Baillie Gifford US Growth (USA) has defended its decision to almost halve its investment in SpaceX shortly before the valuation of Elon Musk’s rocket company doubled to $800bn last month.

In interim results for the six months to 30 November, chair Tom Burnet said “the position had grown to represent more than 10% of the portfolio, around twice the size of the next largest holding, and larger than we would like for our investment strategy which places importance on a diversified portfolio.”

In the investment trust’s previous annual results in August, USA held 11.3% of its assets in SpaceX at 31 May. A 16 December statement on the revaluation of the private company in December from its previous $400bn revealed its weighting in the listed fund had fallen to 6% at the end of November. The big uplift during a share sale by SpaceX employees restored it to 11.4% and as at 21 January it stood at 11.5% of total assets.

The chair added: “Despite much media speculation, there is no clear timing of any potential IPO [initial public offer[ of SpaceX and the managers felt it prudent to realise 48.5% of the growth in the company at this stage but we remain confident on the company’s future growth prospects.”

Burnet’s statement follows reports yesterday that SpaceX is considering which of five US investment banks should lead its flotation that earlier reports suggested could value the company, with its valuable Starlink satellite internet business, at a record $1.5trn.

Exciting SpaceX

Fund managers Gary Robinson and Kirsty Gibson said: “SpaceX remains the holding we are most enthusiastic about,” but said they had to consider risk management and the right shape of a portfolio that is still recovering from its losses in the 2022/23 crash.

The half-year figures showed the £789m trust, which like other Baillie Gifford funds targets exceptional growth companies, continued its recovery from the bursting of the Covid bubble in technology stocks. 

Helped by the partial profit taking in SpaceX, the portfolio of 77 stocks, 27 of them unquoted, generated a 14.1% underlying return in the six-month period. However, it underperformed the S&P 500 which advanced 18.6%. Nevertheless, shareholders came close to the index return, receiving 18% as the discount – or gap – between the share price and the net asset value of its investments narrowed from 9.4% to 6.3%.

That may partly reflect increased investor demand for the trust’s improved performance which has seen the shares return nearly 93% over three years. However, Burnet admitted the five-year picture remained “disappointing” with NAV down 18% currently.

Saba threat

The rerating of the shares also reflects the looming presence of Saba Capital, the activist hedge fund with a 29% stake, whose views are pivotal for the future of the company. 

After the US firm failed to oust the USA board in February, Burnet said he and senior independent director Sue Inglis had met Saba, which indicated it respected the outcome of the vote but had declined further meetings before almost unseating the directors at the annual general meeting in October. 

This meant Saba’s views on a merger proposal with sister trust Edinburgh Worldwide (EWI) were not known when the two funds announced an agreement to combine in December. They saw it immediately rejected by Saba which then launched a second attempt to take control of the board of EWI, which shareholders defeated this week. 

In the build-up to the vote, Saba founder Boaz Weinstein lambasted EWI for also independently selling a third of its holding in SpaceX, and for pursuing a merger with USA he claimed was in Baillie Gifford’s interests, not the trusts’ shareholders. Baillie Gifford denied both allegations.

Burnet confirmed that no further work was being done on the merger. He promised to actively engage with retail shareholders “in the coming months to understand their views and feedback”.

New holdings and exits

The half year was a busy one for the fund managers. In the publicly listed part of the portfolio, which after the SpaceX uplift accounts for just 65% of assets, the pair added holdings in Figma, a cloud-based design platform; Coinbase, the cryptocurrency exchange; Circle, a US dollar stable coin issuer; Knife River, a construction materials group; and AppLovin, an advertising technology company.

They also added to positions in CoStar, the real estate platform; Oddity, the cosmetics company; and Samsara, the “connected operations business”. 

Holdings in online pet product provider Chewy, TV platform Roku and accommodation marketplace Airbnb were sold due to competitive pressures and waning conviction on future returns. Roblox, the mobile gaming business; Affirm, the buy-now-pay-later platform; Shopify; and Doordash, the food delivery group, were reduced after strong share price performance. 

In the private equity sub-portfolio, which has risen to 35% of the trust’s assets, the managers added Anthropic, the $183bn (£137bn) artificial intelligence startup in which Baillie Gifford flagship Scottish Mortgage Trust (SMT) invested £91m. USA holds 1.4% of its assets in the company, a stake worth £12.1m.