at 30bn, maybe even 50bn?"
LPP is adding 700-plus stores a year on a base of 4,000, and AI has compressed its design cycle
Website content has gone from 20 percent AI-generated to 80 percent
Design and production ran six to 12 months each and now run six to 12 weeks
Greece is a turnaround trade with four banks and 90 percent of the market
Piraeus is a new purchase; Greece joins the MSCI index next year
Piraeus compared itself to the Spanish banks, which is what he wanted to hear
He sold LVMH because he cannot name the next China, and because the culture is changing too fast
"Bernard Arnault is an amazing operator of the business, but you can fall in love with a company, but you mustn't fall in love with a stock."
A call with LVMH's ESG team left him unable to count the internal changes
Bending Spoons is a consulting platform that buys software, and its listing is the case for holding more private companies
"The stats are out there: they had, I think it was 800,000 applications for 260, 270 jobs."
The pledge to clients is not performance, it is that the portfolio has already been changed
"First up, let's acknowledge it's been a difficult period, but what I can pledge is decisive action has been taken."
A Combi Oven Maker Whose Own CEO Calls It Boring Now Belongs in a Growth Portfolio
Kelion opened the episode away from markets, on the German firm Rational, which makes combination cookers for commercial kitchens. Its most popular model grills, bakes, fries, steams and smokes in the same unit, heating pizzas, roasts and dim sum, and "It even cleans itself when done." The customers he named run from high street chains and sports stadia to cruise ships and Thomas Keller's Michelin-star restaurants.
The pitch is cost control where labor and energy are both expensive. With energy expensive and skilled staff scarce, Kelion said, Rational helps operators keep a lid on their costs
The company is the test case for the whole conversation. "Rational is what you might call a dependable, if unglamorous, business. Even its CEO describes it as boring." — and it did not used to have a place in the European Growth strategy
Faraday first met the company as a trainee on the European small-cap team more than two decades ago, and it is now a holding
From Making Paint and Steel to Picking Stocks, After the Angola Job Fell Through
Kelion read Faraday's CV back to him: chemical engineer, then the steelmaker Corus, then the defense firm BAE Systems, then Baillie Gifford. Faraday wound it back further.
The through line he claims is curiosity rather than finance. "I was the one that wanted to take the bike apart and then hopefully be able to pull it back together."
A Dorling Kindersley book from his childhood called The Way Things Work, full of machines dissected and reassembled, is what he says pushed him toward science and engineering
He made paint at Neste Chemicals and steel at British Steel Corus, and was supposed to join the oilfield services company Schlumberger, following his father, on rigs in Angola
That job collapsed over safety concerns in Angola at the time, and the alternative he took was the opposite: an internship at Baillie Gifford, 24 years ago
He reuses the childhood book as a job description. "My role now is to think really carefully or have a seat at the table of how Europe works."
Why He Took the European Strategy: Three Strands, One of Them the Performance Record
Kelion noted that Faraday spent most of the second half of his 24 years with the firm's international specialist team, helping American clients invest outside the US, before taking charge of European Growth earlier this year with a mandate to improve performance.
Faraday gave three reasons, and did not soften the middle one.
Europe has been the constant in his career. He interned on the European small-cap team, did European equities in his earliest years, and has been an international portfolio manager since 2007, with Europe a key part of that opportunity set
The record required action. "I think the second strand, let's be brutally honest here, we all know what performance has been like for the range of strategies that have been offered or operated by the team, and that needed to be addressed."
The third reason is his own mix of experience — North America, emerging markets, client-facing hybrid roles, portfolio construction and risk management — which he frames as a triangle of opportunity set, client need and skill set that has to be finely balanced
The dates are recent. He became sole manager of the Trust effective 1 April and took over the European Equities Team on 1 May
The Guiding Principle Is Broadening the Growth Types, Paired With a Sell Discipline
By Kelion's reckoning, Faraday has bought about 30 new companies across the strategy, sold more than a dozen, and changed the size of other holdings, while staying focused on growth companies. Asked for the principle behind that, Faraday pointed to a paper.
