Back US winners with Baillie Gifford American

However, there are active US equity funds that have succeeded in outperforming indices such as the S&P 500 in recent years. These include Baillie Gifford American (GB0006061963), which seeks to outperform this index in sterling terms by at least 1.5 per cent a year over rolling five-year periods.

The fund is run by Tom Slater, who is also co-manager of Scottish Mortgage Investment Trust (SMT), Gary Robinson, Kirsty Gibson and Dave Bujnowski. They look to identify “exceptional growth businesses”. While this may not sound dissimilar from other investment approaches, this team tries to get exposure to disruptive trends, and sticks with its holdings for an extremely long time so that the advantages of their business models and cultural strengths become “the dominant drivers of their stock prices”.

As with some other Baillie Gifford funds, this has a big weighting to technology stocks. It includes heavy exposure to Facebook (US:FB), Amazon (US:AMZN), Apple (US:AAPL), Netflix (US:NFLX) and Alphabet (US:GOOGL) – the so-called FAANGs. It also holds Microsoft (US:MSFT) and electric car company Tesla (US:TSLA). 

The fund holds other disruptive names now richly benefiting from the coronavirus crisis. According to data provider Morningstar, its holdings at the end of May included Zoom Video Communications (US:ZM), virtual healthcare appointment provider Teladoc (US:TDOC), Illumina (US:ILMN) and Moderna (US:MRNA). The last two have been developing treatments for Covid-19.

In recent months, Baillie Gifford American's managers have invested in other companies that may benefit from trends that look set to accelerate as a result of the lockdown. Ben James, a product specialist on Baillie Gifford’s US equity team, said in May that the fund had invested in Workday (US:WDAY), a provider of cloud-based human resources systems for businesses, in the belief that companies will increasingly use cloud software.

The fund's managers also focus on themes such as the future of commerce, the transformation of healthcare treatment and leisure activities via holdings such as Netflix. With certain companies and sectors seeming to establish positions of dominance in the market amid the coronavirus crisis, ones like these could continue to outperform. And Baillie Gifford American offers concentrated, long-term exposure to such companies: it tends to hold between 30 and 50 stocks, and has bigger exposures to some of the large tech names than broad US equity indices and other US equity funds.

Baillie Gifford American's concentrated focus on specific growth stocks and a particular segment of the market means that it could be volatile. The FAANGs can sell off hard in times of market volatility and look vulnerable to regulatory pressure in future. A number of analysts and investors have considered US equities to be overvalued for a long time, and more of them could take this stance or consider the growth investment style as overvalued, which could result in such stocks' prices falling.

However, this fund has a rigorous and disciplined approach that has paid off extremely well in the past, and is well positioned to take advantage of long-term growth themes via disruptive companies. So if you want exposure to these and growth over the long term, and can tolerate some volatility along the way, Baillie Gifford American still looks like a good way to do this. Buy. DB