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Baillie Gifford US Growth Trust: October 2020 update

Investment Analyst Joseph Hill shares our analysis on the manager, process, culture, cost and performance of Baillie Gifford US Growth Trust.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

  • The managers are looking to invest in companies they think will grow faster than the average company over the long term
  • Gary Robinson and Helen Xiong are prepared to hold onto companies for long periods to generate long term capital growth
  • The trust has outperformed its benchmark since its launch in March 2018

How it fits into a portfolio

Gary Robinson and Helen Xiong are co-managers of the Baillie Gifford US Growth Trust. They look to invest in US companies they think have the potential to grow faster than the average company. They then try to hold onto them for long periods of time, to generate long term capital growth. These companies can be public or private. We think this trust could work well as part of an adventurous investment portfolio, and could diversify portfolios which have little invested in the US. Investors in investment trusts should be aware that they can trade at a discount or premium to net asset value (NAV).

Manager

Gary Robinson joined Baillie Gifford in 2003 and has experience of working in their Japanese, UK and European equity teams prior to joining the US equity team. Robinson is co-manager of a few other strategies at Baillie Gifford, including the Baillie Gifford American fund. These are run in a similar way though and share some of the same companies, so we think he’s able to devote enough time to each.

Helen Xiong joined Baillie Gifford in 2008 and has spent time working in their Developed Asia, UK, North America, Emerging Markets, and Global equity teams prior to becoming an investment manager in the US Equities team. Both Robinson and Xiong have co-managed the trust since its launch in March 2018.

Process

Robinson and Xiong invest in US companies they think have the potential to grow faster than the average company, and then try to hold onto them for long periods of time. The managers think this will maximise their chances of achieving capital growth for shareholders, as over the long term strong business models and cultural strengths become the drivers of valuations.

This will consist of both companies which are publicly traded on the stock market, and private companies. The managers think companies in the US are choosing to remain private for longer, and as such believe being able to invest in public and private companies offers them a wider opportunity set. Investors should be aware that private, or unquoted, companies carry more risk than public ones. Investing in smaller companies is also a higher-risk approach.

The trust can invest in a maximum of 90 companies, typically with 30-50 of these being public listed companies. Currently, the trust invests in 61 companies but it does have the flexibility to operate a concentrated approach and invest in derivatives, which if used adds risk.

The vast majority of the trust is invested in the Consumer Discretionary, Information Technology and Health Care sectors with a 73.5% weighting accounting for almost three quarters of total assets.

The managers have made some changes to the trust over the year. They exited positions in Agios Pharmaceuticals after the departure of key personnel and online education provider 2U over concerns about the company losing its competitive edge. These positions made way for some new investments, including in HR and finance software company Workday.

Robinson and Xiong have the ability to invest up to 50% of the trust’s assets at the time of investment in unlisted companies. At the end of the trust's financial year in May, it held 17 unlisted investments making up 12.2% of the trust.

The trust’s largest unlisted investment, accounting for 2.2% of total assets is payments platform Stripe. Stripe tries to simplify the process of sending and receiving money for businesses scaling up and dealing with the complexities and nuances of operating in different regions.

Over the last year, the manager’s added eight new unlisted investments to the trust and saw two existing holdings list on the stock market to become public companies. One of these new additions was popular online accommodation market place Airbnb, while Slack Technologies and Peloton Interactive listed during the period.

The trust also borrows money to invest with the intention of increasing returns (sometimes known as gearing) to shareholders. This could magnify losses in a falling market and increases risk.

Culture

Baillie Gifford is an independent private partnership founded in 1908. It's owned by partners who work full time at the firm. This ownership structure means senior managers have a vested interest in the company, and its funds and trusts under management, performing well. We think this has helped cultivate a culture with a long-term focus, where investors' interests are at the centre of decision making. We also like that fund managers are incentivised in a way that aligns their interests with those of long-term investors and should retain talented managers. Gary Robinson, one of the fund’s co-managers is a partner at the firm.

Baillie Gifford recognises the risks posed by Environmental, Social and Governance (ESG) issues and uses its position to encourage companies to act in a sustainable way. The company has a dedicated Governance and Sustainability Team of sixteen which is responsible for producing ESG research which challenges and contributes to the investment decision-making process. They also monitor companies' progress on an ongoing basis, engaging with them on ESG matters where appropriate.

Cost

The trust's ongoing charge for the year ended 31 May 2020 was 0.75%, which is slightly lower than the 0.77% for the previous year. Investors should refer to the latest annual reports and accounts and Key Investor Information for details of the risks and charging structure.

If held in a SIPP or ISA the HL platform fee of 0.45% (capped at £200 for a SIPP and £45 for an ISA) per annum also applies. Our platform fee doesn’t apply if held in a Fund and Share account.

Performance

During the trust’s financial year to 31 May 2020 its net asset value (NAV) rose 44.2%, outperforming the S&P500 index return of 15.0%. Past performance is not a guide to future returns. Tesla, Shopify, Amazon and Zoom Video Communications were all significant contributors to the trust’s performance over the period. Shopify, Amazon and Zoom can all count themselves as beneficiaries of the changes consumers have been forced to make over recent months. The managers consider E-commerce penetration to have risen as much in the first half of 2020 as it did in the previous five years.

Although the trust has performed very strongly recently, a few of its investments haven’t done as well. The ridesharing company Lyft for example, saw demand for its services fall by 75% in April, knocking its share price down. Medical device company Glaukos has seen its revenue hit too. The coronavirus pandemic has resulted in the postponement of many elective procedures hurting demand.

Since the trust's launch in March 2018, the managers have delivered strong returns of 154.8%*, compared with the FTSE USA’s 46.8%. Remember all investments fall as well as rise in value, so investors could get back less than they invest. It’s not possible to provide annual performance data before September 2018 as the trust only launched in March 2018.

Annual percentage growth
Sep 15 -
Sep 16
Sep 16 -
Sep 17
Sep 17 -
Sep 18
Sep 18 -
Sep 19
Sep 19 -
Sep 20
Baillie Gifford US Growth Trust N/A N/A N/A -2.2% 101.5%
FTSE USA 34.2% 15.0% 21.2% 10.2% 11.3%

Past performance isn't a guide to the future. Source: *Lipper IM 30/09/2020.

N/A - Full year performance prior to September 2018 is not available

Find out more about Baillie Gifford US Growth Trust including charges

Baillie Gifford US Growth Trust Key Investor Information


Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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