"The really short answer is broadening out the growth types." He has set it out in a paper he calls a manifesto, A Disciplined Case for European Growth, captioned broadening growth
The comparison he keeps returning to is not the US. "I think Europe looks more like emerging markets than it does North America." It is very mixed, with more than 30 countries in it
Stock picking comes first, and he has an acronym for it. "So I have a saying, DYOR, do your own research, get out there, meet the companies, kick the tyres"
That has to be paired with portfolio construction, with thinking about risk and themes, and with knowing the wider exposures. Getting too narrow on those settings, he said, is where the problems of recent years arose
Long-term does not mean holding on regardless. "I am long-term, three to five years, if not longer, but that has to be paired with agility." Where a company sits outside the guardrails or is not delivering the growth he wants, he moves on
A Theme Can Underperform for Years While the Companies Inside It Compound
Kelion quoted a line from Faraday's own papers back at him — "You wrote that themes can underperform for years, even when the underlying trend remains intact." — and asked what it meant for a five-year horizon.
Faraday returned the favor by quoting the next sentence: "So that did go on to then say individual businesses within that theme, if well chosen, can compound regardless, right?"
The theme explains the opportunity; the company delivers the return. Rational could be written up as a play on automation, efficiency and taking labor costs out — what he called hand-waving-type arguments
What he says the work actually is: how fast the business will grow, whether management wants it to grow, how strong the positioning is, where it is expanding, how it is doing in North America, and what the new lower-end versions launching in China do
The count of themes is itself a risk control. There has to be an eclectic mix and a large number of them, because a narrow set is what stops performance coming through
Eight, Maybe 10 Megatrends: Rearmament, Electrification and Eastern European Consumption
Asked which megatrends have caught his eye, Faraday said "There are eight, maybe even 10 of these." and named three.
Rearmament and strategic sovereignty, which he called perhaps one of the controversial ones. Rheinmetall, the unlisted Tekever, parts of Airbus and Exail are all in the portfolio, against the backdrop of Ukraine
Electrification and energy security, taken as a whole chain. Iberdrola, a utility operating in the UK, Spain and the US; Nexans, which makes cabling, including long underwater copper runs; and TotalEnergies, the energy major
Consumption in central and eastern Europe, where he had just been. In Poland he met Dino Polska in discount food retail, LPP in apparel and the ecommerce business Allegro
He deliberately skipped the crowded ones. "And the list goes on, we could talk about lots of areas such as semiconductors, healthcare, but we talk about those rather a lot."
Europe Is Not One Market, Which Is the Whole Case for Picking Stocks in It
Kelion played devil's advocate: listeners see Europe as fragmented, over-regulated, burdened by high energy prices and unevenly growing, and wonder whether there are better places to put their money.
Faraday said every opportunity set has some kind of problem, and turned the objection into the argument for an active manager.
The spread between European businesses is the point. "I'm not just trying to buy the average European corporate." European banks and European industrials are not all the same
The emerging-market comparison came back: lots of moving parts, clusters of company types doing well, differences in how countries are performing, in political drive and in the support mechanisms behind businesses
He rejected the binary framing outright. "Europe's not like Marmite. It's not a case of do you love it or do you hate it." Certain parts of Europe, he said, are really compelling, and that is what the portfolio offers
TotalEnergies Is an Energy Major, Not an Oil Major, and Half of It Is Exploration and Production
Asked for one of the bigger holdings in detail, Faraday took the French-listed TotalEnergies, and started by rejecting the label people put on it. "This is French-listed and people think it is a dirty, grubby oil company." he said. "This is a global mega energy business."
The business splits three ways. About half is exploration and production, where he rates it above BP and Shell: "It's up there with the Exxons, if not, I think better than the best of the best in exploration and production."
A quarter is liquefied natural gas, and "This company's the largest exporter of gas from America."
The last quarter is what the company calls integrated power, a combination of gas-fired generation with solar and wind
Management is most of the case. The chief executive, Patrick Pouyanné, has run it for over the last decade, and "They actually only had three CEOs in the last 35 years."
He tested that continuity against the archive. Before a recent meeting he pulled a Baillie Gifford research note from 1996, 30 years ago, written up with one of Pouyanné's predecessors
Angola was the new frontier then, and he called it a huge success since
Some things did change: the firm held BP's reporting in extremely high regard back then, and perhaps that has shifted
"But one thing that rhymes is that our holding across Baillie Gifford today in TotalEnergies is actually the same as it was back then."
