Baillie Gifford US Growth Trust‘s (LSE: USA) a FTSE 250 investment trust that does what it says on the tin. It invests in growth stocks listed (and unlisted) across the pond.
The portfolio contains tech shares such as Amazon, Meta Platforms and, of course, Nvidia. But there are many other up-and-coming firms that the managers reckon could become the big winners of tomorrow.
The share price is up 26% over one year but still down 50% since early 2021. Should I buy some shares?
Mixed results
On 22 August, the trust published its annual results covering the 12 months to 31 May. It returned 16.2% in net asset value (NAV) terms over the period. That significantly lagged the 24.8% return by the S&P 500 index (in sterling terms).
However, the share price returned 32.9% as the NAV discount narrowed from 22.4% at the start of the financial year to 11.2% by the end. I’m sure shareholders will be relieved to see that, though the discount still stands at 11%, as I write.
Since the trust was launched in March 2018, the share price and NAV returned 91.4% and 121.2% respectively, compared to a total return of 152% from the S&P 500.
The managers ask to be judged over periods of five years or more. So this level of underperformance is disappointing.
A fair few flops
Many growth funds have struggled with performance recently, including those run by Nick Train and Terry Smith. However, neither of those have held Nvidia. This trust has. Indeed, the artificial intelligence (AI) chipmaker provided over a third (6.4%) of the rise in the trust’s NAV.
So why’s it failing to keep up with the index? Worryingly, that’s not really addressed in the report. But during the year, it sold Twilio, Zoom, Snap, Chegg, Illumina, MarketAxess, Novocure, Redfin and Warby Parker.
The year before, it parted ways with Peloton, First Republic, Teladoc, Appian, Butterfly Network, and Carvana. First Republic was the bank that saw a run on its deposits in the wake of the Silicon Valley Bank collapse in 2023. Meanwhile, Carvana looks to have rebounded 1,000%+ since the trust sold. Oops.
Additionally, nine new stocks were bought last year. While the overall portfolio turnover remained fairly low at 14%, that still seems like a lot of activity to me, particularly over a two-year period.
I need more convincing
Looking at those binned stocks, many seem to lack what I’d call a noticeable competitive advantage (or ‘moat’). Do current holdings Rivian Automotive, Coursera and Duolingo have durable moats? I’m not convinced they do, despite being a big fan of Duolingo and its nagging mascot owl.
I note many of the private holdings that have gone public have struggled badly, including Ginkgo Bioworks, Warby Parker, Butterfly Network, Aurora Innovation, and more. This casts a bit of doubt over the 24 firms yet to go public, in my opinion.
Top 10 holdings (as of 31 July)
| Percentage of fund | |
|---|---|
| Space Exploration Technologies (SpaceX) | 7.5% |
| Nvidia | 6.2% |
| Amazon | 5.4% |
| The Trade Desk | 4.7% |
| Stripe | 4.6% |
| Meta Platforms | 3.7% |
| Netflix | 3.3% |
| Shopify | 3.2% |
| Tesla | 3.2% |
| Brex | 3.0% |
Admittedly, I love the look of its top 10 stocks, though The Trade Desk and Shopify are already two of my largest holdings.
Looking forward, I think this FTSE 250 stock could do well as interest rates are cut. But I need to see evidence the overall stock-picking strategy can regularly beat the S&P 500 before I consider investing.
