USOct 18 2017

Baillie Gifford's Robinson: Amazon shares on course to double

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Baillie Gifford's Robinson: Amazon shares on course to double

Gary Robinson, who jointly runs the £698m Baillie Gifford American trust, thinks Amazon, Google and Facebook can more than double their share prices within five years.

The fund manager said he views revenue growth as more important than valuation as a determinant of future share price performance.

Speaking at an event in Edinburgh today (18 October), he said that while markets move short-term on market sentiment, the technology companies are structural growth businesses.

"The question you have to ask yourself is will e-commerce get a greater share of retail spend, we think it will, and will Amazon get part of that? We think it will."

Amazon's shares are currently trading at just over $1,000 (£759) each.

Mr Robinson continued: "Will advertising continue to move towards social media, we think it will, and Facebook and Google will be part of that."

Mr Robinson said to be a good investor "there are times when you have to be willing to look stupid because there are times when what you are doing is not in vogue".

"The companies we own are about structural growth," he said.

"In investing, it does not really matter how often you are right, it is more about how much you make from the ones you get right. They can help wipe out quite a lot of stocks that do badly in a portfolio."

Mr Robinson said the fund under performed from November 2016 to February 2017 as market sentiment moved towards businesses that can benefit from rising inflation. 

The Baillie Gifford American fund has outperformed the S&P over every time period since it came into existence, and has returned 150 per cent over the past five years to date, compared with 117 per cent for the average trust in the IA North America sector in the same time period. 

There is a significant correlation between the holdings in this fund and the £6bn Scottish Mortgage Investment Trust, the only investment trust in the FTSE 100. 

But he admitted active managers in the US have "done a pretty poor job" for investors, with just one in ten active managers outperforming over the past five years.

He said rising markets, particularly the strong performance of large caps have contributed to the relatively weak performance of most active managers. 

Mr Robinson said the performance of the US stock market over the past ninety years has come from a tiny number of stocks. Seen in that context, the dominance of the large US technology companies of recent years should not be viewed as unusual or as a warning sign, he said.

Going against received wisdom, Mr Robinson said he believes it is a mistake to diversify too much, as this dilutes the returns achieved by the strong performers in a fund.

With that in mind, 50 per cent of the capital is deployed in the top ten holdings of the fund.  He said this is likely to lead to periods of short-term volatility. 

Mr Robinson's view is that the strong performers should deliver a return of two and a half times the capital invested within 5 years.

He said the markets in which Amazon, and Google operate remain "early stage" and so revenue can grow enough for those companies to achieve share price growth on that level within five years.

MInesh Patel, chartered financial planner at EA Solitions in London, said he views the US market as one of the more over valued in the world, and prefers Eurozone equities.