The £630 million Baillie Gifford US Growth Trust plc said its share price and net asset value (NAV) returned 12.3% and 4.1% respectively for the six months to November 30, 2023.

This compares with a total return of 7.9% for the S&P 500 Index. The investment trust’s discount tightened from 22.4% to 16.2% during the period.

“We have a long-term approach and would ask shareholders to judge performance over periods of five years or more …” said the fund.

“During the period from 23 March 2018, launch date and first trade date, to 30 November 2023, the company’s share price and NAV (after deducting borrowings at fair value) returned 61.8% and 98.2% respectively.

“This compares with a total return of 117.8% for the S&P 500 Index.”

At the end of November, Baillie Gifford US Growth Trust held positions in 24 private companies — 31.7% of total assets.

The fund made three new purchases over the six months — Meta Platforms, Samsara and Sprout Social. It made five complete sales during the period: Illumina, MarketAxess, Novocure, Redfin and Snap.

“It has been a better year,” said the fund. “The storm is easing. We know we cannot assume that the sun will always shine, but we take comfort from the fact that the companies held in your portfolio are executing, and executing well.

“When fundamentals will be better reflected in share prices is nigh on impossible to predict. Trying to predict the mood of the multitude of market participants is a fool’s game for the long-term stock picker.

“Instead, we must double down on what differentiates us – long-term, active, growth, bottom-up stock pickers focused on fundamentals.

“British physicist David Deutsch said, ‘We have a duty to be optimistic. Because the future is open, not predetermined and therefore cannot just be accepted: we are all responsible for what it holds’.

“We take that responsibility seriously. US Growth holds companies which are determining that future. But it will take time.

“Navigating storms is part of the process. We believe the portfolio is well-positioned to navigate and realise its potential. That feels like a dream opportunity.”

The fund’s biggest investments at November 30 were Space Exploration Technologies, Shopify, The Trade Desk, Amazon, NVIDIA, Stripe, Tesla, Netflix, Workday and Duolingo.

Baillie Gifford US Growth Trust plc seeks to invest predominantly in listed and unlisted US companies which the fund believes have the potential to grow substantially faster than the average company, and to hold onto them for long periods of time, in order to produce long term capital growth.  

The fund’s portfolio managers, Gary Robinson and Kirsty Gibson, wrote: “We hypothesised that 2022 would be a year of reorientation, and 2023 would be a year of execution.

“Our portfolio companies experienced a valuation re-set following the pandemic. Faced with a higher interest rate environment and demand volatility, many spent much of 2022 reorientating their business models whilst endeavouring to execute on their long-term opportunities.

“As 2023 came to a close, the evidence for our hypothesis that it would be a year of execution has been building.

“For some, the reorientation, and subsequent execution, has been easier given the greater levels of resilience in their business models. They were already profitable or generating free cash flow (‘FCF’). Examples would be CoStar, the US commercial and residential property data and marketplaces business, or Tesla, the electric vehicle manufacturer.

“For others, it was a case of trimming some of the low interest rate environment excesses whilst maintaining the necessary investments for future growth.

“These companies removed teams or mothballed projects which no longer made economic sense, enabling them to transition to profitability. Examples include Shopify, the merchant-focused e-commerce platform, and Amazon, the online retailer.

“Some remained less resilient from a cash flow or profitability perspective but had significant war chests of cash, providing them time to make the transition to self-sustainability whilst continuing to invest. An example would be Ginkgo Bioworks, the organism design company, whose current burn rate means it has two and a half years of cash remaining.

“The final group of companies was lacking resilience. Some, like Wayfair, the online home furnishing business, and Affirm, the buy-now-pay-later company, made significant changes to shore up the resilience of their business models and are in far stronger positions than when the downturn began.

“For others, like Carvana, the online second-hand car marketplace, or Redfin, the real estate brokerage, we lost conviction in their ability to emerge from this environment stronger than when they went in. We consequently sold these holdings.

“What we are seeing in the fundamentals at many of the businesses the company holds only adds to our excitement about the future value of these companies.

“Wayfair has returned to revenue growth against a declining home market. CoStar is counter-cyclically investing its more than US$5 billion cash pile into future growth opportunities. Shopify launched ShopifyMagic, integrating artificial intelligence across its entire offering whilst delivering a 16% FCF margin, up from negative one year earlier.

“Duolingo, the gamified language learning app, is growing users at over 60% year-on-year despite spending just 16% of revenues on marketing.

“DoorDash, the food delivery app, has seen strong cohort dynamics and delivered close to US$900 million in FCF over the last twelve months …”

Baillie Gifford US Growth Trust plc is managed by Baillie Gifford & Co, the Edinburgh based fund management group with £218.4 billion under management and advice in active equity and bond portfolios for clients in the UK and throughout the world, as at January 22, 2024.