Baillie Gifford US Growth Trust — A unique high-growth strategy meriting support

Baillie Gifford US Growth Trust (LSE: USA)

Last close As at 09/01/2025

GBP2.80

−4.50 (−1.58%)

Market capitalisation

GBP803m

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Research: Investment Companies

Baillie Gifford US Growth Trust — A unique high-growth strategy meriting support

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. Such businesses tend to operate at the cutting edge of technology-led change and USA has exposure to companies focused on AI, space travel and online services. This note reiterates USA’s unique investment proposition and scrutinises a recent proposal from Saba, a US hedge fund manager, aimed at ousting USA’s board and replacing its investment managers. Saba currently owns less than 28% of USA shares in issue. The trust’s board has urged shareholders to reject Saba’s hostile takeover at the general meeting scheduled for 3 February 2025 and we agree with this recommendation, for reasons discussed below.

Joanne Collins

Written by

Joanne Collins

Analyst, Investment Trusts

Investment Companies

Baillie Gifford US Growth Trust

A unique high-growth strategy meriting support

Investment trusts
North America

10 January 2025

Price

280.0p

Market cap

£802.8m

Total assets

£896.4m

NAV*

288.0p

Discount to NAV

2.8%

*Including income. At 8 January 2025.

Yield

0.0%

Shares in issue

286.7m

Code/ISIN

USA/GB00BDFGHW41

Primary exchange

LSE

AIC sector

North America

52-week high/low

292.5p

174.2p

NAV* high/low

288.5p

205.8p

*Including income

Net gearing (at 30 November 2024)

4.0%

Fund objective

Baillie Gifford US Growth Trust (USA) aims to produce long-term capital growth by investing predominantly in equities of companies that are incorporated, domiciled or conducting a significant portion of their business in the United States. The trust invests in both publicly listed and privately owned companies. Its benchmark is the S&P 500 TR Index (in sterling).

Bull points

Offers exposure to companies at the cutting edge of artificial intelligence and other advanced technology.

Aggressive return target at a competitive ongoing charge.

Provides investors with otherwise hard-to-access unlisted companies.

Bear points

Saba’s quest for short-term returns runs contrary to USA’s long-term investment strategy. The hedge fund’s claim of poor performance is demonstrably incorrect.

Saba’s proposal lacks details on key questions such as investment strategy and charges, but evidence suggests charges would be considerably higher than at present.

Saba’s proposals, if approved, will replace the existing five-strong independent board with two individuals closely linked to Saba. Shareholders’ interests will be jeopardised accordingly.

Analyst

Joanne Collins

+44 (0)20 3077 5700

Baillie Gifford US Growth Trust is a research client of Edison Investment Research Limited

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. Such businesses tend to operate at the cutting edge of technology-led change and USA has exposure to companies focused on AI, space travel and online services. This note reiterates USA’s unique investment proposition and scrutinises a recent proposal from Saba, a US hedge fund manager, aimed at ousting USA’s board and replacing its investment managers. Saba currently owns less than 28% of USA shares in issue. The trust’s board has urged shareholders to reject Saba’s hostile takeover at the general meeting scheduled for 3 February 2025 and we agree with this recommendation, for reasons discussed below.

Key points

USA’s managers, Kirsty Gibson and Gary Robinson, are on a quest to find the mega caps of tomorrow. They look for US businesses with the potential to grow substantially faster than the market, with the objective of delivering above-market returns. Specifically, they target stocks with the potential to grow the returns of publicly listed companies by 2.5x or more over rolling five-year periods and by 5x for unlisted companies. Baillie Gifford has been investing in innovative US companies for more than 100 years and has significant funds invested in US equities. Its reputation as a long-term, patient investor in US public and private companies gives USA’s managers the ability to access exciting unlisted opportunities. Arguably, this gives them a significant competitive advantage.

USA’s performance has been strong since its IPO in 2018. Over the five years to end December 2024, annualised returns averaged 15.7% in NAV terms and 14.9% on a share price basis, very close to the annualised benchmark return of 15.8%. During the year to end December 2024, the trust returned 33.4% in NAV terms compared to the market return of 27.3%, while the share price rose 56.0% over this period. This contrasts sharply with Saba’s claim that USA’s performance has been ‘shockingly poor’, a claim based on two years of underperformance in 2022–23 when rising interest rates undermined the valuations of tech and other high-growth stocks. Apart from the three-year (2022–24) period on which Saba has focused, the company has materially outperformed all of Saba's public funds.