The Fossil-Fuel Objection, and Why a Punitive Carbon Tax Would Not Break the Case
Kelion put two challenges to him in turn: Baillie Gifford has been criticized in the past for holding companies involved in fossil fuels, and separately, higher carbon taxes or other political intervention could hit the share price.
On the first, Faraday said the firm asks of every company what its role will be as the world changes, with input from a dedicated environmental, social and governance analyst and a wider network including climate analysts. There has been a lot of engagement with TotalEnergies specifically. "And if I go back to that blend of businesses, this is an energy major, not just an oil major."
On the second, he conceded the exposure before arguing past it.
He did not pretend the political risk is small. "This is a French business. This is in the crosshairs of the media and French politics all the time." — and he said he would applaud what Pouyanné is doing navigating it
A carbon tax would hurt one leg of three. Punitive treatment of exploration and production flows through the firm's scenario analysis, and if that were the only thing being backed, he would share the concern
The five- to 10-year view is a different company. "That integrated power business could be a huge business." — funded by free cash generated elsewhere in the group
"I think I'd have a remarkably different view if it was just a monoline business, just drilling in one narrow specific area, but it's the combination across the group."
Rheinmetall Is a Catch-All Defense Prime, and Execution Is the Only Question That Counts
Kelion set up the defense holdings: a longstanding position in the Portuguese private company Tekever, whose drones have acted as eyes in the sky for Ukraine, and a new holding in a German company.
That company is Rheinmetall. Faraday split the sector into monoline specialists — Tekever, and Exail in underwater drones — and what he calls the primes.
"And Rheinmetall really is a catch-all." It is close to half ammunition, then armored vehicles, then drones, electronic defense systems and on into space
"I think Germany's at the centre of Europe, perhaps in the centre of the universe for defence spend."
The private companies want in with it. His private company colleagues keep telling him that firms such as Tekever are keen to partner with Rheinmetall, making it "the partner or the prime of choice"
The June setback was real. "Rheinmetall suffered a setback in June, though, didn't it, when the German government decided not to go ahead with plans to buy six warships from it." Kelion said, adding that European defense deals are often frameworks rather than firm orders
His answer was that lumpiness is the sector, not the company. Contracts are lumpy, multi-year and complex, the art of warfare keeps changing, and none of that is smooth sailing
"One of the questions I always ask myself of any company is, what would make you sell?"
The pressure has moved onto the chief executive, and it is about whether the company can execute
The scale question he is underwriting: "And this is a business that generates about 10bn in sales annually. The question is in three-plus years' time, can they be at 30bn, maybe even 50bn?"
Short-term investors will go around in circles on the order book, he said; he remains excited about how much larger the business could get
LPP Wants to Add 700-Plus Stores a Year on a Base of 4,000
The new holding in central and eastern European retail is LPP, the Polish apparel group.
"And you can think of this as sort of being the Primark or Zara of eastern Europe, all the way on through into Central Asia."
The footprint and the format count: "They've got 4,000 stores. They're in just under 30 countries." across five brands — Reserved, House, Cropp, Mohito and Sinsay
Sinsay is the fast, up-and-coming one, growing quickly
The plan is to add 700-plus stores a year on that base of 4,000
"It's super cash-flow generative. I really like the returns profile. I love apparel businesses when they're firing on all cylinders."
The succession is the thing he is watching. "And what's also quite special on this one is it's founder-run." — and it is moving from the founder to the son as he speaks
Four Hours on a Train to Krotoszyn, and a Design Cycle That Fell From Months to Weeks
Asked what he gets out of meeting management, Faraday made the case for going to companies rather than letting them come to London or hold a capital markets day. He had recently toured three Polish holdings: Dino Polska in Krotoszyn, LPP in Gdańsk, and Allegro in Warsaw.
On Dino Polska's location: "No one bothers going there. So you have to spend four hours on the train, get out there, see them."
The LPP meeting was with both generations — Marek, the founder, and Marcin, the son who will be chief executive in time — and it centered on agility
They went through the 35-year history: two brands launched and shut, constant experimentation
"Pre-war, Russia was a quarter of the business." and Russia is not part of it today. "It's reinvented itself time, time and time again."
AI came up as an operating change, not a slogan. "We were talking about how website content has gone from being 20 percent AI-generated to 80 percent."
Design and production each used to run six to 12 months. "Those six to 12 months are now six to 12 weeks. And this is advancements from AI."
