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Baillie Gifford US Growth buys more SpaceX in stellar first year

6 August 2019

Managers of Baillie Gifford's newest investment trust add to their stake in Elon Musk's SpaceX, their biggest unquoted holding.

Baillie Gifford US Growth (USA) managers Gary Robinson and Helen Xiong have added to their holding in Elon Musk's SpaceX rocket company as the Edinburgh fund group's newest investment trust enjoys a strong start to life.

Maiden annual results for the £329 million trust, which floated in March last year, show the managers have added to SpaceX, their largest unquoted holding, which now stands at 2.1% of the portfolio.

Together with new buys Aurora and JRSK, that takes Robinson and Xiong's position in unlisted companies to 10.8% of the portfolio, up from 6.5% at the time of the trust's half-year results.

Shares in the trust have risen 41.5% since launch, outstripping the return from all other trusts in the Association of Investment Companies' North America sector.

Baillie Gifford is a strong supporter of US entrepreneur Elon Musk, second only to Musk himself on the shareholder register for his electric car manufacturer Tesla (TLSA.O), with 7.4% of the shares.

The growth-focused fund group was meanwhile among investors who backed Musk's space exploration company in a December funding round, and the US Growth trust's annual results show the fund topped up its holding in a further round in April, which valued SpaceX at around $35 billion.

Baillie Gifford's flagship investment trust, Scottish Mortgage (SMT) and its global smaller companies trust, Edinburgh Worldwide (EWI), also hold positions in SpaceX.

Investments in unquoted companies form a key flank of Robinson and Xiong's investment strategy for the trust. 

Baillie Gifford launched the trust, its first closed-end fund initial public offering in over three decades, to allow the managers to tap into this sector in the US market, given their existing North American offering, the open-ended £2.4 billion American fund, was unsuitable for these illiquid investments.

Robinson and Xiong are allowed to hold up to half of their portfolio in unlisted stocks.

Among the managers' latest unquoted investments is Aurora Innovation, which specialises in self-driving technology. The 0.8% position builds on the fund's exposure to this area, through its 2.8% position in Tesla and a 3.8% holding in Google owner Alphabet (GOOGL.O), which is developing autonomous vehicles through its Waymo venture.

Robinson and Xiong said the three were ‘arguably leading the way, albeit with quite different approaches’.

‘We believe broad exposure to this area is appropriate given the potential scale of its impact,’ they said. ‘There is no consensus on when true autonomy will become mainstream… but most would agree that the remaining problems are solvable, and it will not be that long until we are being driven around by computers.’

Another recent unquoted addition to the portfolio is luxury travel luggage brand Away, whose holding company is JRSK. It makes up 0.6% of the assets in the fund.

The company sells online and offline in the US and UK, offering travellers high-end luggage with inbuilt phone charging.

‘It has excelled in customer service, community building and storytelling on social media,’ said Robinson and Xiong.

‘Furthermore, by selling direct, Away has been able to keep costs low and offer consumers access to high-quality products at attractive prices. Longer term, we believe there is an opportunity to build Away into a global lifestyle brand.’

Two of the trust’s unquoted stocks have gone public since launch; workplace messaging service Slack (WORK.N) and ride-sharing firm Lyft (LYFT.N).

Slack, which makes up 1.2% of the portfolio, is up around 67% from its pre-IPO price but down from the high of $38.64 it hit on the first day of trading.

Robinson and Xiong said its ‘rapid and viral adoption’ as well as ‘user love’ provides a ‘strong foundation for it to become the unifying layer that ties all the applications for the enterprise together’.

The managers invested in Uber rival Lyft in mid-2018 when it was still private and the stock now accounts for 1% position of the portfolio. Lyft floated in March this year at $72 a share, and the stock has endured a rocky ride since. The shares were changing hands at $59.51 yesterday.

‘Our work has led us to conclude that Lyft is a company with a strong social purpose and genuinely distinctive culture,’ said Robinson and Xiong.

‘These softer points, while admittedly intangible and difficult to measure, may add up to a significant source of edge.’

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