Baillie Gifford US Growth returns drop over 45% but maintains strategy conviction

The trust, managed by Gary Robinson and Kirsty Gibson, moved from a premium of 4% last year to a discount of 12.3% at the end of May. Net gearing increased from 1% to 6% over the course of the year.

In the results the managers said: “It is easier to be long-term when things are going well. It is during periods of weakness that conviction is truly tested.

“Bear markets cause emotions to bubble to the surface which urge one to act. It can be cathartic to do something, but decision making under stress increases the chances of errors.”

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Despite the underperformance, the managers urged investors to maintain a long-term perspective during challenging times like these and said that the trust’s investment principles will remain unaltered. 

“Our second principle begins: ‘Short-term volatility is an inevitable feature of the market, and we will not manage the portfolio to reduce volatility at the expense of long-term gain.’

“By acknowledging the inevitability of volatility up front, one can be better prepared for it when it happens,” they said.  

“The last few years have been particularly volatile and challenging, but this has not undermined our confidence in the philosophy and process, or in our underlying holdings.”

The trust made several changes throughout the year, participating in the IPOs of Rivian Automotive, HashiCorp and Duolingo, and selling out of Zillow, Vroom, Glaukos and Lyft, which “had veered off track from their forward-looking hypotheses”.

The private equity bucket of the trust grew to 36.4% of total assets over the period, compared to 16.5% the year prior. The portfolio managers added seven new private company investments, while three of the existing holdings went public.  

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During this 12-month period almost 60% of the listed holdings in the portfolio grew revenues by more than 25% year-on-year, broadly in line with the prior 12 months. The median revenue growth rate amongst private company holdings was 78% year-on-year.

Looking ahead, the managers said that despite a tough few years, they remain optimistic about the future and believe they will come through these short-term headwinds “as they have always done”. 

“We are on a path towards abundance. The path may not be smooth, but we are convinced that the future holds promise and that the innovative companies that have the potential to drive us there will be the outliers that drive stock markets for the next decade,” they said.

“We understand that weak performance is challenging for shareholders to endure but we can assure you that we remain confident in, and committed to, our approach. We are hugely appreciative of your ongoing support and patience.”

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Mick Gilligan, head of managed portfolio services at Kilik & Co, said that the trust’s recent weakness has reminded investors of “humbling periods of underperformance”.

He highlighted another Baillie Gifford trust with a similar investment approach, Scottish Mortgage, which had its share price decline 50% between the start of 2000 and the March 2003 lows. 

“Those that remained patient and took a long-term view were rewarded with the subsequent recovery, but many investors probably bailed out in 2002/03. The conclusion for me is to stick with these strategies but ensure your position sizing is appropriate for any further turbulence that may lie ahead,” he said. 

In the first half of the financial year, the trust issued 525,000 shares at a premium to net asset value, raising £1.8m. During the second half, it bought back over 2.2 million shares at a total cost of £3.6m. The vehicle does not intend to pay any dividend to shareholders. 

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