| Stephen Yiu is the Chief Investment Officer at Blue Whale Capital and Lead Manager of the Blue Whale Growth Fund. Stephen co-founded Blue Whale Capital with Peter Hargreaves, co-founder of Hargreaves Lansdown, in 2016. The Blue Whale Growth Fund was launched in September 2020 and is a long-only global equity fund focusing on developed markets. Stephen adopts a high conviction, active approach based on bottom-up, fundamental research. |
Much is made about past performance of investments. The compliance adage “past performance is not a guide to the future” is a fair one. And for good reason – what is in the past cannot be attained. Sadly, past performance really is the only graphical metric that most people look at when choosing their investment.
This doesn’t upset us – indeed it reflects well on the Blue Whale Growth Strategy – we have delivered performance of +129% over our seven years for our investors*.
However, what should really interest investors is the story moving forward. How is the portfolio positioned to take advantage of opportunities, but defend against pitfalls? Is there strong idea generation? It is, after all, what happens in the future that decides returns from here.
Looking back
Seven years is a strange metric, but we feel it’s an important one. We could consider the last seven years as being representative of a full market cycle – the steady growth of 2018 and 2019, the bust and boom of pandemic year 2020, the consolidation of a “new world” in 2021, the fallout from high consumption and low productivity hitting in 2022, monetary policy leading to rapidly rising interest rates in an inflationary environment, and energy cost rises compounding a difficult macro outlook, and then steadying interest rates as Western governments attempt to head off recession in 2024.
All these events played out against a backdrop of political upheaval with lacklustre politicians leading to chops and changes at home and abroad. Geopolitics have also been highly unsettled with war in Ukraine and the Middle East, and China threatening to expand its influence in the South China Sea.
I think we can all agree, uncertainty has been the order of the day for the last seven years. And if there is anything markets hate, it is uncertainty.
Yet, the Blue Whale Growth Strategy has transcended these issues to comfortably more than double early investor’s money. The nature of the Strategy, being a high conviction portfolio of only 25-30 stocks and our refusal to rotate into poor quality companies, means that short term volatility has of course been present, but given the major events around the world over this time, this is not surprising.
Into the future
Contentious presidential elections in the US, fractured and polarised parties on the Continent, and a new regime in the UK already making a series of tone-deaf missteps – both at home and abroad the political landscape looks shaky at best. Sadly, the geopolitical tensions noted above remain troubling. Monetary policy across Western economies continues to be a concern, as central banks try to balance the need to curb inflation, whilst not tipping their respective economies into recession.
Nevertheless, despite these potential macro headwinds, we see geopolitics and political wrangling as risk factors that would likely affect poorer quality businesses. We have built a portfolio of companies that we believe should transcend these issues, all the while taking advantage of global mega trends to drive outsized returns for investors. We wrote about this in a recent article you can read here. Possibly link to previous article “Transcendent Companies”
What do they think we are?
In the early days, we were regularly “accused” of being a technology play. This used to annoy me. But having had time to reflect on this label, I am actually quite proud.
With a global growth mandate, we were able to invest in any sector we wished, but we did hold, on average, around 40% of our assets in “tech” stocks as we saw these companies offering the best opportunity for outperformance. “Your performance is only good because you’re invested in tech”. The label shouldn’t have bothered me. It simply suggested we were invested in the right stocks at the time.
In future, if we are labelled an AI fund, healthcare fund, or industrials fund, I will embrace it – providing the particular sectors in which we are majority invested perform as well as “tech” did for us in our early days!
What we actually are
If you were to ask me today, I wouldn’t label the Strategy as any of these things. What we are is your one-stop shop for navigating the markets. It is a strategy that aims to compound returns, with the sole intention of delivering consistent outperformance of the index.
We can invest where we like. That usually means a quality business benefitting from the tailwinds of sector growth. We did it with Alphabet and digital advertising, Microsoft and digital transformation, Nvidia and AI. We are already looking for the next great companies, in the next exciting sectors. We believe we have already found them.
So, if you are going to consider the past, judge a manager through a cycle, through good times and bad, high interest rates, low interest rates, crises etc. Can they outperform under these circumstances? If you look back, you will see that we have.
