The US is the natural hunting ground for the Baillie Gifford growth style. It has the right culture and ecosystem for businesses to flourish, rewards entrepreneurship and has abundant funding options. The Baillie Gifford US Growth Trust, launched in 2018, broadened the remit of the group’s America fund to bring in private equity, giving it the broadest possible access to growth businesses across the country.
The strategy soared in the first three years from launch, but has struggled amid rising interest rates. Baillie Gifford’s recent performance difficulties have been well-documented, but after a disastrous 2022, the fund outpaced the wider AIC North America sector in 2023, rising 22.3% versus 9.2%. It has continued this strength during the recent rally. Are its tougher times behind it?
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Co-manager Kirsty Gibson is clear the fund’s philosophy and process will not bend with the market environment. The group targets exceptional growth businesses in the US, across the public and private domain. These companies must have enough growth potential to transform their market value over the next five or more years. The trust takes meaningful holdings in these businesses and, if they continue to deliver, holds them for the long term.
Gibson recognises the strategy will go through some rough periods. The trajectory for high-growth companies is always likely to be bumpy. Amazon, for example, has seen several drawdowns of more than 40% in the 20-plus years since its flotation, but has always recovered and built on its success.
The group creates a forward-looking hypothesis for each company, which helps it differentiate between ‘noise’ and a genuine problem. Gibson says: “We invest over a long period of time, and it is really important to hold yourself to account and map the company’s likely trajectory.” Then they can look at news flow, update meetings or results and match them off against this initial hypothesis.
“It’s easy to rewrite history and say ‘I knew that was about to happen’, but this is about asking whether a company is on-track. If its qualitative and competitive position is unchanged, and we still believe in the management team, we can probably ignore the broader macroeconomic environment.”
To read more visit the February edition of Portfolio Adviser Magazine