Baillie Gifford US Growth 14 May 2019

Baillie Gifford US Growth (LON:USA) launched in March of 2018, aiming to produce long-term capital growth through investing in US equities. Gary Robinson and Helen Xiong are at the helm of the portfolio, searching for exceptional growth companies, where their innovations are likely to offer significant contributions to society. The managers undertake rigorous bottom-up analysis to uncover information others might be missing, in particular looking for companies that exhibit high barriers to entry, a large market opportunity and a culture that is aligned with their end goals.

In order to fully expose investors to the highest growth opportunities, the managers also have latitude to invest in unlisted companies. In their view, the most compelling growth companies are choosing to stay private for longer, which they believe gives the trust a unique edge over its peers. On sectoral basis, the trust is dominated by the consumer discretionary (26%), information technology (19.6%) and health care (17%) sectors.

Since the launch of the trust, performance has seen its fair share of ups and downs. The first six months of the trust’s life saw NAV returns of over 30%, close to 10% greater than the S&P 500 and the AIC peer group, and close to 15% ahead of the IA peer group. However, the final four months of 2018 saw the trust lost close to 19%, considerably more than peers (-12.9%) and the benchmark (-11.4%). Since then, the trust has once more rebounded and over 2019 the trust has delivered 20.8% NAV returns, to the 6 May. This volatility is likely to continue, and with a down capture ratio of 128 (sector average of 85) and standard deviation of 30.6 (relative to the sector average of 19.9) the trust might not be for the faint hearted.

Currently, the trust is trading on a premium of 2.7%. This premium has been reasonably consistent throughout the 14-month life of the trust, reaching highs of over 10%, and only dipping to a discount a handful of times for very short periods. The company has been issuing shares over recent months to help grow the trust and make sure the premium does not expand too far.

USA has been formed with the intention to help investors access the most exciting new growth companies across the listed and unlisted space in the US market. It is now easier for these high growth start-up companies to obtain capital from numerous sources, and so do not need to list on a public exchange until a later part of their life. This means that investors have been missing out on potential returns for much of the current prolonged bull market. USA looks to change this.

The trust holds some exciting growth opportunities, and this has been reflected in the strong performance of the trust since inception. With this said, we have seen the volatility of the trust rear its ugly head, and figures like the beta of 1.3, the down capture ratio of 128 (sector average of 85.3) and standard deviation of 30.6 (relative to the sector average of 19.9) are in some ways quite alarming.

Currently trading on a premium of 2.7% and issuing shares, the trust is clearly in demand. However, should we see continued volatility in 2019, this could potentially throw up opportunities to enter the company on a discount.