Financial Report
Tom Burnet, Chair of the Company commented:
“We are pleased to present the Company’s Interim Financial Report for a highly successful period for the Company’s growth strategy, delivering NAV returns to shareholders of 29.4% over the six month period, almost double the 15.3% total return of the S&P 500 Index in sterling terms.
Nevertheless, despite this extremely strong performance, Saba has sought to introduce self-serving and destructive proposals to remove the independent Board and try to assume control of the Company through placing two of its own nominees on the Board and will likely thereafter attempt to assume management of the Company. The Company and the strong growth potential shown in today’s results is directly under threat in a vote where every vote will count. We therefore reiterate urging all shareholders to VOTE AGAINST Saba’s proposals. If shareholders have not already done so, the next few days will likely be their last chance to vote ahead of the deadline – it’s critical they do not miss the opportunity to save their investment from an uncertain and potentially destructive trajectory.”
Results for six months to 30 November 2024
During the six months to 30 November 2024, the Company’s share price and NAV (after deducting borrowings at fair value) returned 40.9% and 29.4% respectively. This compares with a total return of 15.3% for the S&P 500 Index* (in sterling terms).
· During the period from 23 March 2018, launch date and first trade date, to 30 November 2024, the Company’s share price and NAV (after deducting borrowings at fair value) returned 169.7% and 186.1% respectively. This compares with a total return of 190.5% for the S&P 500 Index* (in sterling terms).
· The Company was created to capitalise on the extraordinary growth potential of American entrepreneurship and ingenuity. We believe that the US will retain a significant leadership position in global innovation in the years to come that the Company’s strategy is well placed to capitalise upon. The macro outlook for these companies continues to improve as evidenced by our recent strong performance.
· At the end of November, we held positions in 25 private companies which comprised 33.5% of total assets.
· We made five new purchases over the last six months: SharkNinja, Lineage, The Ensign Group, COSM Experience (private) and DraftKings. In addition, we made three complete sales during the period: 10X Genomics, Coursera and HashiCorp.
· The Board urges all shareholders to VOTE AGAINST Saba’s self-serving and destructive proposals in advance of the Company’s forthcoming requisitioned General Meeting. The deadline for receipt of votes is 12.00pm on 30 January but may be earlier through platforms. EVERY VOTE COUNTS AND EVERY VOTE WILL MATTER.
* Source: LSEG and relevant underlying index providers. See disclaimer at the end of this announcement.
Past performance is not a guide to future performance.
Baillie Gifford US Growth Trust plc seeks to invest predominantly in listed and unlisted US companies which the Company believes have the potential to grow substantially faster than the average company, and to hold onto them for long periods of time, in order to produce long term capital growth. The Company has total assets of £843.0 million (before deduction of loans of £39.3 million) as at 30 November 2024.
Baillie Gifford US Growth Trust plc is managed by Baillie Gifford & Co, the Edinburgh based fund management group with approximately £226.4 billion under management and advice in active equity and bond portfolios for clients in the UK and throughout the world (as at 20 January 2025).
The following is the unaudited Interim Financial Report for the six months to 30 November 2024 which was approved by the Board on 20 January 2025.
REMINDER REGARDING THE UPCOMING GENERAL MEETING
DETAILS OF THE ACTIONS SHAREHOLDERS ARE RECOMMENDED TO TAKE BY NO LATER THAN 12 NOON ON 30 JANUARY 2025 ARE SET OUT IN THE CIRCULAR AVILABLE ON THE COMPANY WEBSITE. SHAREHOLDERS SHOULD BE AWARE THAT THE DEADLINES FOR VOTING THROUGH PLATFORMS MAY BE EARLIER THAN THE COMPANY’S PROXY VOTING DEADLINE.
Copies of the Circular and other documents relevant to the Requisitioned General Meeting will be made available to Shareholders today on the Company website at: www.bailliegifford.com/USGrowthTrust-SabaDefence. In accordance with the FCA’s UKLR 6.4.1R, the Circular has been submitted to the National Storage Mechanism and will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
EVERY VOTE WILL COUNT AND EACH VOTE IS IMPORTANT – SHAREHOLDERS SHOULD ENSURE THEY VOTE TO HAVE THEIR SAY IN THE FUTURE OF THEIR COMPANY.