But if you want to look to the future, which is where any further gains will come going forward, then you need to understand how we invest, and, more importantly, why we invest. The “why” is as follows – we invest to compound returns, with the sole intention of delivering outperformance of the index for our investors. The way we invest, as ever, is to run a concentrated portfolio of high-quality businesses, conducting our own research across a broad range of sectors and geographies. As noted above, investors need to be aware that past performance is not a guide to the future, and you need to be prepared to ride out volatility, but we believe this formula gives us the best chance of outperforming our peers. The last seven years have proved us right so far.
Our performance has been good, but I want it to be even better over the next cycle. Are there challenges ahead? Doubtless. But you can rest assured that the team and I relish such challenges, and we aim to rise to the occasion. Here’s to the next seven years and beyond.
*Simulated performance of WS Blue Whale Growth Fund, I class Acc shares, net of fees priced at midday UK time for the period 11/09/2017 to 25/09/2020 and Blue Whale Growth Fund T-Acc (GBP), net of fees priced at midday UK time for the period 25/09/2020 to 30/09/2024, source: Bloomberg.
Please note that references to the LF Blue Whale Growth Fund in the article are provided for information purposes only; it is a UK UCITS which is not registered for sale in, nor promoted, to investors in the EEA. The Blue Whale Investment Funds ICAV Blue Whale Growth Fund was launched in September 2020 and is available to MeDirect clients. Whilst the investment objectives and charges are not identical, both funds are run on the same investment process.
Blue Whale Growth Fund is manufactured by Blue Whale Capital LLP and represented in Malta by MeDirect Bank (Malta) plc.
Blue Whale Key Risks & Disclaimers:
The Blue Whale Growth Fund was launched in September 2020. All references to actions before this date relate to the LF Blue Whale Growth Fund. Information on the LF Blue Whale Growth Fund is provided for comparison purposes only; it is a UK UCITS which is not registered for sale in nor is it promoted to investors in the EEA. Whilst the investment objectives and charges are not identical, both funds are run on the same investment process.
Please note that the information provided in this article is not to be construed as advice and any views we express on holdings do not constitute investment recommendations and must not be viewed as such. If you are unsure as to the suitability of an investment for your circumstances, please seek independent financial advice. Investments can go down in value as well as up so you may get back less than you invested. Your capital is at risk. Past performance is not a guide to future performance.Blue Whale Capital LLP is authorised and regulated by the UK Financial Conduct Authority.
There are significant risks associated with investment in the Fund referred to herein. Investment in the Fund is intended for investors who understand and can accept the risks associated with such an investment including potentially a substantial or complete loss of their investment.
Past performance is not a guide to future performance. The value of investments and any income derived from them can go down as well as up and the value of your investment may be volatile and be subject to sudden and substantial falls.
Investment in a Fund with exposure to emerging markets involves risk factors and special considerations which may not be typically associated with investing in more developed markets. Political or economic change and instability may be more likely to occur and have a greater effect on the economies and markets of emerging countries. Adverse government policies, taxation, restrictions on foreign investment and on currency convertibility and repatriation, currency fluctuations and other developments in the laws and regulations of emerging countries in which investment may be made, including expropriation, nationalisation or other confiscation could result in loss to the Fund.
Income from investments may fluctuate. Changes in rates of exchange may have an adverse effect on the value, price or income of investments. Fund charges may be applied in whole or part to capital, which may result in capital erosion. The Authorised Corporate Director may apply a dilution adjustment as detailed in the Prospectus. The Fund is not traded on an exchange or recognised market.
The foregoing list of risk factors is not complete, and reference should be made to the Fund’s Prospectus, KIID and application form.
MeDirect Disclaimers:
This information has been accurately reproduced, as received from Blue Whale Growth Fund. No information has been omitted which would render the reproduced information inaccurate or misleading. This information is being distributed by MeDirect Bank (Malta) plc to its customers. The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.
The financial instruments discussed in the document are intended for retail clients, however, it may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.
If you invest in this product you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment. Any income you get from this investment may go down as well as up. This product may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. The performance figures quoted are only estimates and may not be a reliable indicator of future performance of this investment. Any decision to invest in a mutual fund should always be based upon the details contained in the Prospectus and Key Information Document (KID), which may be obtained from MeDirect Bank (Malta) plc.
