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Fund Managers' Review of 2018.
by Stephen Yiu

07 Jan 2019



The Fund was launched in September 2017. The strategy of the Fund is to invest in a concentrated portfolio of 25-35 equities from across the globe utilising a detailed bottom-up research process, unconstrained by sector allocations. We aim to invest in companies which have the ability to grow profitably over time which our detailed analysis indicates are undervalued by the market. We pay particular attention to the development of new technology and look to avoid investing in companies that may face structural issues with their business models as a result.

Market Commentary

The Fund outperformed what is perhaps the most obvious benchmark – the MSCI World Net GBP Index – by 12% in 2018. It outperformed the FTSE 100 Index, which is relevant to many of our UK investors, by more than 17%. The Fund achieved the 4th highest performance in 2018 in the IA Global Sector which contains around 300 funds in total. ¹

The first half of the year saw high levels of market volatility in February and March with the “VIX” volatility index spiking to over 35, a level last seen in the middle of the Eurozone crisis in 2015. Despite this surge in volatility, financial conditions remained favourable and financial markets bounced back from April through September with the S&P 500 index reaching an all-time high on 20th September. However, from September onwards financial conditions tightened considerably due to the aggressive tone struck by the US Federal Reserve in regard to raising interest rates. Exacerbated by a collapse in the oil price, credit spreads have risen significantly in both investment grade and high yield markets and high levels of volatility have returned. From the peak in September through to year-end, the S&P 500 index declined more than 14%. As these conditions developed in October, we found it increasingly difficult to identify new ideas at attractive valuations and the valuations of some existing holdings became unattractive. Therefore, our cash position has been elevated in the final three months of the year. At year-end our cash position was 15% of the net asset value of the portfolio. We expect that when financial conditions return to being more favourable, we will be able to utilise our cash position in new ideas with much more attractive valuations.

The main contributors to our performance in 2018 were technology and health care stocks. Current technology holdings Alphabet, Microsoft, Amazon, Adobe, Salesforce and PayPal all delivered returns well in excess of the indices referenced above. This was due to strong earnings growth which exceeded the expectations of market participants. We believe the market continues to undervalue companies that can achieve high long-term sustainable growth, particularly those with exposure to cloud computing and cashless technology. Current health care holdings UnitedHealth Group, Veeva Systems and Smith and Nephew were also strong contributors.

Other strong contributors where we have exited the positions due to stretched valuations were Red Hat, MasterCard, Intuit, Zoetis, Moncler and Whitbread. Early in the year we also exited our holdings of gaming companies Electronic Arts and Activision Blizzard. The overnight success of the free-to-download hit game Fortnite cast some doubt on our long-term thesis on these stocks, which depends on the willingness of gamers to pay to download games. These stocks have since underperformed the market significantly with both stocks down more than 30% since our exit.

In summary, we are very pleased with the performance of the Fund since inception. Although current financial conditions mean we are cautious in the near-term, we remain optimistic about the long-term future growth prospects.


Stephen Yiu

Lead Fund Manager


¹Source: Bloomberg. The indices are used by the Investment Manager for comparison. The Fund does not have a formal Prospectus benchmark.

Please remember that past performance is not a guide to future performance and that your capital is at risk. Please note also that references to portfolio companies do not constitute investment recommendations.




LF Blue Whale Growth
Class I - Accumulation (GBP)

Sell: 138.80p
Buy: 138.80p
 0.17p (0.12%)

Prices as at 14 November 2019




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