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.”
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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.
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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.
