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Over the past year, the FTSE 250 has risen by 3.5%. This isn’t fantastic, but certain constituents have provided a much better showing over the same time period. One FTSE 250 stock has jumped by 35%, with good reasons to back up the rally. Based on the outlook, it could be a stock for investors to consider even from here.
A sum of the parts
I’m referring to the Baillie Gifford US Growth Trust (LSE:USA). The investment trust has USA as the ticker, which suitably fits the mandate it has of buying US stocks for long-term capital growth. The trust managers have the remit of purchasing stock in both public and private companies, giving it a unique twist.
Over the past year, the stock is up 35%. Given that the share price movements should closely mirror the net asset value of the portfolio, the main driver here is the performance of the stocks held in the trust. It has performed very well due to its exposure to unlisted private companies. For example, one of the largest holdings is SpaceX, plus newer private investments in AI and tech like Rippling and Runway AI.
Aside from this, tech exposure has outperformed this year. So holdings in Nvidia, Meta and Amazon have helped to push the trust NAV higher. Let’s also not forget the focus of the managers on growth stocks, versus other areas. In the past year, investor sentiment has swung back somewhat toward growth, especially in sectors with strong momentum. This has helped trusts like this, which are heavily growth-oriented.
The next 12 months
The outperformance versus the index will please investors who already own it. However, the question for those who don’t is whether the performance can continue over the coming year and beyond.
Concerns that this might not be possible come from several areas. As the trust holds many high-growth (and some as-yet-unprofitable) companies, performance can swing wildly. Valuing the private holdings can also be tricky. Plus there’s a concentration risk. What I mean by this is that the gains have come from a few big winners. If those names stumble, gains could reverse fast.
On the other hand, the situation in the US doesn’t look that bad. The Federal Reserve committee is likely to start cutting interest rates, which should act to boost the stock market in general. This is particularly beneficial for growth stocks, as they typically have high levels of debt, which becomes more affordable with lower interest rates.
On key themes like AI, I don’t think we’re at the end of the road at all. Adoption rates and innovation are still rapidly increasing. This should give plenty of room for AI leaders to see share price appreciation as investors want to get more exposure to this area.
When I balance things up, even though I think another 35% gain in the coming year is a bit optimistic, I do think the trust could outperform the FTSE 250. Therefore, I think it’s a stock for investors to consider at the moment.
