Tech-focused Baillie Gifford US Growth Trust’s (USA) NAV (net asset value) kept pace with the S&P 500 index over the six months to November 2021.
Unfortunately, the share price underperformed as the trust’s premium continued to deflate due to the tech sell-off, as investors ditched high growth stocks and switched into more value style investments.
Baillie Gifford US Growth’s NAV increased by 17.2% in the first half, bang in line with the S&P 500 Total Return index and driven in absolute terms by the performance of Affirm and Moderna, yet the share price only advanced by 9.4%.
And in the period since November, the portfolio has fallen 27.4% on a NAV total returns basis compared to a 4.9% fall for the S&P 500, as growth stocks have been hammered by sell-off triggered by inflationary concerns.
NOVEMBER SEEMS A LONG TIME AGO
As Stifel analyst Anthony Stern remarked: ‘November does seem like a long time ago as there has been a significant change in the market backdrop since then and growth stocks, especially unprofitable ones, have seen a significant de-rating. This has caused the NAV and share price to decline heavily.’
Shares in the trust have plunged from February 2021’s 388p peak amid the shift away from the disruptive growth names favoured by managers Gary Robinson and Kirsty Gibson, who seek to identify and own America’s exceptional growth companies, both listed and unlisted, in the belief that exceptional businesses will produce exceptional returns over the long term.
GOLDEN ERA AHEAD
Yet the shares rallied 5.6% to 225p today as manager Baillie Gifford asserted that technologies such as the internet, mobile and AI are ‘spreading out and impacting a far broader range of industries’ and that ‘the golden era may yet, be ahead of us’.
During the half the trust, with stakes in listed growth companies including Shopify, Amazon, Tesla and Netflix, made six new private investments in Blockstream, Databricks, Discord, Faire Wholesale, Snyk and Solugen.
Three private companies in the portfolio went public, namely Aurora Innovation, Ginkgo Bioworks and Warby Parker.
THE NUMIS VIEW
Commenting on the Baillie Gifford US Growth’s results, Numis said: ‘Despite recent struggles, performance since inception remains strong, returning 157% (27.8% per annum) compared with 91.7% (18.4%) for the S&P 500.
‘The focus on high growth companies, in line with Baillie Gifford’s typical approach, means that the portfolio looks very different to any index. As a result, we would expect periods of significant out and underperformance versus the benchmark, which has been demonstrated since launch, and the manager will stress that investors need a long-term time horizon and the ability to withstand some volatility to invest in its strategies.’
