Baillie Gifford US Growth Trust (LSE:USA) is a FTSE 250 company that’s pretty self-explanatory. It’s an investment trust that focuses on US-listed growth stocks.
On the other hand, it’s quite unique because it has the ability to invest in private companies. Indeed, two of its top three holdings aren’t listed on the stock market. Namely SpaceX and internet payments giant Stripe.
Today (12 August), we found out another thing that makes it somewhat different. It has been massively outperforming the S&P 500 index recently, unlike many other investment funds.
Let’s take a closer look at this FTSE 250 growth trust.
Cracking outperformance
The £750m trust invests in high-growth businesses and then aims “to hold on to these for long periods of time, in order to produce long-term capital growth.”
We got the annual results today, covering the year to 31 May, and they were fantastic. The share price and net asset value (NAV) returned 24.5% and 22.1%, respectively. This compared very favourably with a total return of 7.2% for the S&P 500 (in sterling terms).
The standout performers during the period were language learning platform Duolingo (+156%), web security firm Cloudflare (+132%), and Netflix (+77.6%). Rocket pioneer SpaceX (+67%) and e-commerce enabler Shopify (+71%) also did the business.
The biggest detractor by far was Moderna (-82.2%), which has also been a painful one for me as a shareholder.
Thankfully though, as is often the way, the big winners can more than make up for the losers. Or as Warren Buffett once put it: “The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders.”
Recently, there have been far more flowers than weeds for Baillie Gifford US Growth Trust.
Discount narrowing
Also encouraging was that the NAV discount narrowed from 11.2% to 9.4% by year-end. It bought back 16m shares for £35.5m (5.4% of issued share capital).
As I write, the discount is down to just 7%. However, there’s a risk this could widen again, especially if the global economy tanks when tariffs finally work their way through the system.
Solid AI picks
This period of outperformance means that the trust has matched the S&P 500 on a NAV basis (+170%) since inception in March 2018.
While that might not sound overly impressive — after all, it’s a fund’s job to beat the index over the long term — this didn’t look likely just two years ago.
Performance was boosted by some astute artificial intelligence (AI) picks. Meta has been using AI to improve ad targeting and content recommendations, boosting engagement and advertiser spend. And Shopify has rolled out AI-powered tools like Sidekick to help merchants automate tasks and write product descriptions.
The trust added eight new holdings, including three unlisted ones (Rippling, Runway AI, and Cosm). I’ve never heard of any of these, but Runway AI sounds promising. It’s an AI-powered video creation platform that helps everyone from solo creators to major studios quickly produce high-quality content.
Of course, AI is becoming so disruptive that it might get harder in future to successfully pick the ultimate big winners (this is another risk).
However, the portfolio looks in excellent shape to me. Pair this with the 7% discount, and I think the shares are worth considering today at 266p each.
