We launched Blue Whale in September 2017 during a period of much uncertainty. The U.K. had voted to leave the EU. The US was nine months into an incredibly divisive presidential administration. The Syrian crisis was peaking and there had been an attempted coup in Turkey. The Trans-Pacific trade deal was collapsing.
World stock markets were understandably nervous. Despite the pessimism, we still felt there was opportunity. However, I would not have been brave enough to predict initial investors would double their money in under four years. It has been a challenge, but careful stock selection can weather most markets. Naturally, we must advise that past performance is not a guide to future performance.
The Fund’s subsequent consistency reminded me of some statistical modelling I had carried out many years ago. My premise was that if an investment fund appeared in the top quartile of performance for five consecutive years, it would probably be the number one fund over those five years. The analysis proved the hypothesis was pessimistic. In general, a fund only had to be in the top half of performance each year to end up top over five years. This research convinced me that an aggressive or risky strategy is never necessary in providing excellent results.
It is interesting to note that some pundits have described the fund as speculative - contending it was a technology fund. It is true many of the major holdings have harnessed technology, but purely to enhance their businesses. Alphabet (Google) uses advanced algorithms to enhance users’ searches and to deliver targeted advertising. Amazon is the world’s greatest retailer and uses every bit of tried and tested technology to augment all facets of its business. Neither of these companies could be described as speculative tech businesses. Their market leading positions in their respective fields afford massive pricing power if inflation becomes a reality.
Two questions often asked of any investment is when to sell and should investors take profit. This doubling of Blue Whale’s price may prompt assessment. It is interesting to note how investors are often persuaded to take profits. Certainly, there is a case if the investment is in a very narrow sector or has taken a speculative stance. Investors in the UK are advised to take some profits to utilise their Capital Gains (CGT) allowance. What is invariably wrong in my mind is selling the winners to cover the CGT exemption. It flies in the face of the sage strategy of selling the losers and keeping the winners. It is not unusual for in-vogue sectors to get over-heated and there is nothing wrong in crystallising some of those profits. Blue Whale however is not a sector play. Whilst we have invested in stocks with a technology base, we also have positions in consumer goods and sustainable brands. We have also reduced the American exposure as we saw the threat of inflation. We also appraise carefully that our companies have future earnings to warrant the share price. Buy and hold is not a bad strategy but when a company becomes extremely overvalued there will be superior opportunities.
So all investors should be asking the question “can Blue Whale continue to deliver?” Well, my family are still adding to their holdings in Blue Whale. The potential is no less and because of the success achieved, the company has enhanced the fund management team – we have recruited new, diligent people with enquiring minds. We are hoping to reinforce the potential - we want to be the top fund over five years, six years and beyond.
There has been comment recently about fund managers investing in their own funds. Apparently in America this is divulged. I notice the proprietor of another of the UK’s successful funds voluntarily reveals he has £200 million invested in his fund. The Hargreaves family has just over this amount invested in Blue Whale.
You can rest assured Stephen Yiu and his team have the hunger to keep in the forefront of performance. I hopefully will be able to write similar articles for many years to come.
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.