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2021 Year in Review.
by Stephen Yiu

17 Jan 2022


“We are living in unprecedented times” was the buzz-phrase for 2020 and much of 2021. However, I think many of us are now starting to feel that things are feeling quite “precedented”. This explains the truth of the adage “The only certainty is uncertainty”.

Positioning ourselves to ride out uncertainty in the market is very straight forward in theory – buy high quality businesses, buy them at a great price, have a strict valuation discipline. 2021 has once again proved this to be a sensible strategy. The fund delivered performance of 20.8% vs the IA Global Sector average of 18% (LF Blue Whale Growth Fund I Class). Whilst outperformance is always pleasing, the end of the year saw much of our outperformance eroded as the shine came off the markets following a global surge in Covid cases.

Selected best performers in the fund were Microsoft (benefitting from working from home), Intuit (using its accounting and tax-filing technology to cut out the requirement for expensive face-to-face accountancy meetings), Atlassian (offering the best software developers’ collaborative working tools), and Alphabet (expanding its footprint as the largest holder of digital real-estate).

Our biggest disappointment in the portfolio was Nintendo. A global shortage of microchips led to a delay in the launch of the Nintendo Switch Pro, leaving consumers underwhelmed with a mediocre Switch upgrade instead. In turn, the share price performance was disappointing, however, we believe the investment rationale remains valid.

One area in which we see ourselves as differing from many managers is that we are willing to make significant changes in the portfolio in search of outperformance. Much of our time is committed to researching those companies that sit within our own prescribed investable universe of around 100 stocks. However, we also give considerable time to idea generation – finding new investment ideas from around the globe. Accordingly, new additions to the portfolio this year were Nvidia, ASML, Kering and Sartorius. Making way were Unilever and Moncler.

Amazon was also a surprise make-weight in the portfolio owing to increased concern over its retail business, and the potential impact of inflation on the retail-arm's costs, and also concerns over AWS (Amazon's cloud computing arm) market share when compared to Microsoft and Alphabet.

Whilst we are a “bottom-up” fund – designing our portfolio based on company fundamentals – we pay close attention to the macro environment. In particular, the spectre of inflation led to much scrutiny of our holdings in the year. We are pleased to report the portfolio held (and continues to hold) a variety of companies in differing sectors that offered, what we believe to be, an inflation-busting duo – superior pricing power and high gross margin. We wrote more about this in our article “Covflation – The opportunities for investors in this unique inflationary environment”.

For the fund, two key milestones were hit in 2021. Firstly (whilst past performance is not necessarily a guide to future performance), in under four years the fund had doubled its initial investors’ money – launching at £1 in September 2017 the unit price hit £2 in July of 2021. Secondly, the fund reached £1 billion under management, demonstrating investors’ belief in our process and performance. We hope these two milestones give both existing, and potential new investors, confidence going forward.

Our truly active approach to managing the LF Blue Whale Growth Fund means we can adapt to the world as it changes. Our robust process continues to evolve, but is based on two key elements:

  1. We continue to invest in high quality companies: the ability of companies to exhibit fundamental outperformance is constantly in flux and our team of investment professionals will continue to chart these changes.

  2. We maintain a strict valuation discipline: the market is a dynamic beast and prices often diverge from what we see in the fundamentals – but we will never invest into low quality companies (or businesses) that may be at the mercy of cyclical economic gravity.

Looking forward, we are excited about 2022. The portfolio is positioned to take advantage of what we see as the key issues of the year to come – continued digital transformation, 5G rollout and a global economy cautiously emerging from pandemic. We are also mindful of possible pitfalls over the next year – chief amongst them being inflation – and we have attempted to position the portfolio to defend against these pitfalls accordingly.


Please note that the information provided in this article is not to be construed as advice and any views we express on holdings or other assets 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.