Baillie Gifford US Growth Trust (USA ) fund managers Gary Robinson and Kirsty Gibson have appealed for investors to give them at least two more months before judging their performance on an investment trust that has more than halved from its peak two years ago.

Commenting on half-year results which showed the former hot stock lagging the US S&P 500 index in the four-and-a-half years since launch, the pair asked shareholders to judge them on their performance over five years or more. That gives them until March when the £458m closed-end fund marks its fifth birthday.

In the six months to 30 November, US Growth saw its shares drop 4.6% with a 2.1% slip in underlying net asset value (NAV) as it bottomed out from the plunge in growth stocks exacerbated by Russia’s invasion of Ukraine in February 2022.

From launch on 23 March 2018, the interims showed the fund managers had overseen a total return of 91.5% from their investments. However, their initial outperformance of the US stock market – that saw the trust achieve a truly extraordinary 135% total shareholder return in the 2020 pandemic internet surge – has vanished with the S&P benchmark overtaking the former outperformer with a 103.4% return in sterling.

Moreover, the growth sell-off had caused a massive derating in their shares, leaving investors who subscribed in the initial public offer with a total return of 59.4% on their holdings. While positive, this return marks a massive underperformance of the S&P 500 from a fund that set out to achieve outstanding capital growth backing a small number of long-term stock market winners. 

Memories of the Citywire performance award the trust won in 2021 with a three-year shareholder return of 155% at 31 August that year are distant. From a peak of 388p on 12 February 2021, the trust has crashed 62% to 151p. Over 12 months to yesterday, the shares have shed 30.6%, the worst of the four London-listed US investment trusts.

Kirsty Gibson and Gary Robinson receiving their Citywire award in 2021.

However, on a wide 19% discount to NAV that has gained 6% in the new year rally to 189p per share, they do offer recovery potential for anyone who believes USA’s previously hyped ‘disrupter’ stocks have been oversold in the panic over interest rates and inflation.  

With high inflation showing signs of abating, now might not be the time to bail out. 

Certainly, Robinson and Gibson are hoping investors will take the long-term view. 

‘We understand that weak performance is challenging for shareholders to endure but we can assure you that we remain confident in, and committed to, our approach,’ they said.

In the half-year period, the managers largely stuck with their 73-strong portfolio, adding gaming platform Roblox after a weakness in its share price and salad restaurant chain Sweetgreen, but exiting telemedicine company Teladoc and connected fitness company Peloton. The turnover was ‘low even by historic standards’, they said.

The duo highlighted its second-largest individual position and Baillie Gifford favourite, pharma giant Moderna, whose shares rose 25.6% as its mRNA drug for melanoma is expected to move to phase three in 2023.

The shares in language learning app Duolingo slumped 15.4% over the six-month period, despite AI breakthroughs likely making the app better than a personal teacher in five years’ time, according to its founder Luis von Ahn.

The co-managers also highlighted Elon Musk’s SpaceX at 7%, an unquoted company that is expanding access to fast internet via its Starlink satellite network, which announced its one-millionth subscriber in December. SpaceX was one of two unlisted holdings in the trust to see its valuation increase.

The 73-strong portfolio comprises 24 private companies, which represented 38.2% of total assets at 31 December out of a possible 50%. Over the period, 74% of its unquoted portfolio was revalued at least three times, often downward. As with the Baillie Gifford flagship Scottish Mortgage, the USA trust may not have suffered the full extent of the valuation cuts to unquoteds as it typically holds preference stock, which provides some downside protection in private companies.

The managers concluded by saying market conditions remained challenging but reiterated their belief that their expertise did not lie in second-guessing the US Federal Reserve’s interest rate policy. ‘Our aim is to identify the exceptional growth companies in America and hold on to them for longer periods of time. In doing so, we hope to capture the upside inherent in their business models,’ they said.

The question is how long will it take US Growth to recapture the upside it has lost in the past two bruising years?