Zoom-Zoom – Baillie Gifford US takes off – Baillie Gifford US Growth Trust appears to be going from strength to strength. A trust which launched at 100p in April 2018 can now boast an NAV of 234.5p and a share price of 246p. Returns have been well-ahead of benchmark indices and competing funds have been left for dust. In fact, the trust is the second-best performing of all investment trusts over the past year, behind its stablemate, Scottish Mortgage.
A quick peek at the trust’s latest factsheet (as at the end of July 2020) gives you all the information you need to explain the trust’s meteoric rise. The top 10 holdings were led by Tesla, Shopify, Amazon, Wayfair and Netflix – some of the best-performing stocks in the US market this year. It also made an investment in online conferencing software company Zoom. The only surprise is the absence of Apple on that list.
By focusing on growth stocks at the vanguard of disruptive technological and societal change, the trust found itself positioned well for the COVID-19 economy. The growth of online shopping, home entertainment and home working helped propel some of these stocks to the top of the performance tables. The trust also has exposure to some of the healthcare stocks that are working on vaccines and treatments, as well as Teladoc, which is supporting the shift to online consultations with doctors.
Some investors almost cult-like devotion to Tesla is harder to fathom. The company has been making great strides but its valuation seems to have run well-ahead of any sensible level (delivering more than a 10-fold increase in its share price over the year up until the end of August). It was encouraging to see that Baillie Gifford have been taking profits in the stock, presumably selling down this trust’s position.
Not everything in the portfolio benefited from the pandemic. Ride-sharing company Lyft saw a big slump in demand which is yet to recover, for example.
As well as its willingness to back high growth companies, Baillie Gifford is increasingly becoming known for its unlisted exposure. Scottish Mortgage recently upped the limit on unlisted stocks in its portfolio to 30%. In the US Growth Trust’s case, the limit is 50% and at the end of May 2020 it had 17 unlisted holdings which accounted for 12.2% of the total portfolio. There are some interesting and exciting companies within this part of the portfolio.
The managers and the board would say that two and a half years is too short a time to judge the performance of this trust – they prefer a timeframe of five years or more. For what it is worth, I feel that the recent correction in the share prices of some of these stocks was probably overdue and there may be a further shakeout to come. However, while some of these stocks may still look pricey, it will be easier for them to grow into their valuations.
As an investment management house, Ballie Gifford believes not only in the power of compounding but that a few key stocks can account for most of the growth in markets over the longer term. They aim to identify these companies and then, rather than being tempted away by short term profit taking, to maintain their positions, backing their winners to get the full benefit of their multi-period growth.
Against a backdrop of sluggish economies and very low interest rates, the outlook for growth stocks remains undimmed and, with a proven track record of being able to successfully identify companies that are best placed to benefit from structural changes, coupled with a strong culture of entrepreneurialism in the US, the future for this trust could be bright.