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53. Uncovering trusts – Baillie Gifford US Growth Trust: Chasing outliers – the case for US growth and private markets
104 Plays11 days ago
In this episode, our director of content, investment trusts, Milosz Papst, talks about Baillie Gifford US Growth Trust (USA), a closed-end investment company listed on the main market of the London Stock Exchange, focused on delivering long-term capital growth through US equities. He covers the key takeaways from Edison’s research note on USA, including the trust’s strong recent performance, a NAV total return of 20.1% in the 12 months to end March 2026, well ahead of its S&P 500 benchmark. He explains the managers’ distinctive investment philosophy of identifying ‘outlier’ businesses with virtually unbounded upside potential, and the trust’s significant allocation to late-stage private companies, which currently stands at around 44% of total assets. Finally, he discusses the trust’s portfolio construction, its competitive ongoing charge of 0.72% and the key risks investors should consider.
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About ‘Uncovering Trusts’
'Uncovering Trusts': is a podcast run by Edison analysts released every two weeks. Subscribe to hear analyst interviews on how investment trusts maximise returns while managing risks for investors.
About Edison:
Edison is a content-led IR business. We believe quality investment content should inform all investors, not just brokers. Our mission: engage and build bigger, better-informed investor audiences for our clients.
Edison covers around 50 investment trusts, read about them here: https://www.edisongroup.com/equities/investment-companies/
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Transcript
00:00:00
Speaker
See you.
Introduction to Uncovering Trusts
00:00:06
Speaker
Welcome to Uncovering Trusts, the Edison Group podcast where we explore some of the most interesting investment trusts on the market. I'm your host Salim Ibern and today I'm joined by Milos Paps, Director and of Investment Company Content at Edison, to discuss Bailey Gifford US Growth Trust, which trades under the ticker USA. Milos, great to have you with us.
00:00:25
Speaker
Thanks Liam, great to be here as always.
Bailey Gifford US Growth Trust Overview
00:00:27
Speaker
So just to kick off the conversation today, for those listeners who may be less familiar with the trust, what is Bailey Gifford US Growth Trust and what is it trying to achieve?
00:00:36
Speaker
Yes, Bailey Gifford US Growth Trust was launched in March 2018 and is listed on the main market of the London Stock Exchange. It is managed by Gary Robinson and Kirsten Gibson.
00:00:47
Speaker
um Both are partners at Bailey Gifford, the Edinburgh-based investment management firm. The Trust's objective is to produce long-term capital growth by investing predominantly in equities of companies that are incorporated, domiciled, or conduct a significant portion of their business in the United States. Its benchmark is the S&P 500 total return index in Sterling.
00:01:11
Speaker
Now, the managers are, at heart, bottom-up growth investors with the long-term horizon. They seek outlier businesses, that is, exceptional growth companies with huge addressable markets whose upside potential they see as virtually unbounded.
00:01:27
Speaker
The investment process is centered on identifying these outliers and owning them long enough for the strengths of their business models and cultures to become the primary driver of the returns they generate. That's great. And you touched there on the trust investment process and philosophy. What specifically are the managers looking for?
00:01:45
Speaker
Philosophy rests on well-evidenced observation, which we've also mentioned during our recent podcast on the Scottish Mortgage Investment Trust, that the majority of equity market returns are generated by a very small number of exceptional companies.
00:01:58
Speaker
Gibson and Robinson are seeking businesses with ah deep competitive advantages, strong financial characteristics, and perhaps most distinctively, powerful corporate cultures, which they view as a vital indicator of long-term performance potential.
00:02:14
Speaker
um Around 75% of portfolio holdings are run by their founders, which the managers consider key signal of that cultural alignment. Now, their explicit return targets reflect this ambition. They seek listed companies capable of delivering at least two and a half times returns over rolling five-year periods and private companies that can deliver fivefold returns over the same time frame.
00:02:37
Speaker
They are trying to identify the mega caps of tomorrow. um rather than assemble you know a broadly diversified index-like portfolio. Sure. And private companies clearly seem to be a distinctive feature of this trust.
Investment in Private Companies
00:02:52
Speaker
Can you explain why managers place such emphasis on them?
00:02:56
Speaker
Yes, Liam. So it's arguably one of the most compelling aspects of the trust proposition. The trust can invest up to 50% of total assets in private companies at the time of investment. And this matters because US companies are increasingly choosing to stay private for longer.
00:03:11
Speaker
um According to Bailey Gifford's research, research in 2024, the median age of a venture capital-backed private company was 10.7 years, compared with 6.9 years in 2014, as businesses choose to avoid onerous reporting obligations and well the short-termism of public markets.
00:03:32
Speaker
the short-termism of public markets. The practical implication is that the listed equity universe no longer offers the full spectrum of growth opportunities it once did.
00:03:43
Speaker
Bailey Gifford's well-established position in private markets is a genuine competitive advantage here. um Since 2012, it has made investments of more than $10 billion dollars in over 150 private companies and I believe has built a reputation as the investor of choice for companies with public listing ambitions.