Saba is targeting seven investment trusts and its attack on them all is based on the claim that ‘the gap’ between these trusts’ share prices and their NAVs is due to board negligence, a claim rejected by USA’s board. Its share price did trade at a discount during its underperformance in 2022–23, but so did many other growth-oriented trusts due to the sharp rise in interest rates. The board supported USA’s share price via share buybacks during this period, purchasing a total of 6.1% of the trust’s issued capital. USA’s discount has since returned to its long-term average, in part due to these efforts and also no doubt thanks to Saba’s interest in USA, as the hedge fund began building its substantial interest of c 30% in the trust in 2024. The improvement in USA’s performance over the past year and the ‘post-Trump’ rally in US stocks are other factors likely to have supported the share price recently.

Managers optimistic about USA’s long-term prospects

Exhibit 1: Five-year discrete performance data

12 months ending

Total share price return (%)

Total NAV return
(%)

S&P 500 TR GBP
(%)

CBOE UK All
Companies (%)

31/12/20

133.5

118.3

14.7

(10.9)

31/12/21

(4.7)

5.7

29.9

18.4

31/12/22

(52.8)

(44.0)

(7.8)

1.6

31/12/23

22.3

20.3

19.2

7.6

31/12/24

56.0

33.4

27.3

9.9

Source: LSEG Data & Analytics. Note: All % on a total return basis in pounds sterling.

In sum, according to USA’s board and contrary to Saba’s claims, since its IPO, USA has delivered exactly what it promised: an investment trust through which its shareholders can access and benefit from some of the most exciting growth opportunities in both public and private US companies in a low-cost structure that can be held for the long term.

In addition, USA’s managers are optimistic about the company’s long-term prospects. They believe the growth outlook for portfolio companies is extremely strong and they view the AI revolution as a key driver of future returns. They expect this ‘seismic change in technology’ to generate ‘huge structural opportunities’ that will allow adaptable businesses to realise outsized returns for long-term investors like USA. Please refer to our recent note for more details of the trust’s current positioning and outlook.

USA says Saba’s proposal is ‘self-interested and destructive’

Following Saba’s recent announcement, USA’s board published a circular criticising the hedge fund’s proposal as lacking in detail, self-interested, destructive and contrary to the interest of the trust’s long-term shareholders. Saba intends to replace USA’s current five-member board of independent, experienced directors with two US-based directors with close links to Saba. The hedge fund’s clear intention is to oust USA’s current investment managers and take over the management of USA’s assets, possibly pooling them with the assets of the other UK-listed investment trusts it has in its sights.

In short, Saba’s proposals, if accepted by USA’s shareholders, will result in the destruction of the trust in its current form. However, at the time of writing, Saba has given no details of the investment strategy that any replacement fund would pursue, although judging by the ongoing charges of Saba’s publicly available US funds, whatever the revised strategy, it will not come cheap. The ongoing charges of Saba's publicly available funds are materially higher (c 2x or more) than those imposed by USA.

A shareholders meeting is scheduled for 12pm, on 3 February 2025, at the offices of Baillie Gifford, Calton Square, 1 Greenside Row, Edinburgh, EH1 3AN, to allow all investors to vote on Saba’s proposed changes. USA’s board is urging all shareholders to make their voices heard and to vote against Saba's proposals. We agree with the board’s arguments and encourage shareholders to vote in accordance with the board’s recommendation to reject Saba’s plans.

We intend to comment on Saba’s proposals in more detail in the coming week.

Supporting information for those wishing to cast their votes can be found here and in US Growth Trust's latest circular.

General disclaimer and copyright

This report has been commissioned by Baillie Gifford US Growth Trust and prepared and issued by Edison, in consideration of a fee payable by Baillie Gifford US Growth Trust. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2025 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Baillie Gifford US Growth Trust and prepared and issued by Edison, in consideration of a fee payable by Baillie Gifford US Growth Trust. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2025 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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