IT North American trusts Baillie Gifford US Growth and JPMorgan American have both benefited from the dominance of US large-cap, technology stocks, yet their difference in popularity among investors is stark.
The 5.3% discount on JPMorgan American contrasts with the Baillie Gifford fund, which is the only IT North America fund running on a premium (2.2%).
Performance has also been unequal. Year-to-date Baillie Gifford US Growth has underperformed out of the two trusts, returning 7.5% versus JPMorgan American’s, 18.3%.
Performance of trusts vs S&P 500 YTD
Source: FE Analytics
However, comparing the trusts’ performance since the launch of Baillie Gifford US Growth in 2018 it has outperformed considerably.
Performance of trusts since launch of Baillie Gifford US Growth
Source: FE Analytics
Although on the surface both trusts appear similar – both having the biggest portfolio exposure to the telecom, media and technology sector - they have very different approaches to this space.
For example, £1bn Baillie Gifford US Growth invests in both pubic and private companies. The latter makes up 15.5% of the current portfolio but it can be as high as 50%. Jason Hollands, managing director of Tilney Investment Management services, said he expected this allocation to grow.
This tied in with Baillie Gifford’s baseline thinking when launching the trust in 2018 that high growth companies in the US were choosing to stay private for longer now than they had in the past before going public.
The trust’s managers, Gary Robinson and Kirsty Gibson, want access to these private companies in their earlier stages, a tactic that has worked in other portfolios, such as Scottish Mortgage.
But Hollands added this can lead to periods of “divergent performance” compared to the S&P 500 benchmark since private companies are valued periodically rather than daily.
For Hollands this ability to invest in private companies is “more interesting” at the moment, making it the more “appealing” to investors than JPMorgan American.
James Carthew, head of investment companies at QuotedData, also picked Baillie Gifford US Growth.
He added that the Baillie Gifford trust tends to be more volatile because it has a bigger emphasis on companies which are loss making or have a shorter trading history .
It also has a concentrated portfolio of just 20-30 ‘exceptional growth’ names , a style across Baillie Gifford funds which also increases its riskiness.
Conversely, out of the four trusts in the IT North American sector spanning 10 years JPMorgan American has the best cumulative volatility, 14.7%.
“Over the past 12 months in particular, it has been like looking at the tortoise versus the hare,” he said with the JPMorgan trust making more stable returns.
Still, Carthew said that he would pick the Baillie Gifford trust, investors just need to be aware of its heightened volatility.
Baillie Gifford has been extremely popular over the past 18 months, with the highest fund sales of all asset managers in 2020. In total £6.2bn was added to its portfolios as investors flooded into the highly concentrated, growth-focused portfolios.
However, there is place for both portfolios, according to Kamal Warraich, investment analyst at Canaccord, as the £1.3bn JPMorgan American trust offers some diversification.
JPMorgan American went through a “complete overhaul” in 2019, changing its managers, process and removing its performance fee.
Now run by Jonathan Simon and Timothy Parton, the pair use a bottom-up, blended approach with a balance between growth and value.
Thomas McMahon, senior analyst at Kepler Partner said this balance is tilted depending on “strength of the two managers’ convictions” regarding each stock. This has cultivated a ‘growth at a reasonable price’ portfolio.
This is very different to Baillie Gifford US Growth, Warriach said, with its high concentration along with the private equity exposure creating a firm growth bias.
The more balanced approach of JPMorgan American could therefore make it an “interesting alternative” to Baillie Gifford’s pure growth approach, McMahon said.
The absence of these strong stylistic biases make it more appealing for when the economic and market environment doesn’t favour growth stocks, a fate Baillie Gifford generally has been stung by year-to-date as performance has dipped during the value and recovery run.