Shareholders who need further help or assistance in voting their Shares should email USA@georgeson.com for more information.
Enquiries:
Company
Tom Burnet
c/o Burson Buchanan
+44 (0)20 7466 5000
Panmure Liberum Limited
Alex Collins / Michael Janes
+44 (0)20 3100 2000
Burson Buchanan
Henry Wilson / Helen Tarbet
+44 (0)20 7466 5000
Company Secretary
Baillie Gifford & Co Limited, Company Secretary
+44 (0)800 917 2113
Chair’s statement
I am pleased to present the Company’s Interim report for the six month period ended 30 November 2024. This was a period of very strong performance for the Company, with the share price returning 40.9%, over double the S&P 500 Index* (in sterling terms) total return of 15.3%. The improved business outlook for the US, in particular the growth companies in which the Company invests was reflected in the excellent net asset value (with borrowings at fair value) (‘NAV’) performance, returning 29.4% over the six months. Over the period from 23 March 2018 (launch date and first trade date), the Company’s NAV and share price, returned 186.1% and 169.7% respectively.
The Company’s discount to NAV reduced, from 11.2% at the start of the period to 3.3% at 30 November. The Company maintains an active approach to discount management, engaging with shareholders and taking their feedback and views into account. The Board has continued to buy back the Company’s shares where it sees an advantageous opportunity to do so at a level that would not alter the risk profile of the Company. During the period 10,525,000 shares were bought back at a total cost of £21,864,000. Subsequent to the period end, up to 16 January 2025, the Company bought back a further 1,500,000 shares at a total cost of £3,982,000.
Over the half year, macroeconomic conditions improved significantly for the Company’s US growth strategy. The interest rate tightening cycle is receding in this market, significantly boosting the outlook for the Company’s high growth portfolio companies and contributing to the strong NAV performance during the period.
There was one new private company purchase in the period, COSM Experience. With no exits during the period, the Company’s private positions therefore increased to 25 from 24 and comprise 33.5% of total assets at the end of the period, a small decrease from 34.1% in May. For our shareholders the Manager provides extraordinary preferential access to some of the most coveted registers in the US, typically inaccessible to most investors, at an exceptionally reasonable ongoing charges level of 0.70%.
Despite this period of growth in shareholder value, post-period end, the Company was requisitioned by Saba Capital Management (‘Saba’) on 18 December with, the Board believes, entirely self-serving and value-destructive proposals. The Company published an announcement and Circular on 6 January 2025 that comprehensively rebutted Saba’s proposals, which, we believe, lack crucial detail and if implemented could destroy the Board’s independence, radically alter the investment strategy of the Company and prove highly disruptive to shareholder value. The Circular and information on the Requisitioned General Meeting to be held on Monday, 3 February 2025 at 12.00pm in the offices of Baillie Gifford & Co in Edinburgh (Calton Square, 1 Greenside Row, Edinburgh EH1 3AN) can be found on the Company’s webpage bgusgrowthtrust.com.
It is most unfortunate that, despite the strong performance outlined above, and the highly positive outlook for your Company, the Board is deeply concerned about the future of the Company and the potential value destruction for long-term investors if the proposals put forward by Saba are voted through. Saba is cynically counting on other shareholders not voting their shares to give them the best chance of taking effective control of the Company. Therefore, it is vital that shareholders vote on the Requisitioned Resolutions no later than 12 noon on 30 January 2025 (platform voting deadlines will be earlier) as the future of their investment depends on it. We therefore unanimously recommend that shareholders vote against all the resolutions. Every vote will count and each vote is important and we need your support to ensure that the Company’s differentiated and high performing investment strategy can continue.
Tom Burnet
Chair
20 January 2025
Interim management report
Introduction
We strongly believe that Baillie Gifford US Growth in its current form remains a highly attractive proposition for long-term shareholders. It represents a straightforward and cost-effective way for regular investors to gain exposure to some of America’s most exceptional public and private growth companies. Baillie Gifford’s patient approach and preferential access to private companies bring unique value to the Company and enable it to pursue its valuable and differentiated investment mandate.
Performance
During the period from 1 June 2024 to 30 November 2024, the Company’s share price and NAV returned 40.9% and 29.4% respectively. This compares with a total return of 15.3% for the S&P 500 Index* (in sterling terms).