00:04:02
Speaker
um A recent example was the trust participation in the $13 billion late-stage fundraising by Anthropic, the AI developer. ah As at the end of March 2026, private company exposures stood at 44.1% of total assets, spread across 28 companies. However, I would note that the historical long-term average share of private companies in the trust portfolio in you know a healthier IPO market was around 20 30%. Okay, great. And perhaps could you discuss for us what, you know, what has portfolio activity looked like over the past year or so? Yes, sure. There has been, well, meaningful activity on the private company side. In addition to Anthropik, new positions added during the financial year to May 2025 included Rippling, a workforce management system using automation to help fast growing companies scale.
00:04:54
Speaker
Runaway AI, a generative AI video platform serving individual creators through to professional studios. And Cosm, an immersive entertainment company creating pioneering 360-degree shared reality experiences through massive LED doms in U.S. cities, partnering with the NBA and and others.
00:05:13
Speaker
On the listed side, new holdings included DraftKings, the leading U.S. online sports betting company. Lineage, the global leader in temperature-controlled warehousing. and Shark Ninja, a manufacturer of high-quality consumer appliances with scope for significant international expansion.
00:05:32
Speaker
um The trust also participated in the IPOs of Circle Internet, the issuer of a digital currency packed to the US dollar, and Figma, um the web-based collaborative design platform that has penetrated 80% Forbes' 2000 companies.
00:05:48
Speaker
On disposals, the managers closed the longstanding position in Roku after concluding that competition was intensifying and profitability remained elusive, particularly given additional digital advertising exposure from purchasing app-loven.
00:06:03
Speaker
They also exited Airbnb in August 2025, having held it since before its IPO in 2019. ah The position had more than doubled investors' money, but with competition intensifying and the company maturing, other opportunities offered a more compelling outlook. I understand that the managers have also evolved the portfolio construction approach.
Portfolio Strategy and Management
00:06:23
Speaker
Can you perhaps explain now what's changed over time and why it's changed?
00:06:27
Speaker
Yes, this is an important development. um The managers were disappointed with the Trust's three- and five-year performance are hit hard by the surge in growth stocks during the COVID period and their subsequent Sharpe D rating as interest rates rose steeply in 2022.
00:06:42
Speaker
In response, they have implemented a set of portfolio construction enhancements and guide rails. Most notably, they now automatically retest the upside case for all listed stocks once they cross the two and a half times return threshold I've i've mentioned before, regardless of the timeframe.
00:06:59
Speaker
um A stock that has already delivered that return must demonstrate it can still meet the bar from its current price to you know to justify remaining in the portfolio. This retest covers factors such as resilience, cash generation, demand driver correlation and stress testing of internal narratives.
00:07:18
Speaker
More broadly, the managers are monitoring the overall shape of the portfolio more carefully, ensuring an appropriate balance of growth styles, ah business maturities and structural growth drivers.
00:07:29
Speaker
For private companies, where applying mechanical rules is more difficult, the team is being more selective and favoring businesses with greater diversity of revenue sources, while being particularly mindful of not building up excessive consumer sector exposure. So we discussed private companies as a distinctive feature of the trust. It seems AI is also central to the trust investment case at the moment. How are managers thinking about the opportunities associated with artificial intelligence?
Role of AI in Investment Strategy
00:07:58
Speaker
Indeed, AI is central to the investment case, but the manager's framing is quite nuanced, I would say. They are not buying businesses simply because they can be labeled as AI plays. Rather, they are looking at where AI strength strengthens existing competitive advantages and where it creates new control points in the technology stack.
00:08:18
Speaker
NVIDIA is the clearest example of the first category. It remains go central to the compute layer underpinning serious um AI workflow workloads.
00:08:29
Speaker
Meta is another um because ai can reinforce the advantages it already has in distribution, data and monetization. Amazon is strategically well placed through AWS and its growing chip capabilities. And then there are businesses such as Cloudflare and Databricks, which provide important infrastructure and data tools that make enterprise AI possible.
00:08:51
Speaker
The second category is um early stage companies where the upside could be much more asymmetric, um anthropic and runaway AI fit that description.
00:09:02
Speaker
The managers think these kinds of businesses could occupy very valuable control points if AI adoption keeps broadening. Now, beyond AI, they also remain excited by areas such as digital infrastructure more broadly and parts of healthcare where better tools, data, and scientific productivity could unlock very attractive growth opportunities.
Major Holdings and Positions
00:09:25
Speaker
That's great, thank you. and just Could we perhaps look at some of the Trust's largest portfolio positions in more detail? Yes, of course. um At the end of March 2026, SpaceX was the largest holding at 14.9% of total assets.
00:09:39
Speaker
ah SpaceX has been held in the Trust since 2018 and it has been a remarkable performer. Its reusable rocket technology has, transform as many know, transformed the economics of space launch and Starlink, its satellite internet the service, now has more than 6 million subscribers in 140 countries, with a vast addressable market still to be tapped.
