I already have a fair bit of exposure to artificial intelligence (AI) in my portfolio, even after selling Nvidia shares last month. However, if I didn’t, or wanted more, I’d invest in this FTSE 250 investment trust.
AI innovators
I’m referring to Baillie Gifford US Growth Trust (LSE: USA). As the name suggests, the focus is on US growth shares. So the portfolio contains staple AI stocks including Nvidia, Meta and Amazon, but also smaller listed growth firms using AI in interesting ways.
For example, language-learning app Duolingo uses an AI model called Birdbrain to personalise lessons. It makes sure the exercises are at the perfect difficulty level based on a learner’s strengths and weaknesses.
The company ended 2023 with a record 88.4m monthly active users, which represented a healthy 46% year-on-year increase. Annual revenue surged 44% to $531m.
With Duolingo shares up 57% in 12 months, this has been a great performer.
The trust can also invest up to 50% of assets in private companies. And the top holding, Elon Musk’s unlisted rocket firm SpaceX, makes up 6.9% of the portfolio.
Internet payments company Stripe has a 3.9% weighting.
Top 10 holdings (as of 29 February)
| Weighting | |
| Space Exploration Technologies (SpaceX) | 6.9% |
| Nvidia | 6.7% |
| Shopify | 5.3% |
| Amazon | 5.1% |
| The Trade Desk | 4.8% |
| Stripe | 3.9% |
| Meta Platforms | 3.6% |
| Netflix | 3.2% |
| DoorDash | 2.9% |
| Tesla | 2.8% |
| Total | 45.2% |
Another promising private firm is Databricks, the world’s first data intelligence platform powered by generative AI. At the end of February, 30.8% of assets were invested in such private companies.
Ongoing underperformance
Given all this exciting AI stuff, you’d think the trust would be thrashing the market. Surprisingly, it isn’t.
Since inception in March 2018, it has lagged the S&P 500 index (its benchmark) both on a share price and net asset value (NAV) basis. This means investors would have made a better return just investing in a passive index tracker.
We asked you to judge us over the long term and… we are dissatisfied with our five-year performance. These are not the numbers we looked to deliver at the company’s fifth anniversary.
Managers’ review, Baillie Gifford US Growth Trust’s 2023 annual report
The main risk here is that this underperformance continues. After all, data shows most funds struggle to consistently beat the market.
I got cold feet
I should declare I was an investor in the trust from launch until 2022. The reason I sold was because I lost faith in some of the stock-picking.
For example, Mastercard, Meta and Alphabet were sold, which I didn’t understand, as these still appeared to be among the world’s greatest growth companies.
Also, Snap, the parent of Snapchat, was bought not long after Rivian. The former had never struck me as a quality growth stock while the latter seemed grossly overvalued when it went public.
A change of heart
However, I think the stock could perform well from this point. Why? Well firstly, I really like the look of the top 10 holdings today (accounting for 45.2% of the portfolio). I’d be very surprised if most of these aren’t much larger in future.
Meanwhile, Snap has been sold and Meta bought back. And interest rates are surely heading lower, which should help the trust’s growth strategy.
Finally, at 198p, the stock’s trading at a 12.3% discount to NAV. This could prove to be a long-term bargain.