During the period from 23 March 2018, launch date and first trade date, to 30 November 2024, the Company’s share price and NAV returned 169.7% and 186.1% respectively. This compares with a total return of 190.5% for the S&P 500 (in sterling terms).
Performance has now recovered to the point where the NAV is roughly in line with the index since inception. It is pleasing that returns have improved following a challenging and volatile post-COVID period. However, we can assure you that we are not satisfied – our aim is to beat the market over the long term.
The S&P 500’s total return of 190.5% since inception of the strategy is remarkably strong, equivalent to an annualised rate of over 17% – well above its long-term average of around 9-10%. This performance was unusually concentrated in a handful of mega-cap companies, dubbed the ‘magnificent seven’. Mid- and smaller companies have done less well. For example, over the same period, the S&P MidCap 400 and the Russell 2000 delivered total returns of 125.9% and 95.9%, translating to annualised rates of 12.9% and 10.6%, respectively (broadly in line with their long-term averages). Our holdings cut across all three of these indices and the Company has achieved an annualised total return of 17.0% on its NAV since inception.
Given their outsized contribution to recent returns, some have questioned whether it’s still worthwhile to look beyond the largest US mega-caps. Historically, it’s actually quite rare for a market to be driven so heavily by its biggest companies. Indeed, if we stretch the timeframe back to the 1950s, the ten largest stocks in the S&P 500 have underperformed an equal-weighted index of the remaining 490 by around 2-3% per year.
We would caution against reading too much into the recent performance of these mega-cap names. They are large today precisely because of their strong historical success. As recently as ten years ago, NVIDIA and Tesla were mid-cap companies with market capitalisations in the $10-30 billion range. The investors who recognised their potential early on have been the most handsomely rewarded. While we believe some of today’s largest companies – the “magnificent seven” – will remain dominant a decade from now, we also expect new names to emerge from the mid-cap arena. These could become the true outliers of the next decade.
In addition, we firmly believe that stocks should be evaluated on their own merits, rather than treated as a monolithic group. The ‘magnificent seven’ differ significantly in terms of maturity, business models and sources of demand. Although we own four of them – Amazon, Meta, NVIDIA and Tesla – we do not invest in Microsoft, Alphabet or Apple. While we have the utmost respect for these companies, we simply do not believe they have a sufficiently high likelihood of delivering the outsized returns we seek.
Contributors
Turning back to performance, the NAV strength we saw during the six-month period was broad-based, with strong contributions from both public and private names. SpaceX, our largest holding, was the largest positive contributor to performance. The business has continued to execute well, with its satellite internet business Starlink growing strongly and the development of its next generation rocket Starship reaching important milestones, including a dramatic demonstration in October of the company’s ability to ‘catch’ this enormous entity following re-entry.
Merchant software provider Shopify also positively contributed to performance. The business has achieved the difficult feat of maintaining strong top line growth whilst significantly improving its profitability. For example, in its most recent period, revenues grew 26% whilst its free cash flow† margins reached almost 20%. This achievement speaks to the strength of the Shopify ecosystem, which has broadened out beyond the initial customer base of small online US retailers to include larger retailers, international retailers, offline retail and B2B.
Demand-side advertising platform The Trade Desk was another large positive contributor to performance in the period. The company has a leading position in the connected TV market and has benefitted as advertising dollars have continued to migrate from legacy channels to new streaming services. We have enormous respect for the company’s founder Jeff Green, whose vision and foresight have enabled Trade Desk to occupy an increasingly strategic position within the advertising industry.
The biggest detractor to performance in the period was Moderna. The business faced two major headwinds over the last couple of years. Firstly, the endemic COVID vaccine market in the US turned out to be smaller than most expected. Despite still being more deadly than flu, COVID vaccine volumes have been far lower than those of the flu market. Secondly, the launch of Moderna’s second drug, a vaccine for another respiratory illness called RSV, has gone poorly. Despite having a COVID vaccine on the market, RSV was Moderna’s first ‘normal’ drug launch. There were some execution missteps on the commercial side and we have been engaging with the management team to understand how they plan to rectify these issues for future launches. Recent execution issues aside, the pipeline continues to progress well. We are especially excited about the company’s personalised cancer vaccine, which has the potential to be transformative for cancer patients and Moderna’s business.
