Blue Whale Growth Fund

Written by Citywire

June, 2020

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Blue Whale defies crisis to grow by £124m

The Peter Hargreaves-backed Blue Whale Growth fund has defied the recent market volatility to grow by more than £100m since the beginning of the coronavirus crisis.

The fund, which has returned 58.6% since inception in September 2017 to 10 June and ranks near the top of the IA Global sector, has grown in size from £246m in February to £370m.

While nearly a quarter of its total assets comes from Hargreaves, who seeded the fund with £25m of his own money at launch, Citywire AA-rated Stephen Yiu told Wealth Manager one-third of the recent growth was down to performance, with around £60m of new money also coming in from platforms and wealth firms in April and May.

The former Artemis manager has regularly said that the fund’s performance is the only thing he can control and use to prove his approach.

‘Performance is the only thing that’s important and this is the way to raise more money,’ Yiu said.

The fund has returned 8.8% against a sector average of -1.5% over the 12 months to the end of April and was down 2.1% over three months, a smaller loss than the 7.3% recorded by the peer group. 

Blue Whale has ridden the mega-cap tech stock wave, with 61% exposure to tech stocks, including Amazon, Paypal, Microsoft, Autodesk and Adobe, which all recovered strongly from the initial coronavirus sell-off, with Amazon’s share price going on to hit new heights.

Yiu has regularly pitched himself as a rival to Terry Smith’s Fundsmith Equity fund, but said he is ‘very cautious’ of firms he believes will struggle to recover quickly when the lockdown is lifted. He highlighted Starbucks, recently bought by Smith, and ITV, which he branded a ‘value trap’.   

‘ITV is one of the companies that was structurally broken before coronavirus, but people are buying it because it’s trading at a low valuation,’ he said. ‘Why invest in it?’

Yiu entered the crisis with 11% in cash and exited his positions in Intercontinental Hotels and Louis Vuitton, which at the end of last year were 1.1% and 2.6% of the fund respectively.

He used this liquidity to add to several of his top 10 positions, including Amazon, PayPal and Microsoft, which he said will benefit from the crisis and ‘drive the digital transformation’ as consumer and work habits change’. 

‘This is a high conviction fund and every name in it will make an impact. We only have stocks in which we have a strong conviction. If we hold on to such names we will be held hostage to them,’ he said

’I don’t know what the shape of the recovery will be. I don’t  want the names of the fund to depend on this.’

His cash weighting now stands at 3%. While the majority of names in his portfolio have held up well, others such as medical devices manufacturer Boston Scientific, a top 10 position, and medical technologies firm Styker have suffered.

Both firms saw their share prices dip by around 40% from $43 and $225 respectively in mid-March and are yet to recover all of the losses, now trading at $38 and $200.

Yiu said he has no intention of ditching the stocks, however, as he believes they will recover once capacity in hospital increases when the pandemic is over.

Other top 10 positions that are yet to return to pre-crisis levels include Visa, Mastercard and French software company Dassault Systèmes.

Elsewhere, Yiu, who has previously defended the fund’s above average fees, said that as asstes have continued to grow, the ongoing charges figure (OCF), now 1.14% for the R class, will soon come down closer to 1%.

At the beginning of the year, Hargreaves said he had made over £10m on his initial investment in the fund.

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