Baillie Gifford US Growth Trust (USA) invests in exceptional US businesses with the potential to grow substantially faster than the market and deliver above-market returns. The trust has over £600m in assets under management and is managed by Gary Robinson and Kirsty Gibson of Baillie Gifford, an Edinburgh-based investment manager.

1. USA’s managers are seeking the mega caps of tomorrow.

The managers target companies with deep competitive advantages, appealing financial characteristics and unique corporate cultures, which they view as the best indicators of an enterprise’s long-term performance potential and capacity to seize market opportunities.

Specifically, they seek businesses with the potential to deliver a minimum two-and-half times return over rolling five-year periods if they are publicly listed and a minimum five times return if unlisted. Such businesses tend to operate at the cutting edge of technology-led change, giving USA’s investors exposure to areas like artificial intelligence (AI), digital health and space transport.

Early and ongoing investors in Amazon, Tesla and NVIDIA, the managers are also early backers of some of the world’s most valuable private companies. These include SpaceX, which is expanding internet accessibility, while reducing the cost of cargo to orbit, and Stripe, which aims to ‘grow the GDP of the internet’ through frictionless e-commerce tools. USA top ten holdings also include The Trade Desk, which operates in online and connected television advertising, and DoorDash, in local order delivery.

2. The trust has significant holdings in unlisted companies.

USA has scope to invest up to 50% of assets in private companies. Baillie Gifford’s reputation as a long-term, patient investor in the US, and in private companies, gives the managers access to exciting unlisted opportunities. Arguably, this gives them a significant competitive advantage. USA’s private company holdings comprised 34% of the portfolio at end-May 2024.

3. Recent greater focus on profitability as well as portfolio holdings’ growth is already paying off.

Higher US interest rates have compelled many of the trust’s portfolio companies to shift from concentrating solely on growth, towards a more balanced focus on both growth and profitability. Reviews of strategy and operations, cost-cutting and greater investment in R&D have made these businesses leaner and more agile. These efforts are already yielding tangible benefits in the form of improved financial metrics. At end-May 2024, 67% of USA’s investments by weight were registering positive cash flow or positive earnings, up from 48% a year earlier.

4. The trust’s managers are excited by ongoing US entrepreneurialism.

The managers believe the US is the ‘innovation capital of the world.’ Having led the way in previous technological developments, such as the internet and mobile, the country’s companies are now doing so again in new fields, such as space and AI.

In the managers’ view, AI is driving some of the century’s biggest technological developments and they expect this tech revolution to accelerate and spread across the economy, creating ‘huge structural opportunities’ for the innovative and adaptable businesses they target.

Published 4 November 2024.