By Mark McSherry
The £680 million Baillie Gifford US Growth Trust plc said its share price and net asset value (NAV) returned 32.9% and 16.2% respectively in the financial year to May 31, 2024, and its managers said the United States “remains a fertile hunting ground for growth investors.”
The performance of the fund compared with a total return of 24.8% for the S&P 500 Index.
The investment trust’s shares improved from a discount of 22.4% at the start of the financial year to a discount of 11.2% at May 31.
The fund’s 10 biggest holdings were Space Exploration Technologies at 7.6% of total assets, Nvidia at 6.5%, Amazon at 5.2%, The Trade Desk at 5%, Stripe at 4.6%, Meta Platforms at 3.7%, Moderna at 3.4%, Netflix at 3.4%, Shopify at 3.1% and Brex at 3.1%.
The fund held 24 private company investments, which collectively compromised 34.1% of total assets.
Baillie Gifford US Growth Trust seeks to invest predominantly in listed and unlisted US companies which it 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 managers, Gary Robinson and Kirsty Gibson, wrote in their outlook: “The US remains a fertile hunting ground for growth investors.
“Its companies are leading in new technological paradigms like AI, just as they led previous innovation waves such as the internet and mobile.
“Our aim is to identify the most exceptional amongst these companies and hold them for the long term, thereby capturing the unique upside that such companies offer.
“In our experience, one of the key features that unites such firms is adaptability. To endure and thrive over the long term, businesses must be able to respond effectively to changing market circumstances and technological paradigms.
“The transformations we have witnessed at holdings including Shopify, Meta, Block and, indeed, Nvidia over the past few years are extremely encouraging in this context. They have demonstrated their adaptability and are now better positioned for the future.
“The next cohort of generationally important companies will share this ability to adapt, innovate, and position themselves for a rapidly evolving future.
“It is our conviction that many such companies are present in your portfolio, across both your public and private holdings.
“Markets have been volatile lately, reflecting uncertainty about the future. We believe our investee companies have the qualities necessary to navigate through this uncertainty.
“The best companies create opportunities for themselves, even in challenging environments. We believe this feature is structurally underappreciated by markets and exploitable by patient investors.
“As we look ahead, we remain excited about the prospects for your portfolio and confident in our ability to continue identifying and investing in the companies that will shape the future of the global economy.”
On their portfolio changes, the managers wrote: “While AI has dominated recent headlines, it is not the only disruptive force to have emerged in recent years.
“In the healthcare sector, a new class of medicines called GLP-1s has created a stir due to their ability to induce weight loss.
“While we do not have direct exposure to manufacturers of these drugs, the excitement surrounding GLP-1s indirectly led to the purchase of two new healthcare holdings: Insulet, which produces pumps for treating diabetes, and Inspire Medical Systems, which manufactures surgical implants for sleep apnoea.
“Both stocks experienced sell-offs due to fears that GLP-1s would shrink their addressable markets. While diabetes and sleep apnoea are linked to obesity, making this concern understandable, we believe that the patient cohorts from which Insulet and Inspire derive most of their revenues are unlikely to be significantly impacted by GLP-1s.
“We had been following both businesses for some time and used this weakness as an opportunity to initiate positions.
“Other notable new holdings in the period include: Guardant Health, a provider of molecular diagnostic tests for cancer; YETI, a consumer branded goods company renowned for its durable coolers and drinks containers; Sprout Social, a social media management platform; and Samsara, a provider of telematics and safety technology for the trucking industry.
“We also made several complete sales during this period. We parted ways with communications software provider Twilio, which had been underperforming for some time. The catalyst for this sale was the departure of its founder, Jeff Lawson.
“We also divested our position in videoconferencing software company Zoom, which was struggling to grow amidst fierce competition from Microsoft’s Teams. Other complete sales included Snap, Chegg, Illumina, MarketAxess, Novocure, Redfin and Warby Parker.
“While this may seem like a substantial list of changes, it’s important to note that our portfolio turnover remains low at 14%, consistent with our five to ten-year holding period. This underscores our commitment to long-term investing and our conviction in the companies we hold.
“On the unlisted front, we made one additional investment during the year: Human Interest, which helps small and medium-sized businesses offer retirement plans to their employees.
“The IPO market is beginning to show signs of life, although volumes remain well below pre-pandemic levels. As mentioned in our interim report, one of your holdings, online cosmetics company Oddity, went public during the year. We anticipate that more of your private businesses will transition to public markets in the coming years.
“At the end of the reporting period, the company held 24 private companies, which in aggregate comprised 34.1% of total assets. The allocation to private companies is concentrated, with the top five private companies comprising over half of the allocation, and the top ten comprising over three-quarters.”