When the world appeared to be falling apart in March last year, had I tried to predict the likely investment returns by the end of the year, I might have dreaded this review. Nothing could have prepared the world for the most damaging pandemic in three generations. No one in March knew the effect on the economy, people’s sanity and wellbeing. Even more unpredictable was the effect on world stock markets.
For as long as the Blue Whale Growth Fund has existed many soothsayers have decried the potential of the US and the leviathan companies dominating global commerce. At the height of global lockdown, pundits had a field day. Here, surely, was a signal to take profit and hold cash.
At the time, my suggestion to investors was to hold steady as it would be unlikely for anyone to get out in time and even less likely to execute a timely re-investment. Uncertainty was the order of the day and predicting the market’s response over the coming months was impossible! Indeed, I suspect many investors who did sell or had cash are still sat on their hands watching the bounce, now convinced they have missed their opportunity.
I am yet more amazed at the many professional fund managers who still act as though the world hasn’t changed. They cling to the hope that the companies and industries exposed to secular decline will “come back”.
What we did see in 2020 was the quality of global leviathans shining through. These companies - such as Microsoft and Amazon - have improved their dominance and have been at the forefront of changing commerce and providing much needed new-age business and communications software. The “old economy” of stale cyclicals and cheap “value” plays suffered. I shall be bold here and make a prediction for 2021 - much of the “old economy” will not return to prior highs, and value investing based on simply choosing companies that are “cheap” is dead!
So whilst my knee jerk reaction in March would have shown concern for the world economy it swiftly became clear the New Economy would not only survive but flourish.
Interestingly Stephen Yiu did have liquidity set aside in the fund at the time of the sell-off - not because he is clairvoyant - but it was not pure luck either! Instead, he was being selective in his choice of opportunities and when valuations looked stretched towards the end 2019, he took some profit, resulting in a larger cash position in the portfolio.
This war chest proved useful as many of his favourite companies fell to bargain basement valuations following the indiscriminate sell off as early news of the pandemic proliferated. Deploying cash when others were selling in a panic requires conviction, and I am glad that Stephen and his team had the courage to do so.
As I write this review, I cannot help but feel grateful! My suggestion of staying invested as the simplest and least hazardous option was vindicated and I hope that’s helped many people preserve, if not grow, their wealth! Furthermore, I am overjoyed at the results Blue Whale’s investment process has delivered. A focus on quality companies that strive in the New Economy, combined with shrewd valuation discipline before and during 2020 has meant the fund is up over 25% on the year and up 15% from its pre-Covid peak in March.
So where does Blue Whale sit now? The team are intent on investing in, as Stephen would say, “the most beautiful companies” with the aim of continuing to deliver consistent significant outperformance. You will have seen a new company, Moncler, among the Top 10 holdings this month. This entry into luxury doesn’t represent a change of strategy, instead, it’s a continuation of the team’s persistent focus on quality and valuation.
There will always be times when single stocks go down - it is the easiest thing to predict. But the question is for how long and whether it will rebound. Stephen and his team have the conviction to select and invest in companies that thrive in the New Economy and I have conviction to stay the course with them through 2021 and beyond.
Please note that the information provided in this article is not to be construed as advice and any views we express on holdings 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.