The FTSE 25O index has been limping along for some time now. Excluding dividends, it’s risen just 21% in a decade!
That meek performance is obviously very disappointing, especially when we compare it to other indexes. The mid-cap S&P 400 in the US, for example, is up more than 100% over the same period.
One problem is that FTSE 250 companies tend to be more domestically focused, meaning they’re reliant on the weak UK economy. And with inflation rising again and the Bank of England unlikely to cut rates in March, I’m not optimistic that the FTSE 250 will turn things around anytime soon.
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As such, I’m confident that Baillie Gifford US Growth Trust (LSE: USA) will easily outperform the UK’s mid-cap index over the next few years.
The next generation
As the name suggests, this investment trust focuses on US growth stocks. Specifically, it invests in those that have the “potential to grow substantially faster than the average company”. And the trust’s strategy is to “hold onto them for long periods of time, in order to produce long-term capital growth“.
The largest 10 holdings are very different to the top of the S&P 500 index, which is dominated by Apple and Microsoft. The trust holds neither of those tech giants (nor Google parent Alphabet).
Instead, it chooses to invest in many smaller companies that it sees as the next generation of top growth stocks. These include Cloudflare, which operates a global edge computing network. The trust thinks this company could become the next major cloud platform outside the tech giants.
Another interesting stock is Sweetgreen, the salad restaurant chain that is using automation through its Infinite Kitchen technology to produce salads 50% faster than humans can. The share price has doubled in the past year, but Sweetgreen still has a small market cap of $2.7bn. So, if this firm succeeds in future, the stock could easily become a multibagger.
As well as public firms like these, the trust also invests in private companies that everyday investors cannot otherwise access. The largest of these is SpaceX, Elon Musk’s pioneering rocket company that was last valued at a whopping $350bn. As the largest holding today, it makes up over 10% of assets.
Top 10 holdings (January 2025)
| % of portfolio | |
|---|---|
| Space Exploration Technologies (SpaceX) | 10.7% |
| Amazon | 5.2% |
| Meta Platforms | 4.8% |
| Shopify | 4.6% |
| Stripe | 4.5% |
| Netflix | 3.9% |
| Cloudflare | 3.8% |
| DoorDash | 3.3% |
| The Trade Desk | 3.2% |
| Duolingo | 2.2% |
Risks
Naturally, there are risks to my thesis. If inflation proves problematic this year, then rates might stay higher for longer. That could impact growth stocks, which tend to perform better in a low-rate environment (or the anticipation of one).
Also, the top 10 holdings account for nearly half of total assets. So, if a couple of these were to weaken, that could drag on performance.
Finally, the trust’s growth strategy could struggle if investors turn bearish on highly-valued tech stocks. This happened in 2022, sending the share price down 52%. Indeed, it is yet to reclaim its 2021 heights.
Bright future
Over the next few years though, I see Baillie Gifford US Growth Trust performing much better than the FTSE 250. Most of the portfolio is made up of extremely high-quality US companies, in my opinion.
With the shares currently trading at a 10% discount to net asset value, I think they’re definitely worth considering for long-term investors.
