In early 2018 many financial experts advocated a switch out of the supposedly overvalued US market, driven ever higher by the technology giants, into the languishing but cheap UK market with its tempting yield. So when Baillie Gifford launched its US Growth Trust (LSE: USA), it raised just £173m.
Since then, the FTSE All-Share index has fallen by 20% while the S&P 500 has gained 5% (15% in sterling terms). BG US, now a £450m trust, has returned over 80%. Gary Robinson, its co-manager, remains as confident as ever about the outlook.
“We are in a period of unprecedented change,” he says. “People are being forced to change habits and will find the new way better. The future is being pulled forward and the spread between winners and losers will get bigger.”
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Jumpstarting US e-commerce
For example, only 15% of retail sales in the US were online before lockdowns, but since then Amazon has had to recruit another 175,000 people. Around 95% of contacts with the doctor were visits in person rather than online, but Teladoc saw its usage jump by 90% year-on-year in the first quarter.
Wayfair, the online furnishings company, has seen revenue growth accelerate from 20% per annum to 90%. As for working from home , “nine to five is an anachronism in a creative and information-led economy. We will go back into offices but it won’t be the same as before.”
US Growth follows the familiar Baillie Gifford style. It is “long-termist” with annual portfolio turnover in the mid-teens and investments bought on a five-to-ten-year view.
Management is “genuinely active” with 40%-50% of the portfolio in the top ten holdings and a low overlap with market indices. Also key is “the unashamed pursuit of out-and-out growth, which is the engine of long term wealth creation”.
“A surprisingly large number of our companies are doing well,” says Robinson. Zoom “has been instrumental in enabling business to continue”. Moderna is pioneering messenger RNA vaccines, including one that could combat Covid-19; it is already in human trials. Messenger RNA is a molecule that instructs cells in the body to produce proteins, and variants of it have broad applications in enabling the human body to defend itself against viruses. Robinson acknowledges that some of the trust’s investments “are on the wrong side of current markets”. These include Lyft, the ride-hailing company (down 75% in April). But with zero exposure to energy, mining and other “old economy” subsectors, the losers are few.
The fund’s 17 unquoted holdings account for 14% of the portfolio. They include Airbnb, SpaceX (part of the Elon Musk empire) and Stripe, “one of the most exciting companies in the world” based on a novel internet payment network for businesses. SpaceX targets “economically viable space travel based on re-usable rockets. It is way ahead of the competition, having launched six rockets carrying 60 satellites each to enable high speed internet anywhere.”
Years of progress ahead
Robinson dismisses fears that his key holdings are threatened by competition or market maturity. For instance, as well as its strengths in retail, Amazon web services has $40bn of revenue in a market worth trillions. Shopify, another large holding, allows retailers to build their own website and control their own brands. As for Tesla, “it is inevitable that electric cars become mainstream and Tesla is increasing its market lead... sceptics of the Model Y SUV and Cybertruck have been confounded”.
The short-term valuation of many of the holdings may be eye watering but the long-term prospects for America’s technology revolution far exceed the recovery potential of the UK market.
-
UK-US trade deal announced: US cuts tariffs on UK car imports to 10%Keir Starmer and Donald Trump have announced a UK-US trade deal, but the US president has refused to lift baseline tariffs on most UK goods. What does it mean for the UK?
-
How to use mid-caps to diversify from the USMedium sized companies are overlooked by investors but could offer an attractive ‘sweet spot’. We consider the case for mid-caps amid market volatility.
-
Halifax: House price slump continues as prices slide for the sixth consecutive monthUK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
-
Rents hit a record high - but is the opportunity for buy-to-let investors still strong?UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
-
Pension savers turn to gold investmentsInvestors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
-
Where to find the best returns from student accommodationStudent accommodation can be a lucrative investment if you know where to look.
-
The world’s best bargain stocksSearching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
-
Revealed: the cheapest cities to own a home in BritainNew research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
-
UK recession: How to protect your portfolioAs the UK recession is confirmed, we look at ways to protect your wealth.
-
Buy-to-let returns fall 59% amid higher mortgage ratesBuy-to-let returns are slumping as the cost of borrowing spirals.
