Fund managers always prefer to have their performance judged over a long period of time and Baillie Gifford is no different. The privately owned, Edinburgh-based investment house consistently preaches that its investors look for results over five years or more, so it won’t be too concerned that the first interim announcement from its US Growth Trust was a little behind returns for the overall S&P 500 index in the period between March and the end of November last year.
The investment trust raised gross proceeds of £173 million when it was listed in March with a brief to identify “exceptional growth companies” in North America. One of the more interesting aspects of the strategy is the flexibility to have up to 50 per cent of the assets in companies not listed on public markets (at the end of last week, 10 per cent of the trust’s portfolio was in unlisted businesses).
And the strategy has worked in the past. Some of Baillie Gifford’s other trusts have done well from building stakes in the likes of Alibaba, the Chinese ecommerce group, before it listed and Skyscanner, the travel search engine, prior to its £1.4 billion sale to Ctrip.
By the end of November, the net assets at the US Growth Trust had risen to more than £254 million. That meant that its net asset value return, a key performance measure for the sector, for the period to the end of November was 16 per cent, while the share price return was 18.8 per cent. That compared with a total return of 19.9 per cent for the S&P 500, America’s most broadly based and therefore most closely followed leading stock market index, over the same period.
The trust’s share price peaked at more than 135p in October before falling back to around 105p towards the end of December, in part owing to concerns over the big technology companies in the United States. Facebook, Amazon, Alphabet (the Google owner) and Netflix are all among the trust’s top ten holdings. Concerns over privacy, data breaches and fake news have been damaging to Facebook and Alphabet in particular, issues that bring with them talk of regulatory intervention. While Netflix builds its user numbers at an impressive rate, it is also spending heavily to create more films and series as it seeks to be the content king in digital streaming. Amazon’s stock took a hit in October last year after disappointing Wall Street on revenue growth and offering a gloomier outlook for the key festive trading period. Its results towards the end of this month will be watched keenly.
Tesla, the electric carmaker, Illumina, which makes equipment for genetic analysis, Market Axess, an electronic trading platform, and Grubhub, a food delivery specialist, are also among the trust’s largest holdings. Its unlisted investments include Lyft, the transport-on-demand rival to Uber that is valued at $15 billion, and Slack, a $7 billion productivity and collaboration tool. There is also Butterfly Network, a developer of a handheld ultrasound medical device, and Indigo Agriculture, which uses technology to improve crop yields.
Gary Robinson, co-manager of the trust, has said that it will hold on to most of its investments for an average of five years and may keep the best ones ”for a very long time”. He also has espoused an active management style to differentiate the portfolio from the benchmark and “accept the short-term volatility that comes along with that”.
His pitch is clear: “If you are looking for a fund which replicates an index or mimics US GDP growth, this trust is not for you.”
ADVICE Buy
WHY The trust is about more than technology’s giants; for those with a long-term view, recent price weakness could be an attractive entry point
JD Wetherspoon
Britain’s looming exit from the European Union places JD Wetherspoon and Tim Martin, the pubs chain’s founder and chairman, in an interesting position. Mr Martin is an ardent Brexiteer who has forcefully argued that Britain should leave the EU without a deal and trade on World Trade Organisation terms. Yet if there is to be a “hard Brexit” and it hits consumer confidence, ’Spoons and its investors could suffer.
Founded in 1979, Wetherspoons started life as a single pub in north London before growing into one of Britain’s best-known chains. It now has an estate of around 900 pubs, generating annual revenues of almost £1.7 billion last year, and a market value of almost £1.3 billion.
Brexit is inescapable from the statements the company makes to the stock market, which Mr Martin typically uses to outline his views on the UK’s relationship with the EU. Yesterday was no different and included two appendices that made no mention of the company’s finances and were instead about the divorce from Brussels.
Yet Wetherspoons’ trading figures themselves didn’t suggest that any worries that consumers may have about Brexit or the economy had hurt the business over Christmas. Like-for-like sales in the 12 weeks to January 20 climbed by 7.2 per cent, while total sales were up 8.3 per cent. Overall, like-for-likes rose by 6.3 per cent and total sales increased by 7.2 per cent during the 25 weeks that ended on January 20.
However, costs are, in Mr Martin’s words, “considerably higher than the previous year, especially labour, which has increased by about £30 million in the period”. That will drag on earnings, with pre-tax profits for the first half forecast to fall compared with the same period a year earlier (although Mr Martin said that the company’s expectations for the full year had not changed).
Rising minimum wages as well as the slide in the pound after the referendum in 2016 have pushed up costs for pub groups, though Wetherspoons said last November that it would not seek to mitigate those increases with price rises.
Shares in Wetherspoons slipped 3p, or 0.3 per cent, to £11.93.
ADVICE Hold
WHY Sales are encouraging but costs weigh and margins are tight
