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Narrowing discount offsets Baillie Gifford US Growth underperformance

a photograph of a Redwood grove split into nine squares with the words Baillie Gifford US Growth

Baillie Gifford US Growth has published results covering the 12 months ended 31 May 2024. Over that period, the trust returned 16.2% in NAV terms, well-behind the 24.8% return posted by the S&P 500 Index. However, the shares moved from trading at a discount of 22.4% at the start of the financial year to a discount of 11.2% at 31 May 2024. This helped generate a return to shareholders of 32.9%. There is no dividend (net revenue was negative, as expected).

7,925,000 shares were bought back, representing 2.6% of the issued share capital at the start of the year.

Since 23 March 2018 (launch date and first trade date), the share price and NAV returns were 91.4% and 121.2% respectively, compared to a total return of 152.0% for the S&P 500 Index.

As of the end of March, 67% of the portfolio was generating positive cash flow or positive earnings per share, up from 48% in March 2023. The median revenue growth rate exceeded 18% over the year to March 2024, ahead of the S&P 500 Index. [That relatively high exposure to loss-making/cash consumptive companies has been the main factor in the trust’s poor relative performance. Rising interest rates put investors off ‘jam tomorrow’ companies and particularly those that were burning cash and the market feared might struggle to raise more. As the first US rate cut draws nearer, sentiment may be improving – that is what the board thinks helped drive the narrower discount. However, investors’ patience will wear thin if the underlying performance doesn’t improve soon.]

Within the 34.1% of the portfolio invested in private companies, the number of companies dropped from 25 to 24 as Oddity listed, Convoy was written off, and one new purchase – Human Interest, which helps small and medium-sized businesses offer retirement plans to their employees – was made.

With respect to the companies in the table above, the managers did say “NVIDIA, another holding in your portfolio, has been a key beneficiary of this AI spending boom. Its revenues grew by a remarkable 125% last year, and the shares responded accordingly. We reduced our position earlier this year to reflect the change in risk-reward profile.”

However, while there is some basic descriptive information about the larger positions, there is no discussion in the results statement about the drivers of the returns in the above table. [I think that is disrespectful towards shareholders, especially when a holding goes bust.]

USA : Narrowing discount offsets Baillie Gifford US Growth underperformance

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