Revival at Baillie Gifford US Growth Trust (USA) has been running for two years now. Yet today’s solid half-year results were given a big meh by investors. The share price has rallied 46% since April last year. However, convincing investors that its long-term growth strategy is worth backing won’t be easy.
The FTSE 250 investment trust delivered total returns of 18% on its share price and 14.1% on NAV (net asset value), after deducting borrowings at fair value. Yet investors could have done better. This is based on the trust’s own 18.6% total return calculation for the S&P 500 Index.
| Baillie Gifford US Growth Trust (USA) | Price: 285p | Market cap: £800m |
Simply buying a low-cost S&P 500 tracking ETF – the accumulation units of the iShares Core S&P 500 ETF (CSP1), for example, delivered 22% in share price gains over the same period.
30% private companies
Is that a fair comparison? Probably not because a, USA is not an S&P 500 tracker. And b, nearly 30% of the trust’s assets are invested in private companies, such as SpaceX, Stripe, Databricks and Zipline. You don’t get access to these potentially exciting growth businesses buying S&P, or any other sort of tracker.
But it’s a doubled edged sword, where private company valuations can be particularly volatile. SpaceX illustrates this perfectly. It is USA’s largest single investment worth 5.9% of the entire portfolio, across three separate stock tranches.
Volatile valuations
The two larger tranches increased 17% in latest revaluation calculations for the six months. But the smallest chunk fell 76%. USA operates a complex and regular policy on revaluations (detailed in today’s announcement). IT was initially difficult to work out why the sharp decline but the trust has since stated ‘porudence’ was beind the trust’s decision just weeks before the rocket company’s valuation doubled to $800 billion last month.
Speculation that SpaceX could IPO at some point in 2026 could trigger a spike in the trust’s stake value. Listing usually does, but that’s for the future. More likely, private to public transfers this year could come from AI cloud infrastructure play Databricks. Alternatively, they could come from digital payments firm Stripe.
USA has always been an investment best suited to investors willing to accept higher risk for more exciting growth potential, and so it remains.
As financial markets have stabilised following Covid, the share price has steadily recovered. So too has its discount to NAV. This discount went from a record -24.5% a couple of years back, to 7.5% now. This is considerably narrower than its 12.8% average, according to Trustnet data.
Disclaimer: The author Steven Frazer has a personal interest in Baillie Gifford US Growth Trust.
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