Investment fund Blue Whale Growth has made a lot of money for investors since its launch more than seven years ago – and manager Stephen Yiu is determined to keep the impressive track record going.
The £1.2 billion fund, backed by billionaire Peter Hargreaves, has delivered a total return of 162 per cent since launching in September 2017 – equivalent to an annual return of more than 14 per cent, net of fees.
Yet Yiu is not resting on his laurels. His aspiration is to deliver annual returns of 15 per cent, although not in a straight line.
Though running a tight portfolio, comprising just 26 global stocks and one which remains fully invested at all times, Yiu is not frightened to make big calls.
Unlike some global fund managers, Blue Whale Growth is light on the ‘magnificent seven’ US stocks – big drivers of the US stock market in recent years – and big on ‘idiosyncratic’ companies which he believes have businesses capable of withstanding any economic slowdown or sharp market corrections.
Currently, the fund only holds shares in magnificent seven stocks Nvidia (8 per cent), Meta (3 per cent) and Microsoft (1.5 per cent).
‘We do not own Alphabet, Amazon, Apple or Tesla,’ says Yiu.
‘In effect, we are overweight in Nvidia and short on the other magnificent six.’
This time last year, the respective holdings in Nvidia, Meta and Microsoft were 9, 4 and 8 per cent.
Yiu’s view is that the ‘narrative could change’ next year for the magnificent seven – chipmaker Nvidia excepted – as revenues are eroded by vast expenditure on artificial intelligence (AI).
This, he says, could lead to corrections in their share prices and a ‘year of reckoning’ for funds that track the Standard & Poor’s 500 Index, of which the big technology stocks are a key component.
Unlike active funds such as Blue Whale Growth, such tracker or passive funds cannot reduce their exposure to the big tech giants ahead of any sell-off.
‘They must hold the S&P 500,’ he says. ‘Maybe, next year, we could see a rejuvenation of investor interest in active funds generally.’
Blue Whale Growth has exposure to the AI theme beyond the magnificent seven. It has key holdings in US companies Broadcom (its biggest holding) and Vertiv. ‘Broadcom,’ says Yiu, ‘could be the new Nvidia in terms of outperforming the rest of the market.’
Yet Yiu also has big stakes in companies that he describes as ‘idiosyncratic’ – businesses that should grow irrespective of the prevailing economic conditions.
Among them is US-listed sports betting and gaming company Flutter which Yiu says is on a ‘great journey’ as more American states legalise sports gambling. ‘American consumers like their sport and their gambling,’ he adds.
Other idiosyncratic holdings include German company Sartorius and US-listed Danaher, both making waves in bioprocessing.
There is also US tobacco stock Philip Morris which has diversified into nicotine pouches and smoke-free alternatives to conventional cigarettes.
Blue Whale Growth’s success means, provided the fund finishes the year above £1billion, it will rebate one per cent of its annual management charge to investors.
Most investors in this fund pay an annual management charge of 0.75 per cent, so the rebate will drop this fee to 0.7425 per cent.
It will be cut by another one per cent if – ‘when’ (Yiu’s word) – the fund gets to £2 billion.
While three-quarters of the fund’s assets are exposed to US-listed shares, only 40 per cent of the revenues generated by all the holdings are from the US.
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