If there is one thing investors can agree on, it is that the UK stock market is cheap.

How cheap depends on who you ask, but the strategy team at Morgan Stanley believe the FTSE 100 is trading at a 35% discount to the MSCI World Index on a PE (price to earnings) basis.

If inflation pressures continue to ease and the economy shows further signs of cooling, there is a fair chance the Bank of England may decide to hold off from raising interest rates for a second time when it meets next month.

If that is the case, then being able to buy the best UK growth companies in one go today at a material discount to their current share price seems like an opportunity not to be missed.

The Baillie Gifford UK Growth Trust (BGUK) is a high-conviction, concentrated selection of the managers’ best ideas among UK small- and mid-cap growth companies, which they believe is the market’s ‘sweet spot’.

The trust’s NAV (net asset value) per share at fair value as of 6 October was 178.4p meaning that at the current price investors can access these best ideas at a discount of 16%, which is above the 12-month average, and for an ongoing charge of just 0.7%.

The top holdings at the end of August were as follows: Games Workshop (GAW), Ashtead (AHT), Auto Trader (AUTO), Volution (FAN), Abcam (since acquired by US firm Danaher (DHR:NYSE)), Experian (EXPN), Howden Joinery (HWDN), St James’s Place (STJ), Softcat (SCT) and Diageo (DGE).

As analyst Matthew Read at QuotedData puts it, the trust has faced ‘particularly strong headwinds during the last 18 months as investors have either sought sanctuary in value and defensive stocks or pulled money out of equities altogether, often in favour of fixed-income stocks which are now offering a better rate of return than they have for some time’.

Yet at an operational level, its investee companies continue to perform well, with solid balance sheets, and given the discount there is potential for the trust to re-rate once the UK comes back into favour with investors.

Interviewed last month by the AIC (Association of Investment Companies), co-manager Milena Mileva said portfolio turnover in the last year had been just 5%, meaning the team had made very few changes, as ‘despite the valuation reset, we are confident the business fundamentals and growth prospects of our holdings remain very strong’.

The managers are ‘deeply enthusiastic about the businesses we are invested in’, with close to 95% of the portfolio showing positive earnings and free cash flow despite the economic headwinds.

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