Online furnishings retailer Wayfair also detracted from performance in the period. This was primarily due to macro weakness. Industry demand remains soggy due to a weak housing market. More positively, Wayfair has made good progress in improving its profitability and is positioned well for whenever the industry does turn.
Portfolio changes
There were five new buys (four public, one private) and three complete sales in the period. The new buys were spread across a broad range of industries and business models, reflecting the broad opportunity set that our strategy addresses.
We took new holdings in:
• SharkNinja – a leader in the household appliance space selling products under the ‘Shark’ and ‘Ninja’ brands. The company has consistently gained share in this fragmented and competitive market by offering genuinely innovative products to consumers at reasonable price points. The company’s expertise in supply chain combined with a unique level of customer-focus and a hard driving culture provide a durable edge in a global market where it still commands only a mid-single digit share.
• Lineage – the global leader in the temperature-controlled warehouse space. It is the scale player in a fragmented industry which it is consolidating. Lineage’s scale economies and technology investments enable it to run acquired assets more efficiently, generating attractive returns on the capital employed. At the core there is a steady business providing a mission critical service. The icing on the cake here is an experienced and skilled management team deploying capital to drive growth.
• The Ensign Group – an operator of skilled nursing facilities across the US. This is another consolidation story. The skilled nursing market is highly fragmented. Ensign, as the leader, commands just a 2% share. The founder-led management team are adept at acquiring underperforming facilities and improving patient outcomes and financial performance. The business has a strong culture and effective decentralised operating model, which enables high levels of operational excellence at scale.
• COSM Experience (private) – a private operator of innovative and uniquely immersive entertainment venues. We recommend searching for ‘COSM’ on YouTube as you really must see the venue to understand just how special the experience is. The creation of COSM required the bringing together of multiple domains of expertise including hospitality operations, high-resolution LED display technology and sports content capture and rights procurement. The venues have received a tremendous reception, and the company plans to open many of them in the US in the coming years.
• DraftKings – an online sports betting and gaming company in the US. Betting has been one of the slowest industries to move online in the US, mainly due to regulations, but the market is now starting to open up, state by state. As one of two leading players in the market, DraftKings is well positioned as this huge market finally starts to move online.
We sold 10X Genomics, a maker of tools for different types of biological sample sequencing, due to growing concerns about the true scale of the opportunity in 10X’s core single cell sequencing market. We also sold Coursera due to management’s decision to de-emphasise the Degrees part of the business. This was a core part of our forward-looking hypothesis, and it is difficult to envision Coursera delivering the high returns we are looking for without this. Finally, we sold HashiCorp following the news of IBM’s bid for the company.
We also made significant reductions to our holding in NVIDIA through the period. Our conviction in the disruptive potential of AI has not changed. If anything, it has gotten stronger. However, we believe that NVIDIA’s share price is now discounting more of this large opportunity, and felt a smaller holding was appropriate given the risk-reward.
Outlook
Given the strong run historic returns, it would be fair to question whether the US market’s tremendous run can continue. We remain optimistic. The US market’s performance has been underpinned by superior fundamental progress. The earnings of US-listed businesses have grown much faster than those of companies listed elsewhere. Furthermore, the US continues to produce more than its fair share of exceptional growth companies. These businesses are powering the global innovation economy. Indeed, just as the US led the way during the rise of the internet, it is doing so again with generative AI. We think this new technology is consequential and will usher in a period of change on a scale that we haven’t seen since the industrial revolution.
Change such as this creates opportunities for growth investors. This Company aims to give investors exposure to the exceptional US growth companies which are benefiting from and driving change. We are uniquely well placed to do this given our ability to invest across both public and private markets. Many great growth companies remain off limits for investors due to their private status. This Company enables investors to cost effectively access exceptional private companies like SpaceX and Databricks and participate in the upside that’s being unlocked by these unique and innovative businesses.
The Company was created to capitalise on the extraordinary growth potential of American entrepreneurship and ingenuity. We believe that the US will retain a significant leadership position in global innovation in the years to come that the Company’s strategy is well placed to capitalise upon. As we face this critical juncture, we ask for your trust and backing, united by our shared goal of achieving exceptional, long-term growth and value creation.