AI tools are also being used to site the 700-plus new stores: where they should be, what the density is, what the young user profile is
What surprised him was which of the two was the cautious one. He expected the founder to be checking out and risk-aware and the son to be the energetic one, and got both
"And it was amazing having that dialogue with them, of them both trying to sort of push and stretch each other with, how hard are you pushing in ecommerce?"
Greece Is Back: Four Banks, 90 Percent of the Market, and a New Holding in Piraeus
Asked for a company that shows him investing where the strategy had no exposure before, Faraday said "Let's do Greece and let's do banks." The new purchase is Piraeus Bank.
"Greece is back. Greece is going to be in the MSCI index next year." The country has been through 10, 15-plus years of pain, corrections, the IMF and the politicians, and he called it a real turning point and one of the fastest-growing economies in Europe
The market structure is concentrated and, he says, well behaved. "You've got four banks and 90 percent of the market." He frames all four as quite good actors carrying the scars of the crisis
The growth he is buying is credit growth, with regulatory support behind it, over the next five, 10-plus years
The comparison Piraeus made itself is what sold him. He asked which European banks it felt similar to and it named the Spanish banks, including CaixaBank, one of his favorite holdings: "And it was almost music to my ears."
Piraeus has done an insurance deal and is broadening the bank's offering, which he says makes it stickier with the end customer
The stress test is speed. "I want this to be a marathon, not a sprint." A bank that tries to do too much too quickly is a known failure mode
He says he already knows what would make him sell, on valuation or on a change of management
"The sell discipline and rigour is something I've really been tightening the screw on."
Why He Sold LVMH: No Next China, and a Culture Changing Too Fast to Read
Kelion pointed out that LVMH is still highly profitable and still has a formidable founder at the helm, and asked what made Faraday act.
The separation he drew is between the company and the stock. "Bernard Arnault is an amazing operator of the business, but you can fall in love with a company, but you mustn't fall in love with a stock."
The structural worry is where the next two decades of demand comes from. The last two decades were the rise of China, which made luxury pervasive in Asia and lifted LVMH and its peers. "I'm worried about what is the next China."
Korea has been a bright spot because the stock market has done exceptionally well, but he likened that to investment-banking investing and expects it to be ferociously cyclical
"I think there will be some spend, but I just don't think it'll be at the levels that we saw the last 10, 20 years."
The company-specific trigger was a call with LVMH's ESG team. He went in with a shortlist of changes he wanted to understand. "After 15 minutes, I kind of lost count of the extent of changes that had been within the organisation."
Change can be good and the group is trying to do a lot across the brands, but he said that volume of change can be unsettling, and succession still has to come through
He was careful not to call the business bad. "It will be around in 10, 20, 50 years' time." — a brilliant collection of brands, but not, in his view, where the money is made from here
Bending Spoons Is a Consulting Platform That Buys Software, and the Trust Wants More Private Holdings
Kelion turned to one of the biggest holdings, the Milan-based Bending Spoons, which buys mature digital businesses and revives them. "And in July, it floated on the Nasdaq, achieving a valuation of more than $18bn." he said, and asked whether that success means Faraday is now hunting other European private companies.
Faraday credited the firm's private companies colleagues first, then described the model.
It is not a software business in the usual sense. "I kind of almost think it's like a sort of McKinsey, but it's buying and holding the software businesses."
What the team does with an acquisition is revamp pricing, efficiency and staffing costs, improve the software, and take out the profitability
Vimeo, AOL, Evernote and Eventbrite are among 20 or so brands it has done this to, which he says is form and pedigree
The hiring funnel is his evidence of something cultural. "The stats are out there: they had, I think it was 800,000 applications for 260, 270 jobs."
"So it's harder to get into that business than it is an Oxbridge or Harvard or wherever."
The wider conclusion is about staying private. Companies are remaining private for longer and Europe fits that, with opportunities across software, wider technology, health care and defense
"And there's a desire, there's capacity in our Trust where we can hold unlisted businesses, and I want to make that a regular part of the process."
The Pledge to Clients Is Not Performance, It Is That the Portfolio Has Already Changed
Asked what should give listeners and clients conviction now, given that he cannot promise performance improves, Faraday answered with what he says he can promise.
