In fund management, I’ve always believed outcomes matter more than ideologies. Whether a portfolio leans towards value, quality, or growth is less important than a more fundamental question: is it maximising outperformance?

For me, the clearest way to think about outperformance is simple: a fund with more outperforming companies than underperformers is more likely to succeed. This idea – of focussing on ‘outperformers’ – is how I frame the investment challenge. It moves the conversation away from abstract styles and towards tangible, stock-level results.

It’s not enough for a company to tick the boxes on quality or growth. Those styles’ success ebb and flow and are too broad alone to identify what I’m looking for:  businesses that go on to materially outperform the market – and that can sustain that advantage. My job is to build a concentrated portfolio with the highest possible ratio of these outperformers.

I operate within a quality growth universe. But what sets Blue Whale apart is how I define and pursue the outperformers within it – companies with the potential for exceptional compounding, not just theoretical resilience. There are several layers in my process.

I still start with ‘quality’ companies. Solid and well run, with a good business model – all things that help you to sleep at night. Over the last seven years, businesses that have featured in the portfolio have weathered everything from the pandemic and inflation spikes to geopolitical upheaval. They prove the case for quality investing. But resilience alone doesn’t maximise my clients’ investments. 

So I take the next step, identifying ‘quality growth’ companies that not only survive but thrive, generating sustainable free cash flow while expanding their market share in growing industries.

But even, ‘quality growth’ is too simplistic – some companies grow too slowly to deliver outperformance. Others grow unsustainably, using financial engineering or questionable practices to boost the bottom line. So I go deeper to look for three types of good growth, which can contribute the outperformance required for the Fund. These are the ‘quality growth outperformers’ that offer real, repeatable opportunities for excess return:

‘Steady’ growth companies, such as Visa and Mastercard, offer durable growth and strong cash flow generation. Their shares often trade at a premium, which means a simple buy-and-hold approach may deliver respectable returns – but not the maximised outperformance I’m looking for. So I aim to spot inflection points in their valuation, when these stocks become attractively priced, allowing for outsized returns.

‘Recovery’ growth describes companies with fundamentally sound business models, which have faced temporary headwinds like cyclical downturns, but which still present attractive long term investments. Take the biologics sector, where companies such as Sartorius have faced short-term problems as their clients run down stock built up during the pandemic. But long-term fundamentals in the sector remain strong, and there is a robust pipeline of innovation so I see opportunity. It’s all about timing: getting in just before price jumps. A common mistake is buying too early and having to hold, as recovery can take longer than expected.

Finally ‘explosive’ growth – and this is where Blue Whale stands apart.  My team and I look again for companies at the cusp of exponential change, often driven by structural shifts or technological revolutions.

A good example is Nvidia. Although it’s a household name now, the company had been working in relative obscurity for two decades before we made our move in 2021 – well before the term Magnificent 7 was coined. Nvidia was already a high-quality business with visionary leadership under Jensen Huang but its transformative moment came with the advent of Generative AI – and the subsequent infrastructure race driven by the Magnificent 6 tech giants. This shift propelled its revenue from $30bn in 2022 to a forecast $200bn this year. This is what I mean by a quality growth outperformer.

More recently, we spotted the coming opportunity in European defence stocks, a sector often seen as “quality value” – good but cheap.

Take Leonardo, the Italian aerospace firm formerly known as Finmeccanica. Historically seen as low-growth, it’s now at the heart of a structural defence build-up, fuelled by shifting geopolitics and a more inward-looking U.S. foreign policy. Leonardo’s share price has surged since February – a textbook case of quality value transforming into quality growth outperformer.

It’s clear there is a rich seam of companies poised at moments of profound change. As the world and our assumptions of how it works are upended by geopolitical realignment, technological acceleration, and climate transition, these companies offer opportunity.

What works today may not work tomorrow. Passive ownership of stocks may deliver comfort but it won’t deliver outperformance. Broad investment styles are helpful filters but too blunt to deliver consistent outperformance. That’s why I am always on the search for the individual quality growth outperformers which are the foundation of Blue Whale’s success:  the Steady Compounders: durable, dependable that are attractively priced. The Recovering Value: temporarily out of favour, structurally sound. And finally, the rare Explosive Breakouts: often mispriced at the edge of exponential change.

As the world changes, style boxes offer comfort – not outperformance. At Blue Whale, we look deeper. We look for the quality growth outperformers and we build a portfolio around them.  As ever, I remind you that past performance is not a guarantee of future performance, but I have great confidence in our process that aims to ensure that our success is repeatable.

This communication is issued by Blue Whale Capital LLP which is authorised and regulated by the Financial Conduct Authority. Your capital is at risk. If you cannot afford the potential risk of a substantial loss, you should not invest. Equity investment should be viewed as a long-term investment. Past performance is not a guide to future performance. The value of investments may fall as well as rise and you may not get back the amount of your original investment. Prospective investors should study the Fund’s Prospectus, KIID and application form which together provide a complete list of risk factors. Blue Whale does not give investment advice. If you are unsure if the Fund is suitable for you, you should contact a financial adviser. Views we express on companies do not constitute Investment Recommendations and must not be viewed as such.

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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 and KID.

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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.