Most new funds take years to establish a name for themselves and earn investors’ trust.
Yet just three years after its launch the Blue Whale Growth fund has already ballooned to £550m and made its way into the top 10 most bought funds among customers of stockbrokers Interactive Investor and Hargreaves Lansdown.
Stephen Yiu, the fund’s lead manager, has close ties to Hargreaves, having started his career there in 2002. One of the fund shop’s founders, Peter Hargreaves, is a co-founder of and the largest single shareholder in Mr Yiu’s asset management firm, Blue Whale Capital.
The company’s Growth fund has returned 28pc since the start of the year, while globally stock markets have risen by 8pc. Here, Mr Yiu makes the case for investors to put their faith in such a recently established portfolio.
Who is the fund for?
It is for people who want to grow their money by investing in global companies and are happy to leave it for five years or more. It’s not an all-weather approach, so you might lose money in the short term.
How do you pick stocks?
We monitor about 100 businesses and invest in the best 25 to 35 at any given time. First we look for those with a strong competitive edge that are benefiting from a long-term trend. Then we work out how much we are willing to pay for the company. We won’t invest if it’s too expensive.
How do you select the 100 stocks?
We immediately rule out certain businesses. We don’t do banks because they are not transparent enough, or speculative sectors where you could lose it all, such as biotechnology.
Stocks with outdated business models are avoided too, including high street retailers, as are cyclical sectors such as oil, gas and mining. Of what’s left, we pick a mix of stable, well-known brands and companies that are growing by 10pc a year or more.
How can investors trust such a short track record?
You shouldn’t trust us now. You should only trust us if in three years’ time we have outperformed. If we haven’t, investors should sell out.
Funds that don’t deliver should be penalised – either by investors pulling money out or by regulatory action. There’s not enough transparency about whether funds have done well or not.
You have just 26 stocks. Why?
When you have large portfolios it is hard to keep track of what is going on with your stocks. We have five people covering about 25 stocks. Another fund might have two people covering 70.
It is better for an investor to hold three funds with small portfolios that each manager is confident about than one fund with a large portfolio.
Isn’t the fund vulnerable to a tech crash?
We are highly selective about which tech stocks we invest in. We’d never touch Netflix, Tesla or Zoom because they are not quality companies. Yes, our stocks would probably do badly in the short term in a tech crash, but we don’t believe that would last.
You buy and sell relatively often. Why?
We don’t completely sell out of companies regularly, but do often sell part of our holdings. We don’t use a “buy and hold” method. Instead, we move money out of stocks that we don’t believe will help us to outperform in the next 12 months and transfer the cash into ones we think will.
Are any bubbles emerging?
There are many mini-bubbles at the moment. For example, Apple and Tesla split their shares recently because they had become too expensive. In both cases, the share price went up by about 15pc afterwards. Splitting shares should not increase the value of the company. It’s probably retail investors who are pushing prices up.
What have been your best and worst investments?
We have held Adobe since we started and it has more than tripled in value since. The worst this year was Diageo. Its shares are down by about 13pc since January. We are reviewing whether to sell it.
Do you have your own money invested in the fund and how are you paid?
All of my personal wealth is in the fund. I am a partner in the company, so I am paid if it is successful.
What would you have been if you weren’t a fund manager?
When I was younger I wanted to write for Lonely Planet.
In focus: Mastercard
This payment company has not done as well as others recently because it is heavily reliant on people travelling abroad and using their card. But we believe this has meant it is now well priced, so offers us better potential to grow our money than Amazon or PayPal. It has also benefited from people using their cards to shop online. This trend will only be boosted by coronavirus.