"First up, let's acknowledge it's been a difficult period, but what I can pledge is decisive action has been taken."
The claim is about the shape of the range of outcomes: a broader set of growth types, he said, puts the likely range more in clients' favor
The stock picking is being blended with portfolio construction and risk management, and the long-term horizon is paired with agility
"I think it's more rounded. There are broader types of growth."
The Book: Supercommunicators, Looping, and "Be Curious, Not Clever"
Kelion ends every episode by asking for a book, and Faraday's was Supercommunicators by Charles Duhigg, read on holiday.
"And it might sound as if it's all about communication. It's actually about human interactions."
The technique he took from it is called looping. "So it's almost like repeating back and checking in with the other side." — which he applies to management meetings, to check he has interpreted things the right way
The second is to stop and listen, let people talk, see where they take you, and keep the questions open
His summary of the book is a rule for company meetings: "be curious, not clever"
"The facts are all there. That's kind of a given or a commodity in this day and age." — so the value is in the softer side of the discussion, not in reciting the numbers
Faraday closed by telling Kelion "We covered a lot and I look forward to covering even more soon."
His bottom line is that Europe now offers too many different kinds of growth to be bought as one market, and that the way to capture it is a wider set of themes, a larger number of individual companies understood in detail, and a sell discipline strict enough to let go of a business as good as LVMH.
Products, Companies & Tools Mentioned
Rational (The German maker of combination cookers for commercial kitchens that opened the episode; a company Faraday first met as a trainee and that its own CEO calls boring)
Baillie Gifford European Growth Trust and the European Fund (The vehicles Faraday runs; he became sole manager of the Trust on 1 April and took over the European Equities Team on 1 May)
TotalEnergies (The largest position discussed: about half exploration and production, a quarter LNG, a quarter integrated power, run by Patrick Pouyanné)
BP, Shell and ExxonMobil (His benchmarks for TotalEnergies in exploration and production, and BP's reporting was the gold standard in a 1996 research note he dug out)
Rheinmetall (The new German defense holding: close to half ammunition, then armored vehicles, drones, electronic systems and space. Lost a six-warship order in June)
Tekever, Exail and Airbus (The other defense exposures — Tekever unlisted and supplying drones to Ukraine, Exail in underwater drones, and parts of Airbus)
LPP and Sinsay (The Polish apparel group and its fastest-growing format; 4,000 stores in just under 30 countries across Reserved, House, Cropp, Mohito and Sinsay)
Primark and Zara (The two names he used to explain what LPP is to a listener who has never seen one of its stores)
Dino Polska and Allegro (The other two Polish holdings on his tour — discount food retail in Krotoszyn, four hours from Warsaw by train, and the ecommerce platform)
Piraeus Bank and CaixaBank (The new Greek purchase, and the Spanish bank it compared itself to when he asked, which he called music to his ears)
MSCI (Greece joins its index next year, part of his turning-point case for the country)
Iberdrola and Nexans (The other two links in his electrification chain: a utility operating in the UK, Spain and the US, and a maker of long underwater copper cabling)
LVMH (Sold. He cannot identify the next China for luxury demand, and a call with its ESG team left him unable to count the internal changes)
Bending Spoons (Milan-based buyer of mature digital businesses, floated on the Nasdaq in July; he describes it as a consulting platform rather than a software company)
Vimeo, AOL, Evernote and Eventbrite (Four of the 20 or so brands Bending Spoons has bought and reworked)
McKinsey (His analogy for what Bending Spoons actually does — consulting, except it owns the companies)
BAE Systems, Schlumberger and Neste (From his own CV: the defense firm he worked for, the oilfield services company whose Angola posting fell through, and where he made paint)
Books & Resources Mentioned
A Disciplined Case for European Growth – Joe Faraday (The paper he calls a manifesto, captioned broadening growth, and the document he pointed to when asked for his guiding principle)
European megatrends: what's on my mind? (His write-up of the eight to 10 megatrends discussed in the episode, linked from the show notes)
The European opportunity set (The companion piece on why he thinks Europe looks more like an emerging market than like North America)
Supercommunicators – Charles Duhigg (His holiday read and the source of looping, stopping to listen, and be curious, not clever)
The Way Things Work (The Dorling Kindersley book from his childhood that he says pushed him toward engineering, and that he still uses as a description of his job)
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