This episode of Blue Whale Capital’s podcast starts by looking at challenges facing the London Stock Exchange (LSE) which appears to have lost its competitiveness against other stock exchanges. The conversation looks at why this has happened with key factors being outdated listing rules and the fact that the LSE is only a small part of its parent company’s business. Creating an independent Board of Directors for the LSE, which is separate from its parent company, could result in the greater focus that is needed to see London regain its position.
The discussion then moves on to the main topic of this episode, namely the debate on whether diversification or concentration is the best approach to investing. The answer to this question depends on risk appetite. Diversification protects wealth because having lots of different investments means that if one does badly, the negative impact is limited. But the same applies on the upside so gains are also limited. Conversely, concentration increases risk but also increases potential rewards.
For most investors, diversified funds are the best option because focussing on a limited number of high conviction stocks is hard, requiring significant amounts of research. Active high conviction fund managers have to be really good at their job to outperform the market, also keeping in mind that if they make a wrong decision the negative impact on the overall value of the fund, and their reputation, will be significant. Investors may wish to think about investing in different funds that offer diversified and high conviction portfolios in order to better balance their risk/reward profile.
The episode concludes with some myth busting which focusses on equity income. Many investors see dividend payments as a good reason to invest in companies but this is not necessarily the case. Firstly, relying on equity income can be impacted by declining stock prices should the business underperform. Secondly, companies who do have to pay a dividend are actually more likely to underperform as this restricts the management and impacts long term performance. Investors should instead focus more on total shareholder return.
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 Funds referred to herein. Investment in the Funds 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.
MeDirect Disclaimers:
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 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 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 these products 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.
MeDirect Bank (Malta) plc, company registration number C34125, is regulated by the Malta Financial Services Authority and is licensed to undertake the business of investment services under the Investment Services Act (Cap. 370).MeDirect Bank (Malta) plc, The Centre, Tigné Point, Sliema, TPO 0001, Malta.
