Baillie Gifford urges investors to stick with falling trust
An investment company managed by the Edinburgh-based asset management house Baillie Gifford, has admitted it had underperformed the US stock market leaving some of its shareholders deeply out of pocket.
US Growth Trust, set up to back promising technology-enabled firms in America, has now sold its holdings in Lyft, the ride-hailing service, Zillow, the online estate agent, and Vroom, the used car retailing platform.
It has also been critical of Peloton, accusing the fitness machines company of “wrongly extrapolating” pandemic demand.
The trust has raised £425 million from investors since its launch in 2018 and became a constituent of the FTSE 250, but its net asset value (NAV) has fallen by 35.3% in the year to May, with £295m wiped from the value of its investments.
That compared with a 12.2% positive total return from its benchmark, the S&P 500 index, over the same period.
While early investors in the trust are still sitting on large profits following the boom in US tech stocks before the pandemic, more recent shareholders are looking at big losses following a share fall in the share price from 388p in early 2021 to its last close of 184.5p.
Wealth managers such as Brewin Dolphin, Evelyn Partners and Quilter Cheviot invested their clients money into the Trust, becoming its biggest shareholders.
Baillie Gifford has earned glowing references following the success of Scottish Mortgage Investment Trust, the FTSE 100 tech investment vehicle, formerly managed by the now retired James Anderson.
The current managers of the US Growth Trust, Gary Robinson and Kirsty Gibson, said they were investing for the long term and despite the recent downturn they urged investors to maintain a long-term perspective “during challenging times like these” and said the trust’s investment principles will remain unaltered.
They had sold holdings which had, they said, “veered irreparably off track from their forward-looking hypotheses”. These included Zillow, because of its decision to pull out of the institutional home buying and selling market, and Lyft and Vroom because of competitive threats.
They participated in the IPOs of Rivian Automotive, HashiCorp and Duolingo.
They remain big supporters of US billionaire Elon Musk. His Space X spacecraft business was their biggest investment at the end of May, representing 5.7% per cent of the portfolio. Tesla, his electric cars business, is their second biggest holding at 4.9%. It was an early success for Scottish Mortgage.
In the trust’s 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.
“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.”
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.