Baillie Gifford US Growth unquoteds more than double to 36%

Baillie Gifford US Growth Trust has seen its weighting toward unquoteds more than double to 36% over the past year, despite comparative listed growth stocks suffering steep share price falls.

In the year to 31 May 2022, its share price returned -45.5%, while its NAV generated -35.3%. The gloomy picture takes an even darker turn when you compare its performance with the S&P 500, which delivered 12.2%.

The whopping share price fall saw the £570m trust move from a 4% premium to a 12.3% discount by the end of May.

This massive decline has not motivated a change of heart from the trust’s managers, Kirsty Gibson (pictured) and Gary Robinson, who said: “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.”

See also: Plummeting share price pushes Baillie Gifford US Growth out of FTSE 250

Preference shares providing downside protection

There was considerable turnover in the unlisted holdings over the year, with seven added and three going public. The company also participated in the IPOs of electric car manufacturer Rivian Automotive, software firm HashiCorp and foreign language app Duolingo.

Gibson and Robinson added: “At the end of May, we held 24 private company investments which collectively comprised 36.4% of total assets. Taking into account companies which were previously private company investments, but which are now public, this figure rises to 42.2%. According to the trust’s investment policy document, unlisted securities cannot exceed 50% of the total assets of the company.

“The weighting in private companies has risen since last year [when it was 16.5%]. This is partly due to the deployment of additional capital into private companies.

“However, for many of our private company holding we own preference shares, which provide downside protection in the event of a sale of liquidation. This results in the private company valuations falling more slowly than their listed counterparts during market drawdowns.”

Pinning down a valuation

Much has been made of the way in which trusts value unlisted assets, with Portfolio Adviser asking in June whether the way in which Baillie Gifford’s Scottish Mortgage Trust valued its unquoted had become ‘detached from reality’.

There appears to be a similar story emerging at its US Growth trust.

Private companies are held at ‘fair value’, which is the price that would be paid on the open market. Between 1 January and 31 May 2022, 24% of the trust’s portfolio was revalued more than five times. Over half (56%) saw its price adjusted on more than two occasions. Over the five months, the trust undertook 169 revaluations.

The process is overseen by a valuations group at Baillie Gifford, which takes advice from S&P Global. The valuations group is independent from the investment team with all voting members being from different operational areas of the firm, and the investment managers only receive final valuation notifications once they have been applied.

Most valuations, unsurprisingly, have been downwards, with the average change -29.2%.

The Baillie Gifford US Growth trust’s top 10 holdings, as of 31 May 2022, were:

Source: Baillie Gifford