00:10:01
Speaker
um The second largest holding is Stripe at 8.5% of total assets. um Stripe is a private payments technology company whose ambition is to grow the GDP of the internet, so to speak. And importantly, it it achieved profitability during the past year, milestone the managers regard as a significant validation of the business model.
00:10:23
Speaker
Amazon follows at 4.4%, Nvidia at 4.3%, and Meta Platforms at 3.8%. The rest of the top 10 are Anthropic, Databricks, Netflix, Cloudflare, and Billion2One, diagnostics company using next-generation sequencing to transform prenatal testing.
00:10:41
Speaker
um In aggregate, the top 10 account for 51.3% of total assets. Sector level, um information technology is the largest allocation at around 36% total assets, followed by industrials at just under 20%, consumer discretionary healthcare at and communication services at just over um And the trust has no energy or utilities exposure.
00:11:10
Speaker
um What's important is that the active share versus S&P 500 85%, which I think underscores just how differentiated the portfolio is from its benchmark. Now, turning to a very important topic for our listeners, could you perhaps give an overview of how the trust has performed over
Recent Performance Highlights
00:11:27
Speaker
time? Well, the recent picture is encouraging. In the year the end of March 2026, the trust delivered an NAV total return of 20.1%, which is well ahead of the S&P 500 benchmark total return of 15.3%. The share price total return strong 27.7%, leading to narrower discount.
00:11:43
Speaker
ah strong of twenty seven point seven percent ah leading to a narrower discount Now over three years, the cumulative NAV total return was 64.2% against the benchmarks and the share price is return.
00:12:01
Speaker
In the financial year to end August 2025, the NAV returned 31.6% and the share price is 37.6% against the benchmarks 12.7%. So standout year for the trust. um Key drivers including so included SpaceX, Cloudflare, and Shopify.
00:12:18
Speaker
um Shopify ah illustrates what the managers are targeting. A founder-led business with a strong culture, having evolved from a simple e-commerce platform into a sophisticated sophisticated merchant services provider, now with an AI-driven sidekick assistant automating significant portions of merchant operations.
00:12:38
Speaker
Netflix was another strong contributor entering what the managers described as its fourth act that is expanding into advertising, live events and gaming, building a flywheel of a momentum well beyond its existing 300 million subscribers.
00:12:54
Speaker
provide balanced perspective, the five-year cumulative NAV return to March 2026 was just 1.3% against the benchmark's 84.9%. The managers are upfront about this, attributing it to the outperformance of growth stocks during COVID followed by sharp valuation compression as rates rose rapidly in 2022, but particularly challenging conditions for a high-growth, long-duration portfolio.
00:13:19
Speaker
um the portfolio reconstruction enhancements were introduced specifically to improve resilience to such conditions in the future. Since inception in March 2018 until the end of March 2026, the NAV total return was 207.4% against the benchmarks 208.2%, so broadly in line over the full period. Following from that, are there any other financial metrics or fees that you'd like to discuss?
00:13:44
Speaker
Yes, when the end of March, ah total assets were 871.2 million pounds and net gearing was 4%, which is conservative relative to the board's typical target of 10 to 20% of NAV and the maximum permitted 30% of NAV on listed securities.
00:14:02
Speaker
the um The ongoing charges ratio was 0.72% for the financial year to May 2025, comparing very favourably with the AAC North America Peer Group average of around 1%.
00:14:16
Speaker
There are no performance fees and the trust does not pay a dividend consistent with its focus on long-term capital growth.
Opportunities and Risks for Investors
00:14:23
Speaker
Before we wrap up today, Miloš, could you briefly summarise why an investor might consider Bailey Gifford US Growth Trust?
00:14:30
Speaker
Sure. um The trust offers access to a portfolio of exceptional U.S. s growth companies, both listed and private, managed by a team with genuine long-term conviction. Several things stand out. ah First, the U.S. remains the innovation capital of the world with the the capacity to lead AI-driven transformation at scale.
00:14:48
Speaker
Second, the Trust's private company access, 44% of assets in late-stage private companies, backed by belief of its formidable reputation in space, is not easily replicated elsewhere in the closed-ended fund universe. And third, recent performance has been strong, with NAV ahead of the benchmark over both one and three years, while the portfolio portfolio construction enhancements should improve resilience to future volatility.
00:15:15
Speaker
um And fourth, an ongoing charge of 0.72% provides attractive cost proposition for long-term investors.
00:15:27
Speaker
But investors should nonetheless be mindful about the risks. um This is you know a concentrated, high-growth, long-duration portfolio that can be volatile, and the significant private company exposure adds valuation complexity and lower liquidity. So this is very much a trust for patient investors with a long-term horizon. That's great. Milos, thank you very much for your time today. My pleasure, Liam. Always ah fascinating for us to discuss. You've been listening to Uncovering Trusts, a podcast by Edison Group. For more information on Bailey Gifford US Growth Trust and other investment companies we cover, please visit www.edisongroup.com.