Baillie Gifford US – Half-year Report

Investment Performance

During the period from 23 March 2018, launch date and first trade date, to 30 November 2018, the Company's share price and NAV returned 18.8 per cent. and 16.0 per cent. respectively. This compares with a total return of 19.9 per cent. for the S&P 500 Index* (in sterling terms). We would ask shareholders to judge performance over periods of five years or more.

We aim to identify the exceptional growth companies in America and hold on to them for long periods of time. In doing so, we hope to capture the upside inherent in their business models. We believe it would be a mistake to dilute these exceptional companies in the name of diversification, so we run a concentrated portfolio: as at 30 November 2018 we held 48 stocks, with just under 50% in the top ten names, and over 9% in our largest holding. We believe this focussed, long-term approach gives us the best chance of achieving significant wealth creation for our investors.

For most of Baillie Gifford's history the stock market has been the best method to access exceptional growth companies. While this remains predominantly true today, Baillie Gifford's observation is that many companies are now choosing to stay private for longer. The median age of a company at IPO has risen from around seven years in the 1980s to around 12 years today. At the same time, the number of companies listed on US exchanges has shrunk by half over the last two decades. 

Baillie Gifford US Growth Trust plc was launched to give Baillie Gifford the flexibility to invest across the public and private markets. We want to own the exceptional growth companies in the US regardless of their listed status. In doing so, we hope to enhance our ability to add value for shareholders over the long term.

Portfolio

The proceeds of the IPO were initially invested in a portfolio of listed securities largely mirroring the Baillie Gifford American Fund. Between then and the end of the reporting period, we have sold two stocks in which we had less conviction and made eight new purchases. Seven of the new purchases are unlisted investments, including Lyft, the on-demand transportation company, and Slack, the workplace communications platform. Unlisted investments accounted for approximately 6.5% of total assets as at 30 November 2018. Since then, we have made a further two unlisted investments and their share of total assets has risen to almost 10% (as of 18 January 2019). We have been delighted by the private investment opportunities that we have been able to gain access to for the Company.

Outlook

Share price volatility has increased recently but we remain resolutely focused on the long-term potential of the businesses that we own. In aggregate the Company's holdings continue to make excellent operational progress. Volatility often creates opportunities for genuinely long-term investors and, since the end of the reporting period, we have added to a handful of holdings which have been disproportionately, and we believe unfairly, discounted in the broader market sell off.

Indeed, despite what the headlines might imply, we remain convinced that these are exciting times for growth investors. The world is going through a period of almost unprecedented change, driven by the convergence of a multitude of technologies such as the internet, mobile devices and machine learning. The associated disruption was initially concentrated in a couple of big and important sectors, like retail and advertising, but it seems to be speeding up and broadening out. There will be huge value creation and destruction on either side of this change. Political and macro considerations are unlikely to have a significant influence on the magnitude or trajectory. If we succeed in our aim – to own the exceptional growth companies that are driving this progress – then the rewards ought to be very significant. We are helped enormously by the fact that we have the backing of shareholders to invest across the broad spectrum of both public and private growth companies in the US.

The principal risks and uncertainties facing the Company are set out in note 11. The Board has specifically considered the market uncertainty arising from the UK's negotiations to leave the European Union and can see no scenario that it believes would affect the going concern status or viability of the Company.

The Company will invest predominantly in equities of companies which are incorporated or domiciled, or which conduct a significant portion of their business, in the United States and which the Company believes have the potential to grow substantially faster than the average company over the long term. Such investment will typically be direct, but may be indirect, including through investment in funds. The maximum direct investment in any one holding or fund will be limited to 10 per cent. of the Company's total assets measured at the time of investment.

For the period from 7 February 2018 to 30 November 2018